Avast plc annual report 2021
Protecting
digital
freedom
Strategic report
Governance
Financial statements
Avast plc annual report 2021
02
Protecting digital
freedom for everyone
In this report
Strategic report
Our purpose
1
About us
2
Our brand
4
NortonLifeLock Merger
7
Our impact
8
Chair’s report
13
Markets & threat landscape
16
Company strategy
20
Investment case
24
Business model
25
CEO’s report
29
Our technology
34
CFO’s report
40
Principal risks and uncertainties
54
Viability statement
60
People and culture
61
Social responsibility
and sustainability
70
Section 172 statement
80
Non-financial
information statement
84
Governance
Board of Directors
86
Corporate governance statement
88
Audit and Risk Committee report
97
Nomination Committee report
104
Directors’ remuneration report
109
Directors’ report
131
Financial statements
Independent Auditor’s Report
139
Consolidated financial statements
151
Notes to the consolidated
financial statements
158
Company financial statements
204
Notes to the Company
financial statements
206
Glossary
210
Billings
$948.4m
Adjusted EBITDA
$517.6m
Revenue per direct desktop customer
$49.44
Unlevered free cash flow
$477.4m
Number of direct desktop customers
16.36m
Revenue
$941.1m
Adjusted net income
$389.4m
Product per direct desktop customer
1.43
Net debt/LTM adjusted EBITDA
0.8x
Financial KPIs
Operational KPIs
+4.3% organic growth
+7.5% organic growth
+2.9% actual growth
+5.4% actual growth
+4.5%
+8.1%
+5.8%
+8.4%
+1.8%
-0.7%
Governance
Financial statements
Avast plc annual report 2021
01
Strategic report
Our purpose
At Avast, we've been working for more than
30 years to keep people safe. Today, around
61% of the world’s population is connected
to the internet, with an estimated 700,000
new users coming online each day.
The internet has never been more needed,
as we navigate through a worldwide
pandemic that has restricted everyday
freedoms. Yet, it is a far from perfect place.
Cybercriminals are developing increasingly
sophisticated attacks which put everything
at risk, whether hospitals, oil pipelines,
or food suppliers. Nation states use
technology to curtail free speech, and
people’s privacy online is never guaranteed.
We conducted extensive research into
how this makes people feel. While many
appreciated the internet, they also
admitted they felt increasingly watched
and vulnerable online.1
60%
said the internet
had grown more
important to
their lives during
the pandemic
20%
said they felt more
confident online
than before
2/3
admitted concerns over privacy stopped
them from doing something online
1
Source: https://blog.avast.com/report-online-behavior-post-
pandemic-avast.
Protecting the
digital freedoms of
all online citizens
It’s clear that unless the digital
world has safeguards in place
to protect our privacy, it has the
potential to curtail, rather than
expand, our freedoms. Avast has
stepped up to tackle this challenge,
by announcing a rebrand which
includes our rigorous commitment
to an expanded, deeper purpose,
which is protecting the digital
freedoms of all online citizens.
We articulated this new purpose
through the launch of a new
brand in September 2021.
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Avast plc annual report 2021
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About us
Our brands
1.77bn+
attacks and more than
89m new files blocked each
month on average in 2021
435m+
users1 worldwide
42m+
phishing attacks and nearly
4m unique phishing URLs blocked
each month on average in 2021
1.5m+
ransomware attacks blocked
each month on average in 2021
~100,000
organic installs of
Avast Antivirus every day
1
User defined as a unique device that has one or
more Avast free or paid products installed and has
been in contact with our servers in the past 30 days.
A world leader
in consumer
cybersecurity,
privacy and
trust-based services
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Continuing our commitment
to free products for all Avast users
Avast pioneered free antivirus 20 years ago,
and we are committed to providing the best
free protection products for all our users.
In 2021, we launched Avast One Essential,
our new free protection platform providing
security, privacy, and performance,
which is part of our Avast One platform
suite of products.
Avast One is already gaining recognition
with key product reviewers in media
titles worldwide.
About us continued
Our comprehensive
offering protects and
enhances our users’
online experiences
Protection
Small and
Medium
Business
(SMB) security
Smart house
Family safety
Consumer
security
Privacy
Data breaches
Control
Online
anonymity
Identity
protection
Identity
Digital identity
wallet
Decentralised
identity data
Performance
Software
updates
Speed
PC maintenance
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Avast plc annual report 2021
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Our brand
In 2021, Avast launched its
new brand, with the purpose
of protecting digital freedom
for all online citizens.
This was in response to the new challenges
of safety, privacy, identity, and confident
internet use that we see emerging.
Digital freedom is critical, today and in the
future: to speak freely online, to access and
use digital services; to participate in the
digital economy; to exchange ideas and
culture through online mediums; and to
ensure the security and privacy of all
digital citizens.
We are taking a three-pronged approach
to support digital freedom and help
people get the best online experience.
1 Consulting on policy: we are active
in engaging policymakers, regulators,
and think tanks in the United States
and the European Union on associated
topics, including cybersecurity,
Artificial Intelligence (AI) research,
and digital privacy standards.
2 Developing innovative products:
the launch of our new digital protection
platform, Avast One, represents the
expansion of our products to begin
to address the deeper needs of
customers who are online in this
changing digital world.
3 Community engagement: our
philanthropic organisation, the Avast
Foundation, debuted a new programme
tackling digital freedom issues and
supporting vulnerable people. Its new
programmes focus on enabling a more
equitable and inclusive digital future,
in which everyone has access to the
tools and opportunities to reach their
full potential.
Furthering
digital freedom
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Our brand continued
Re-engineering
cybersecurity
products with the
launch of Avast One
In September 2021,
Avast released its first
integrated consumer security
and privacy platform, Avast
One, which has three new
products: Avast One Essential,
our free offering, Avast
One Individual, and Avast
One Family, which are both
subscription-based offerings.
The Avast One Essential version includes
a firewall and software updater feature
to protect people from using outdated
software and supply chain attacks,
extensive privacy protection in the form
of a Virtual Private Network (VPN)
for regular browsing use, and identity
protection through our data breach
monitoring service.
Avast One provides digital citizens with
a single solution to online security, privacy,
identity, and performance issues, keeping
people and their data safe and their
devices running smoothly. With built-in
personalisation capabilities, Avast One
adjusts to the individual needs of people
and their family members.
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Our brand continued
During 2021, Avast expanded
into the innovative area of
identity and appointed a new
Senior Vice President and
General Manager of Identity,
to head up the new area of
the business.
In December 2021, we cemented our
investment with the acquisition of Evernym,
a pioneer in self-sovereign identity.
Passwords, centralised databases, and
online tracking are part and parcel of today’s
internet, with all their inherent weaknesses
and potential for abuse. We envisage
delivering a more trustworthy digital
experience to people which will give them
greater control over their personal data
and greater insight into where that data is
being used and why, if they have chosen
to share it.
Expanding
our expertise
beyond privacy
into identity
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Avast plc annual report 2021
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On 10 August 2021,
the Boards of Avast plc
and NortonLifeLock Inc.
('NortonLifeLock') announced
that they had agreed the
terms of a recommended
Merger of Avast with
NortonLifeLock, in the form
of a recommended offer by
Nitro Bidco Limited ('Bidco'),
a wholly-owned subsidiary
of NortonLifeLock, for the
entire issued and to-be-issued
ordinary share capital of
Avast (the 'Merger').
The Merger is proposed to be effected
by means of a Court-sanctioned scheme
of arrangement under Part 26 of the
Companies Act (the 'Scheme'), and is
subject to the terms and conditions set
out in the Scheme Document that was
published on 28 October 2021 (the
'Scheme Document'). Avast shareholders
approved the Scheme at a Court-convened
meeting which was held on 18 November
2021. At a special meeting of the
stockholders of NortonLifeLock held on
4 November 2021, the necessary approvals
in relation to the Merger were obtained.
As a result, under the terms of the Merger,
on completion Avast shareholders will
receive a mix of cash and NortonLifeLock
shares. Avast shareholders (other than those
in a restricted jurisdiction) have the choice
to elect between two distinct alternatives:
the majority cash option (MCO), where
shareholders will receive $7.61 cash
and 0.0302 of a New NortonLifeLock
Share for each Avast share held, or the
majority stock option (MSO), where
Avast shareholders will receive 0.1937
of a New NortonLifeLock Share and
$2.37 for each Avast share held.
Full details of the Merger were set out in the
Scheme Document, which was published
on 28 October 2021 and is available on
our website at http://investors.avast.com/
investors/Merger-with-nortonlifelock-inc/.
On 4 February 2022, NortonLifeLock
and Avast announced a timetable for
the Merger, with an effective date of
24 February 2022 subject to the
sanction by the Court and the satisfaction
(or, where applicable, the waiver) of certain
regulatory conditions (as set out in the
Scheme Document).
On 18 February 2022, NortonLifeLock
determined that it was appropriate to
postpone the effective date of the
Merger and announced that they expected
(subject to the satisfaction or, if applicable,
waiver by NortonLifeLock of each of the
regulatory conditions that have not yet been
satisfied or waived) the Merger to become
effective on 4 April 2022.
with NortonLifeLock
Merger
NortonLifeLock Merger
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Avast plc annual report 2021
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Our impact
Avast has always been
focused on protecting
the security and privacy
of our users online.
Part of our work is to partner with
organisations that are active in helping
people who are more vulnerable to tech
abuse. We partner with them to ensure
we are sharing advice and insights that
will help to educate them and empower
them to make the right choices.
As security and privacy concerns become
more well-known, we are doing a lot of
work in educating users and speaking to
policymakers and governments about these
areas. The benefits of such protection must
be readily available to everyone, no matter
their level of technical expertise. We believe
this is vitally important for the preservation
of people’s digital freedom, today and in
the future.
We have outlined below some of the
initiatives we are involved with to help
people who are more vulnerable to
tech abuse.
Partnering with
organisations
that are active in
helping people
vulnerable to
tech abuse
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Our impact continued
elders to tackle the digital divide
The Cyberhood Watch partnership
Beginning in 2020, Avast has teamed up
with Neighbourhood Watch to create the
UK Cyberhood Watch initiative, that has
helped people in England and Wales learn
more about the cybersecurity risks that
exist every time we go online, and discover
which regions of the UK are the most at risk.
From phishing to viruses to ransomware,
this community-led awareness programme
looks at the impact cybercrime can have
on our everyday lives, and provides simple
tips on the steps we can take to protect
ourselves, our friends and family, and our
local community through resources,
training, and regional ambassadors.
Engaging
38
new Cyberhood Watch
ambassadors onboarded
in 2021
336
Neighbourhood Watch
members received
cybersecurity training
12,007
new Neighbourhood Watch
social media followers
4,561
new Facebook followers
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In 2019, 54.1 million US adults
were 65 or older, representing
16% of the population.
That number is expected to
reach 80.8 million by 2040.
To help raise awareness for cybersecurity
and privacy issues among the fastest-
growing demographic group in the United
States, Avast partnered with the National
Council on Aging (NCOA) to deliver
education and awareness programmes.
Founded in 1950, the non-profit is focused
on reaching underserved older adults
through its website, digital products,
and ageing services professionals, who
work in community settings throughout
the country. Through NCOA’s Age Well
Planner, we have created articles, videos,
and webinars to teach older adults the
basics of cybersecurity and privacy, tips to
avoid being scammed online, and how to
make their online lives more productive and
satisfying with simple, actionable advice.
Our impact continued
Avast in
partnership
with NCOA
delivers
education and
awareness programmes
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Avast has contributed to
Refuge’s tech support service
since May 2021. Refuge
supports women, children,
and men who experience
domestic violence, with a
range of services.
With help from Avast’s support, the Refuge
tech team was able to provide support to
210 women with complex tech abuse cases.
Avast and Refuge are both members
of the industry group Coalition Against
Stalkerware. The group's purpose is to
address technology-facilitated abuse and
unite organisations that work to combat
domestic abuse within the IT security
community. In October 2021, Avast
and Refuge launched their Tech Safety
Campaign, with an interactive tool
that lists the top 10 most complained
about Internet of Things (IoT) devices,
and advice on how to mitigate risks.
Our impact continued
Protecting
the digitally vulnerable
95%
of clients felt safer 97%
reported an
improved
quality of life
94%
felt less
frightened
99%
felt confident in
knowing where
to access help
On leaving the service:
68%
of clients were supported
to secure their devices
82%
of clients were supported to obtain
new, safe devices and accounts
100%
of clients who requested
assistance were supported
to involve police in
their cases
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At the start of 2021, Avast provided
donations to the think tanks Open
Technology Institute (OTI), based in
the United States, and Stiftung Neue
Verantwortung (SNV), based in Germany,
to support their civil society work into
surveillance practice reform on both sides of
the Atlantic. This is an important part of our
public affairs work, focused on supporting
our deep interest in privacy in technology.
A series of workshops were held by both
organisations to explore solutions to
address the Schrems II decision and its
implications for transatlantic data flows and
mutual respect for privacy rights, as well as
holistically considering what surveillance
reforms might be needed both in the
United States and the European Union.
The workshop brought together a range of
stakeholders from companies, civil society,
former government officials, and academia,
and was attended by Avast representatives.
In February 2021, the OTI hosted a
virtual workshop focused primarily on
the Schrems II decision – that Privacy
Shield, the EU-US personal data transfer
mechanism, was no longer lawful – and
what short- to medium-term surveillance
reforms could be made in the United
States, at executive and legislative level,
to address some of the issues leading to
this decision. The discussions provided
input into the surveillance reform report
published by the OTI in April 2021. In May
2021, SNV hosted a similar workshop,
focusing on German and EU surveillance
reform, including consideration of what
kind of legal mechanisms could or should
be introduced in the European Union for
US citizens and other non-Europeans who
are subject to surveillance.
A joint workshop was held in May 2021
to consider these issues more broadly in
a transatlantic context, and the possibility
for reforms in multiple jurisdictions and at
international level. These discussions fed
heavily into the final joint report, which was
published in December 2021 and which
we were proud to support.
Our impact continued
on privacy technology
Working with
think tanks to
educate
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The pandemic has forced
us all to adjust to a new
way of life.
This is not without challenges – while
innovations in the medical field are making
it possible for most people to return to work
without taking undue risks, it has become
clear that not everything will go back to the
way it was. Things are changing everywhere,
and I am very pleased to say that Avast is
at the forefront of this transformation in
the real and the cyber world.
We at Avast take it as our
responsibility to give everyone
the opportunity to protect their
online life, so that people feel safe
John Schwarz
Chair of the Board
Chair’s report
Milestone
achievements in 2021
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Chair’s report continued
When the Company started,
more than 30 years ago,
the world was a different
place. Around the year
2000, when Avast made
the defining decision to
change the traditional
antivirus business model
and offer a fully featured free
antivirus to all, only around
7% of the world population
was online.
Now, more than half of the world's
population uses the internet daily. We at
Avast take it as our responsibility to give
everyone the opportunity to protect their
online life, so that people feel safe. Safe
internet access is a critical human need.
In 2021, Avast expanded its commitment
to protect digital freedom for all online
citizens. This goes beyond safeguarding
individual machines; we need to protect
people. In December, we announced the
acquisition of Evernym, a pioneer in identity
technology. Their expertise comes to
complement our experience in security
and privacy, and will contribute to the
delivery of the next generation of personal
identity management solutions.
Our wider purpose is also reflected in the
Company’s refreshed brand and its new
flagship product, Avast One. Launched
in September, Avast One is an all-in-one,
multi-platform service that combines robust
threat detection with advanced privacy and
performance features into an easy-to-use,
user-friendly format. Today’s user needs
go beyond just device protection, and the
customisable Avast One platform allows
users to choose how and when they interact
online, and who they share information
with, offering them full control over their
relationship with the internet. Since its
launch, Avast One has received positive
reviews from key technology product
reviewers worldwide.
I am also pleased to announce progress
on the development of Avast’s
environmental,social, and governance
(ESG) programme. While still in its
early stages, a tremendous amount of
effort has gone into collecting data and
developing report cards on ESG metrics and
performance. Avast has taken part in the
S&P Global Sustainability Assessment and
placed in the 93rd percentile in our industry
sector. This shows exceptional progress
compared to the previous year, and is a
testament to our commitment to give back
and focus not only on product innovation
and success, but also on our community.
The newly established Avast Foundation,
which was announced last year and
began operations in 2021, complements
our mission to protect digital freedom
through its three-pronged approach:
thought leadership, that looks to engage
communities to understand the challenges
and possibilities of digital freedom; grant
making for impact, an initiative that will
focus on thematic areas and responsive
work for humanitarian crises; and employee
engagement. More details on the new
Foundation and its areas of focus can be
found on page 78.
In the global competition for talent, it is
more important than ever to make sure that
our employee needs are being met. Building
on the blocks set in 2020 by the Future
of Work project, an initiative created to
address the COVID-19 crisis, Avast’s Work
from Anywhere and Whole Life Flexibility
policies have provided support to all
employees who chose to work remotely
or from abroad.
The Prague headquarters have also seen a
complete redesign, catering to the evolving
needs of employees as they adapt to a new
way of working, with more dynamic spaces
that encourage collaboration and more
areas for deep-focus work.
When it comes to diversity, Avast has stood
by its commitments. The percentage of
women within the Company has increased
across the board. Female representation in
technology roles has grown to 16.5%, while
on the Executive team, the target of 33%
female representation has been exceeded.
At the Board level, the percentage of
women has also increased to a full one-third.
16.5%
female representation in
technology roles
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Chair’s report continued
Merger with NortonLifeLock
On 10 August 2021, the Boards of Avast
plc and NortonLifeLock Inc. announced
the Merger of the two companies. This
milestone transformation will create a
combined global entity with more than
500 million users, with a broad and
complementary product portfolio. It feels
only natural that two companies that share
a common vision should come together,
to empower digital freedom for everyone.
Both Avast and NortonLifeLock received
the relevant approvals from their respective
shareholders for the Merger in the last
quarter of 2021. Full details of the Merger
were set out in the Scheme Document,
which was published on 28 October 2021
and is available on our website at https://
investors.avast.com/investors/Merger-with-
nortonlifelock-inc/.
On 4 February 2022, NortonLifeLock
and Avast announced a timetable for
the Merger, with an effective date of
24 February 2022 subject to the sanction
by the Court and the satisfaction (or,
where applicable, the waiver) of certain
regulatory conditions (as set out in the
Scheme Document). On 18 February 2022,
NortonLifeLock determined that it was
appropriate to postpone the effective date
of the Merger and announced that they
expected (subject to the satisfaction or, if
applicable, waiver by NortonLifeLock of
each regulatory conditions that have not
yet been satisfied or waived) the Merger
to become effective on 4 April 2022.
Shareholder returns
2021 was a strong year for Avast.
We have met the financial expectations
set at the start of the year as a FTSE 100
listed company.
At 31 December 2021, Avast’s net
debt/LTM adjusted EBITDA was 0.8x.
The Board announced on 7 February
2022 that it had declared a conditional
interim dividend of 11.2 cents per share.
The payment of this dividend is subject to
the terms of the Scheme and is therefore
conditional on the Merger not having
become effective before 1 March 2022.
On 18 February 2022, NortonLifeLock
announced an updated Merger timetable,
which included an expected Scheme
effective date of 4 April 2022. Following
this announcement, the Board confirmed
on 18 February 2022 that the conditional
interim dividend would be paid on 3 March
2022 to shareholders on the register as of
18 February 2022, with an ex-dividend date
of 24 February 2022.
Looking forward
Upon successful completion of the
announced Merger, this will be my last
report as the Chair of Avast’s Board.
I would like to extend my gratitude to the
Board of Directors and the Avast team
for their collaboration over the years,
and to our shareholders for contributing
to Avast’s journey.
I am confident that Avast will continue to
excel as an equal member of the combined
Avast/NortonLifeLock organisation.
By integrating our strength in privacy
with NortonLifeLock’s strength in identity,
the new Company solution portfolio will go
far beyond core cybersecurity. The mission
of protecting the individual’s online life will
become a near-term reality.
Our commitment to corporate responsibility
will continue – both companies have robust
employee engagement programmes, with
annual social impact initiatives that focus on
the environment, society, and giving back
to communities.
Our shared goal of empowering online
citizens and enabling digital freedom for
everyone is going to set the pace for future
innovation and success.
John Schwarz
Chair of the Board
0.8x
Avast’s net debt/LTM adjusted
EBITDA at 31 December 2021
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Markets & threat landscape
Avast’s threat intelligence team continually
tracks cybercriminal trends and malware
development. In 2022, it expects
ransomware to continue to be a major issue,
along with cryptocurrency scams, heists,
and cryptomining malware due to the
all-time high of Bitcoin in 2021, and expects
that companies with working-from-home
policies will continue to be targeted.
Ransomware in particular has been very
damaging in 2021. We tracked attacks
on critical infrastructure, such as aviation,
and can expect to see more of this. Major
organisations affected included FinCEN,
the US’s Financial Enforcement Network,
which reported a 30% uplift in the total
value of suspicious activity related to
ransomware in the first half of 2021
over the full year of 2020.
We are also predicting that audio deepfakes
will be used in spear-phishing attacks on
businesses. Criminals will use deepfake
audio to imitate an Executive or other
employee, to convince someone to grant
them access to sensitive data or to a
company’s network.
We anticipate a resurgence of
ransomware targeting consumers,
with cybercriminals adopting
some of the techniques used
to attack businesses
Jakub Kroustek
Malware Research Director
Predictions and
tracking trends
for 2022
30%
uplift in the total value of suspicious
activity related to ransomware in
the first half of 2021 over the full
year of 2020
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Markets & threat landscape continued
In recent years, we have
seen the increasing use
of technology such as
stalkerware and spyware
by perpetrators to stalk,
harass, abuse, and
control their victims.
The ongoing
fight against
tech abuse
Dubbed by the United Nations as the
'shadow pandemic', stalkerware is
unethical software that allows people
to track someone’s location without
the victim’s knowledge or consent.
Tech abuse is experienced as part of a
pattern of controlling behaviour by the
abuser and is often accompanied by direct
domestic abuse such as physical violence
and sexual and emotional abuse. Since
lockdown measures were first introduced
in the UK, Avast research has found a
93% increase in the use of spyware and
stalkerware apps. Through partnerships
with Refuge in the UK, and as a member of
the Coalition Against Stalkerware, we are
dedicated to tackling these oppressive and
harmful technologies.
93%
increase in the use of spyware
and stalkerware apps
Stalkerware is a growing
category of domestic malware
with disturbing and dangerous
implications. It steals the physical
and online freedom of the victim
Jaya Baloo
Chief Information Security Officer
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Markets & threat landscape continued
The pandemic and
subsequent lockdowns
changed how global citizens
interact with their online lives.
With the restrictions put in place to keep
our communities safe, people of all ages
had to adapt to using the internet for access
to health services, connecting with family,
and entertainment. Six in 10 online users
around the world say the pandemic caused
the internet to take on greater importance
in their lives. 33% of respondents overall
expected to continue to do more activities
online because those activities are easier.
31% of people aged 65 and over agreed with
this, whereas only 17% of 18 to 24-year-olds
did. It could be inferred that the younger age
group may already conduct more activities
online than older people.
Living life online
in a prolonged
pandemic
33%
of respondents overall expect to
continue to do more activities online
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Markets & threat landscape continued
Avast’s Threat Labs
researchers intercepted
and protected users against
a rise in crypto-related
phishing sites in 2021,
with the majority posing as
legitimate custodial wallets.
The rise of these sites is higher in countries
where cryptocurrency adoption is most
prevalent. The United States, Brazil, and
Nigeria are the biggest targets for these
crypto-scams, with notable levels of scams
also in the UK, France, Russia, and India.
We also identified a malicious spam
(malspam) campaign created to spread
BluStealer, a type of malware designed
to steal cryptocoins such as Bitcoin,
Ethereum, Monero, and Litecoin from
popular wallets including ArmoryDB,
Bytecoin, Jaxx Liberty, Exodus, Electrum,
Atomic, Guarda, and Coinomi. Avast tracked
and blocked around 12,000 malicious emails
distributing BluStealer in 2021, with the
countries most impacted by the spread
of the malspam campaign including the
United States, United Kingdom, Turkey,
Argentina, Italy, Greece, Spain, Czech
Republic, and Romania.
Cryptocurrency
hype generates
new scam
opportunities for
cybercriminals
12,000
malicious emails distributing
BluStealer in 2021
Users visiting crypto-related phishing sites around the world
Avast detections January – June 2021, selection of 37 samples.
0
124
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Company strategy
On a global scale, people continued to rely
on the digital world in 2021, and we observed
through research and customer interaction
how the ‘new normal’ became the everyday
standard, as industries adapted and improved
digital service offerings.
Global attitudes towards the internet evolved,
including technical literacy and confidence,
and internet safety concerns developed as
every generation increased their time online.
6 out of 10
people acknowledged the increased importance
of the internet during the pandemic
The pandemic
significantly
shifted how people
use the internet
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Company strategy continued
of those aged 65 and over
agreed that the increase in the
importance of the internet in
their lives varied from 'a little'
to 'much, more important'
than pre-pandemic
of internet users
worldwide found the
internet empowered
them to experience
and learn new things
say the internet has
made the pandemic
more bearable, by enabling
social contact, new
experiences, and access
to important services
used the internet to
keep in touch with loved
ones, with 22% saying
they used video calling
for the very first time in
their lives
36%
chose not to register for certain online
accounts requiring personal details,
20% decided against online banking,
and 30% refrained from using
public Wi-Fi
65%
of people worldwide had security and
privacy concerns, preventing them from
doing something online; women and
those aged 18–24 (68%) were the most
concerned demographics
63%
of people over the age of 65 said they
did not do something online because
of their online security and privacy
concerns; two-thirds of all respondents
also have decided not to do something
due to security or privacy concerns
83%
say the protection of their data is very
important to them; however, fewer than
half (43%) say they have strong trust in
data protection laws
The pandemic's impact on internet use
Source – Avast Digital Citizenship report:
https://press.avast.com/post-pandemic-online-behavior?_
ga=2.265043275.539709135.1631768063-609584625.1631768063.
46%
27%
40%
34%
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Company strategy continued
Building for
a digital future
At Avast, we've been
working for over 30 years
to keep people safe.
It used to be about protecting machines;
today, it's about protecting people.
People are growing increasingly
worried and feeling more vulnerable,
because the issues they face online
have become so much larger, and so
much more complicated.
Avast is stepping up to tackle this challenge.
Last year, we announced a rebrand which
included our rigorous commitment to
pursuing an expanded, deeper purpose
– that of protecting the digital freedoms
of all online citizens. The digital divide
has become particularly acute since the
pandemic hit.
Access to safe internet usage is increasingly
becoming a critical right for all. For this
reason, we reaffirmed our commitment last
year to providing comprehensive, effective
protection for all our users worldwide,
as we deepened our purpose and mission.
This is reflected in our innovation strategy.
Our innovation strategy
1 Customer-first: simple,
complete protection for all
As the digital world becomes
increasingly complex, it is our
responsibility to make it simpler
for consumers to enjoy the internet
safely and privately, no matter
their level of technical knowledge.
Avast’s focus in 2021 was to reduce
the complexity of product experience
for users, while improving the feature
set and functionality of our products.
As a result, we combined the most
important security, privacy, and
performance features into our new hero
platform, Avast One, making it easier
for every user to get all the services they
need, for a better digital experience.
2 SMB: small business
digital transformation
The growth in employees working from
home as a result of the pandemic is one
of the main drivers for an increased level
of concern. COVID-19 has completely
reshaped the way companies and their
employees work. With a large portion of
the workforce now working remotely on
a regular basis, the network perimeter
has significantly widened. Avast's
priority is helping secure that perimeter,
now that it has become a top strategic
priority for many small businesses.
3 Innovation: digital identity
and authentication
We are focused on innovating in new
categories. In our model, the individual
retains all their data and chooses
what data they consent to share in
any transaction and who they share it
with, removing the need for passwords,
individual accounts, and other
traditional tools, which are vulnerable
to being hacked, phished, and
intercepted. This protects their data
from being monetised by third parties,
compromised in a breach, or abused for
analytics. Giving the user control over
their personal data is a critical part of
rebuilding trust in digital services.
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Our innovation strategy continued
Company strategy continued
4 Brand and purpose
The internet has become a place
where our social and professional
lives have continued seamlessly,
while new opportunities and services
have developed rapidly to support an
increasingly digitally-enabled life. Avast
recognises the ingenuity of the people
creating and adopting new technology
to keep services and businesses running,
and of the support among families and
communities to get new digital users
online, independent and confident.
This collaborative effort by society has
changed the role of the internet in our
lives forever. Our response is to identify
areas where our digital world is being
threatened and step up to tackle these
issues with security, privacy, and identity,
to create a brighter, better, and safer
online future for us all.
The power of the brand is such that it
engages and generates loyalty within
our user base while attracting new users
to our products and services, because
what we support and are passionate about
resonates with them. Our new branding
symbolises our renewed and expanded
purpose – standing up for our belief in digital
freedom and expanding our mission more
widely to halt the increase of online harms.
In 2022, we will continue to build out our
digital freedom platform to raise brand
awareness; we will also continue to engage
existing and potential new customers,
in order to grow our user base.
5 Finding efficiencies
Customers want simplicity. Cybersecurity
has become increasingly complex
as threats have escalated and become
more sophisticated. Privacy is a growing
issue, as stealth online surveillance is
enabled by technology innovation –
not always for the benefit of the customer.
We have worked hard in the last year to
simplify our internal structure, to ensure
we are delivering consistently and robustly
for all our users.
We continue to refine our teams
and deliverables, while ensuring
clear performance standards and
measurements are in place internally.
This allows us to use customer insights
to deliver better services, increase
organic installs, and drive sales goals.
Our data governance process, which was
implemented at the end of 2020, is now
well-established and responsibly manages
cyber compliance and regulatory risk
within our organisation. In 2022, we
continue to focus on ways to enhance
and supplement our privacy-by-design
structure, which includes establishing a
rigorous data governance process across
the organisation.
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In a world that has been transformed by
the ongoing pandemic in the past two
years, we are well positioned to capitalise
on the global trends that affect both our
industry and consumers.
Cyber risks have
become more complex
and far-reaching
than ever before.
Our strategy provides
multiple avenues for
long-term growth
Investment case
Our growth potential is underpinned by
diversified direct and indirect revenue
streams, strong cash generation, and a
focus on innovation that targets exciting
new markets, such as privacy and identity,
together with a renewed purpose and
brand identity.
We have also successfully expanded our
geographical footprint with customised
products and an improved user experience,
by designing our products and improving
user experience based on each locale’s
preferences and specific needs.
In 2021, we launched our new brand identity
and expanded purpose: protecting digital
freedom for all online citizens. We made
a commitment to protect digital rights,
especially in the critical area of privacy.
Our experienced team of engineers, data
scientists, and threat researchers work
around the clock to assess, protect, and
respond to cyberattacks and new threats.
Our next-generation antivirus uses AI and
employs machine-learning algorithms to
continually improve performance.
Throughout the pandemic, Avast has
evidenced business resilience and financial
strength. Our subscription-based business
model provides a high degree of cash and
revenue visibility, while a cost-effective
go-to-market approach results in superior
profitability. Cash generation has been
a driver for ongoing organic growth,
complemented by disciplined M&A.
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Business model
We have a clear and
renewed purpose:
protecting the
digital freedom of
all online citizens
Consumer Direct
Our business structure
Customers pay us directly
for a product.
What we do
Our products secure users’ devices, data,
and networks. We offer security software
under the Avast and AVG brands, in the
form of both free and paid 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. This year,
we introduced Avast One – an all-in-one
flagship product combining robust threat
detection with advanced privacy and
performance features.
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.
Our markets
Headquartered in the Czech
Republic, Avast has users in
almost every country in the
world. Our largest markets
are the United States and
Canada, Brazil, France, the
United Kingdom, 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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Business model continued
Consumer Indirect
SMB
Customers access our
products indirectly, through
advertising within mobile
applications, third-party
software distributed
through partnerships,
and Avast Secure Browser.
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.
In 2021, we also expanded into identity
with our acquisition of Evernym,
a recognised leader in this area.
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.
Advertisers pay Avast for innovative ad
formats served up to its mobile users.
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.
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.
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 the newly launched
Avast Business Hub, an easy-to-use
platform that allows users to manage
all their Avast Business solutions in
one place. 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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Business model continued
1
People-centric security
Our commitment is to protect users’
digital freedom, not just their devices.
As people’s digital footprints become
more and more linked to their personal
and professional lives, we aim to deliver
an accessible, user-centric experience
that secures comprehensively, no matter
the type of connection or device. We are
expanding beyond security and privacy,
with the addition of identity products into
our area of focus. We want to deliver the
next generation of all-inclusive protection
products and offer a truly safe digital
environment to everyone.
2
Advanced next-generation
security engine
Our next-generation security engine uses
a combination of behavioural detection,
cloud-based machine-learning capabilities,
and signature-based detection to drive
best-in-class protection. This allows us to
scan for previously unknown viruses and
malware, as well as new variants of known
viruses and malware undetectable with
normal definitions and virus signatures.
What sets us apart
3
Sophisticated consumer
monetisation platform
Avast’s ability to increase its paying
customer base and overall revenue per
customer is underpinned by efficient
marketing campaigns that are shaped
through predictive modelling. Our platform
targets users with contextual, relevant
messages that offer quality products
at just the right time.
4
Attractive financial profile
Our cost-effective, go-to-market approach
and subscription-based business model
provide a high degree of cash and revenue
visibility. This allows us to invest in
innovation and technology, and seize
growth opportunities.
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Business model continued
Data security and privacy
Our focus is to further enhance our
accountability, security, and ability to
ensure that we process as little data
as possible. 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 lifecycle it may be.
People and culture
Our most important investment is our
people. We foster a culture of diversity,
inclusion, and innovation. We believe
in a high-performing environment that
empowers employees and boosts
performance and productivity. We attract
the best and the brightest, with 43% of
our employees in R&D.
Technology and innovation
Our security engine provides industry-
leading detection rates and scanning
speeds, 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.
Our resources and relationships
We understand the importance of what
we’re protecting. In 2021, we expanded
our purpose and committed to protect
the digital freedom of all online citizens.
Our customers
More than half of the world’s population
is online. We are committed to providing
the best free protection products for all
our users, in every aspect of their digital
lives. Avast One, our newly launched
all-in-one product, combines our security,
privacy, and performance essentials into
an easy-to-use platform that allows users
to customise their online experience.
Our communities
One of our fundamental values is to give
back to the community. Our brand-new
Foundation focuses many of our social
impact initiatives directly in alignment
with the Company mission: protecting
digital freedom.
See the Social responsibility
and sustainability section, p70
Our people
As cybersecurity pioneers, we take great
pride in our innovation. 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. We create a diverse and
inclusive environment that allows our
people to continuously learn and push
their boundaries.
See the People and culture section, p61
Our shareholders
Avast generates shareholder value
through a combination of consistent
growth, high profitability, and strong
cash flow.
See the CFO’s report, p40
Value created for our stakeholders
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The past three decades have
seen technology develop on
a truly revolutionary scale.
Today, 4.8 billion people are
online – that’s almost 61% of
the world’s population – and
it’s estimated that there are
700,000 new users coming
online each day.
Over 30 years of making the digital
world safer for all online citizens
Every day at Avast, we focus on how we can
innovate with technology to bring positive
change to the digital world, and support
vigilance in protecting personal privacy
and digital freedom. By the end of 2021,
we had made great progress on our stated
goals for products and revenue.
‘Our new brand identity symbolises our
commitment to providing products that
better serve our customers and all internet
users, and reshaping the digital landscape
to be a fairer, freer, more equitable place
for all.’
Ondrej Vlcek
Chief Executive Officer
CEO’s report
Protecting
personal privacy and digital freedom
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CEO’s report continued
1
Our significant user base remains
a competitive advantage
More than 16 million people are now paying
for our products and services globally.
Average revenue per direct desktop
customer grew 8.4%, and the average
number of products per direct desktop
customer grew by 1.8%. Early uptake of our
new Avast One product was encouraging
and illustrates that people are looking for
privacy in addition to security.
milestones
2
Launching a distinctive
new brand and purpose
With our rebrand in September 2021,
we sought to pull away from the standard
positioning of the cybersecurity industry,
to give ourselves the room to innovate
beyond pure security and build on our
privacy and identity platform. By setting
ourselves a higher purpose which addresses
wider issues with the digital world,
where privacy and protection become
fundamental to success, we have started to
engage with regulators, policymakers, and
wider technology providers to contribute
to wider digital strategies.
3
Reimagining great
customer experience
After deep research into customer
behaviour and expectations, we applied
insights to our product development
cycle and launched Avast One, our first
full platform-based offering for consumers.
Taking this new approach allows us to
simplify the complexity of multiple
security offerings for our users, giving
them a plug and play experience for the
ultimate protection.
2021
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CEO’s report continued
New brand and purpose
Aged just 13, I remember watching the
Soviet Union pull the last of its troops
out of my home country, then known as
Czechoslovakia. This experience brought
home to me, vividly, the value of true
freedom and the importance of fighting
for it in all aspects of our lives.
The arrival of the internet, with its vision of
a free, open, and democratic digital world
without borders, immediately appealed to
me. I saw the huge potential of that open
and immediate access to information,
commerce, and people worldwide, and
how it could underpin the spread of
democracy and social freedoms globally.
This technology has truly revolutionised
the world in the past three decades, and
no more so perhaps than in the past two
years. At Avast, we've been working for
more than 30 years to keep people safe,
but cybercrime continues to evolve and
become more sophisticated, hampering
people’s freedom to make the most of the
online world. The pandemic has dramatically
changed the world, making our lives more
digital and changing our attitudes and
behaviours around the internet.
In the past year, extensive research we
conducted has informed us that more than
80% of people feel privacy is very important
to them, while nearly two-thirds had held
back from doing something online for fear
of their privacy. With this more intensive
technology usage, people are naturally
becoming more aware that there is more
than their security at risk online.
We used this data and many more such
insights to better focus our protections
around how people really use technology,
and the needs they actually have, so they
are better protected from security and
privacy threats in this new environment.
We also built this philosophy into our daily
work and used it to inspire the foundations
of our new, future-focused brand, which
I am excited to watch flourish in tomorrow’s
new digital world.
In September, we announced our rigorous
commitment to pursuing an expanded,
deeper purpose – that of protecting the
digital freedoms of all online citizens.
Our brand has a fresh new look and tone,
to align with our wider mission and to
engage with more people on these
important digital issues of our time in a
relatable, human way. Online security
and privacy are complex topics, and it’s
an important part of our role as a digital
protection provider to ensure people get the
information as well as the tools they need
to feel comfortable and confident online.
Our customers want to reset their
relationship with the internet so they have
more control over their personal data and
own identity. We are developing the tools to
help them trust the digital world again, and
to help make it a fairer, better place for all.
We are doing this in three main ways:
A new, free digital protection product:
Avast One. We recommitted to providing
world-class digital protection for free with
the launch of our first security and privacy
platform. The all-in-one service combines
threat detection, advanced privacy
features, and performance-enhancing
engine. It removes the complexity of
staying safe online to help connected
citizens become more digitally confident
and engaged.
Philanthropic funding through the
Avast Foundation. We also committed
1% of annual profit to our charitable arm,
the Avast Foundation, which is dedicated
to enhancing digital freedom by working
globally with NGOs, charities, educational
institutions, and communities to tackle
issues of digital exclusion, remove
barriers to digital access, and champion
digital citizenship.
Engaging with industry, policy, and
government to lobby for change to
the digital world. We partner with
organisations like the Coalition Against
Stalkerware and No More Ransomware
to help plan and deliver a better digital
future for all, by tackling systemic issues.
We advocate for digital freedom with
these stakeholders, by serving as a
resource and adviser on critical topics
like online surveillance, privacy, AI, and
encryption technologies to educate and
ensure people-first policymaking.
Access to safe
internet usage
is increasingly
becoming a critical
digital right for all
Ondrej Vlcek
Chief Executive Officer
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CEO’s report continued
Innovating to meet and exceed
customer needs
The pandemic also made it clear that the
internet was no longer optional. But not
only was it not optional, it was not the
safest place for everyone. Our customers
were increasingly telling us they wanted to
protect their privacy, money, and identities
– in addition to their devices – but they
didn’t want to have to be an expert to
understand how to get it. So we created our
new easy-to-use protection platform, Avast
One, which combines security, privacy and
identity protection, and performance.
With Avast One, we are reinventing the
category of digital protection by providing
an integrated privacy and security service
that is available to everyone for free. For
those who want even more comprehensive
protection for more devices, we have
premium protection options available.
Avast One is available in three different
versions: Essential, the most comprehensive
free service available today; and premium
services Avast One Individual and Avast
One Family. All Avast One versions work
across the devices in a household and in
your pocket, and are available for
Windows, macOS, Android, and iOS.
We’re delighted that it has already been
awarded Editors’ Choice by PCMag and
TechRadar, and received high star ratings
among other top US, UK, and German
reviewer titles. Our users are already
reporting positively on the experience of
using Avast One, while the free version, with
its 20GB monthly VPN allowance, is proving
extremely popular. We are continuing to add
further new privacy features to the whole
platform in 2022, to ensure it remains a
market leader and delivers great value.
Going beyond privacy to
protect digital identity
Our identity vision is for a truly inclusive,
global digital society. With the creation of
a dedicated team last year, Avast invested
in extending our robust privacy offerings
to encompass holistic digital identity.
We will build a reusable digital identity
system which will bridge from the existing
digital world, where identities and data
are stored in a centralised or federated
model, to the new digital world, where
people are in control of their data and
set the rules of engagement for online
providers. This approach removes the
friction and frustration of online transactions
both for the user and for the business,
guarantees safety and privacy for users,
and empowers people to engage more
deeply in today’s rapidly developing
digital economy. It can also be tied to
real-world identity to facilitate enrolment
and authentication for services.
To accelerate our vision, we acquired
Evernym in late 2021. Evernym is a
recognised leader and innovator in this
area and its technology and expertise
complements our more than 30 years’
experience in security and privacy as we
focus on delivering our next-generation
identity products. At the end of the day,
we cannot truly have digital freedom if we
cannot trust our digital environment, and
rebuilding faith in the internet is a halo effect
of ensuring technical rigour and integrity in
our approach to digital privacy and identity.
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CEO’s report continued
Growth through M&A
In 2021, we made the significant
announcement that Avast would merge
with NortonLifeLock in 2022. This is not a
decision we took lightly, having built Avast
for more than three decades to become
one of the world’s largest consumer
cybersecurity companies. We believe
it’s the right next step in our journey, giving
us access to extensive R&D resources
to augment our established technical
expertise in cybersecurity, privacy, and AI.
Together, the organisations would create a
new Company focused on accelerating the
development of cybersafety technologies.
We would be able to capitalise on the family
of existing brands, technical skill sets and
expertise, and combined innovation to
deliver substantial benefits to consumers,
shareholders, and other stakeholders.
The business would have combined
revenues of approximately $3.5 billion
(based on the combined results for the year
ended 2 April 2021 for NortonLifeLock
and 31 December 2020 for Avast), an
enlarged base of over 500 million users and
approximately 40 million direct customers,
and a common vision to empower digital
freedom for everyone.
The Merger would combine Avast’s
strength in privacy with NortonLifeLock’s
strength in identity, to create a compelling
and complementary product portfolio
beyond core security. This would unlock
opportunities to cross-sell a richer
cybersafety offering to the combined
Company’s users, while continuing to
maintain core cybersafety functionality
to free users.
Mobilising our people
Recognising the crucial role our people
play in our success, we continued to place
significant emphasis on the importance
of creating a Company culture which
accelerates growth, while building an
organisation where our people love to
work. Our ways of working are underpinned
by the 5 A’s Principles.
1 Adult relationships based on
mutual trust, transparency,
and maturity
2 Accountability
3 Achievement-focus
4 Autonomy
5 Asynchronous working
5 A's Principles
Our future
As I look ahead at 2022 and our future
alongside NortonLifeLock, I am proud of
our history and all that we have achieved
to date. I am excited by the potential of
the new combined Company and pursuing
our mission to enable digital freedom
for everyone with greater resources and
skills. Together, Avastians have achieved
significant milestones for the Company and,
more widely, for the industry. As we set out
on our new trajectory, we remain committed
to delivering the best online protections for
all our users, today and in the future.
I want to say thank you to all
Avast employees for their dedication
and passion over the years.
Avast would not be the same
without the contributions of
every single one of you
Ondrej Vlcek
Chief Executive Officer
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34
1988
When Avast was established at the Research
Institute for Mathematical Machines in
Prague 34 years ago, its founders did not
foresee the journey they would take. From
the Czech Republic to the world; from online
security to digital privacy, performance, and
identity; from subscription-only products
to award-winning free protection for all;
and from a small startup to a FTSE 100
company. Throughout, their leadership and
passion have shaped the culture and ethos
of Avast into the successful organisation it
is today.
Milestones
Established in Prague in 1988
Launched Avast Free Antivirus
in 2001
Appointed global CEO Vince Steckler
in 2009
CVC Capital Partners became a
strategic investor in 2014
Acquired AVG Technologies in 2016
Acquired CCleaner in 2017
IPO in 2018 on the London
Stock Exchange
Appointed CEO Ondrej Vlcek in 2019
Merger with NortonLifeLock in 2022
Today
In 2022, Avast will enter a new chapter in
its history. As innovators, pioneers, and
hopeful visionaries for a better, digital
future, we aim to continually improve how
we serve our customers and all internet
users. In addition to developing progressive
products that meet people’s ever-changing
needs, we are focused on contributing our
expertise to shape the digital landscape to
be a fairer, freer, more equitable place for all.
The start of a new
adventure as the need
for digital protection
continues apace
Our technology
The internet is growing up,
and as technology innovation
accelerates, it’s clear our job
will never be done
Eduard Kucera and Pavel Baudis
Avast Founders
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Our cybersecurity technology is focused
on innovating for a post-pandemic world
Our technology continued
With the ever-changing threat
landscape as internet use
continues to be high despite
many countries beginning to
relax pandemic restrictions,
and the increasing difficulty
of defending half a billion
users, our expert teams have
developed new innovative
ways to understand these
challenges and protect
our users.
We are tracking increasingly
complex threats that emerge
to strengthen Avast’s protection
capabilities and reputation
as a leader and collaborator
Michal Pechoucek
Chief Technology Officer
Our 2022 technology aspirations and objectives
Security
We are continuing to build our threat
defence capabilities through joining
organisations to strengthen our threat
intelligence such as the Cyber Threat
Alliance, a non-profit organisation working
together to share threat intelligence for a
stronger global security ecosystem,
and Microsoft Intelligent Security
Association, to integrate their solutions
to protect against the world's threats.
Privacy
Through a new partnership with Generali
Global Assistance, we are continuing to
strengthen our privacy defences, focusing
on the increasing amount of scams that
are targeting people of all ages but
specifically older adults.
AI
We will continue to research in tandem
with our academic partners on issues
related to processing large-scale and
dynamically created machine data.
Identity
Our identity vision is for a truly inclusive,
global digital society. Our services will
bridge from the existing digital world,
where identities and data are stored in
a centralised or federated model, to the
new digital world, where people are in
control of their data and set the rules
of engagement for online providers.
We think of this as decentralising
identity, meaning individuals retain
their personal information while being
able to digitally interact with each
other in a trustworthy manner.
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Our technology continued
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.
A dedicated team
of data scientists, threat researchers, and machine-learning experts focused
on delivering market-leading security for homes and businesses.
Pioneering technology breakthroughs
Rising threats
Number of new malware samples
processed in Avast’s virus lab by year:
192m
2017
379m
2019 (+86% YoY)
578m
2021 (+15% YoY)
203m
2018 (+6% YoY)
503m
2020 (+32% YoY)
2,200+
honeypot instances
1.2bn+
attacks each month
on average
2m
unique attacker
IP addresses each
month on average
Sweet success
Avast has set up honeypots in over
75 countries worldwide
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Our technology continued
Powered by technical excellence
to deliver technical breakthroughs
Web Shield
embedded in our security products,
analyses URLs to protect against
phishing, malware, and other
web-based threats.
DeepScreen
uses machine learning within a safe
sandbox clone of the operating
system to identify any similarities
with known malware families.
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.
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.
Static Scanner
uses algorithms and a host of
other techniques to check all
executable code to classify
files as benign or malicious.
CyberCapture
sends unusual and potentially harmful
files to a cloud-based clean room for
analysis with advanced algorithms.
More than 10,000 such files are
processed every day.
Machine learning
Cloud
Machine learning and cloud
4
6
1
2
3
5
A look inside our security engine
A global network
10,114 servers
serving as a global threat detection network
59.8 petabytes
of data transmitted monthly
734 Gbps
peak download speed
502,000
simultaneous VPN connections
3.94 trillion
URLs analysed per year
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Our technology continued
Expanding digital
freedom for security
and privacy
People want to protect their
complete online identity,
to control what they choose
to share and who has access
to that personal information
Charles Walton
Senior Vice President and
General Manager, Identity
In the past two years, we have
seen how quickly our needs
online have changed and
how reliant we have become
on the internet to socialise,
to work, and to relax, yet the
digital world as it currently
operates is not one that
works for everyone.
What started as a wide-open, democratic,
and free vision for a digital world has
become compromised by people’s growing
unease around security and privacy threats
to their digital identity. While people are
reluctant to limit their online activities,
sharing data online, making transactions,
and worrying about phishing emails are
activities that make them feel vulnerable,
but they struggle to know what to do
about it.
We believe that everybody has a right to
foundational security and privacy through
their digital freedom. Seeing that the world
was shifting rapidly from the days when
we were only worried about our computers
getting viruses, people were increasingly
telling us they wanted to protect their
privacy, money, and identities – in addition
to their devices. People wanted all the
protection and performance they needed,
but they didn’t want to have to be an expert
to understand how to get it.
Listening to the needs of our users,
we decided to create a platform-based
product to fit the ever-changing
needs of today’s internet users.
In September 2021, we introduced
Avast One, an award-winning, integrated
service that delivers personalised,
comprehensive cross-platform protection
to increase privacy, connect securely, speed
up devices, and stay safe from viruses.
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39
Our technology continued
Differential privacy was discussed by several
speakers throughout the conference panel
discussions. The topic was first brought up
as a key pillar to responsible data use. The
discussion then led to understanding how
to implement it in practice, as computing
challenges can make it difficult.
The main panel discussion centred around
the role that AI will play in the future of
personal data privacy. The panellists
discussed how quantifying risk is more of
an art than a science. The industry is in
the early days of understanding privacy
as a science, and the more scientific
the approach and designs that can be
accomplished, the better the industry will
be at keeping privacy promises.
In November 2021, the role of
AI in the future of consumer
cybersecurity and online
privacy protection was the
focus of the third annual
CyberSec&AI Connected
conference, organised
with our partners at Czech
Technical University in Prague
(CTU) and the Technical
University of Darmstadt’s
Private AI Collaborative
Research Institute.
Understanding personal
data privacy and AI
Cyberattacks can be
significantly amplified by AI,
and therefore target people,
their private data, and digital
identities more widely
Vita Santrucek
Chief Product Officer
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40
CFO’s report
Avast delivered strong
revenue organic growth and
high levels of profitability
Stuart Simpson
Interim Chief Financial Officer
In line with our expectations, the
Group has achieved good growth and
maintained high levels of profitability.
Group overview
The Group has delivered a good set of results with strong
revenue organic growth1 and high levels of profitability
and cash generation. The Group’s billings of $948.4m
were up 4.3% on an organic basis, and up 2.9% at actual
rates. The Group’s revenue of $941.1m was up 7.5% on
an organic basis, an increase of 5.4% at actual rates.
The Consumer and SMB segments contributed
$889.5m and $51.6m respectively to Group’s revenue.
profitability
Maintained high levels of
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CFO’s report continued
The Group's billings increased by $26.4m to $948.4m
in the year ended 31 December 2021, driven by the core
Consumer Direct business. This represented a 2.9% increase
at actual rates and organic growth of 4.3%. Subscription
billings represented 88.4% of the Group’s total billings in
FY 2021, excluding Family Safety (FY2020: 87.3%).
The Group’s revenue increased by $48.2m to $941.1m
in the year ended 31 December 2021, which represents a
5.4% increase at actual rates and organic growth of 7.5%.
Revenue included $458.8m from the release of prior-period
deferred revenue. The deferred revenue balance at the end
of the period was $503.6m, comprising $468.6m that will
be recognised within 12 months of the balance sheet date.
This compares with $496.5m, of which $458.8m was
to be recognised within 12 months, at the same time last
year. The average subscription length in the year ended
31 December 2021 was 13 months, which represents a slight
YoY decrease (FY2020: 14 months), reflecting the Group’s
transition from multi-year towards single-year subscriptions.
Adjusted EBITDA increased 4.5% to $517.6m, resulting in an
adjusted EBITDA margin2 of 55.0%. This is in line with full-year
guidance of broadly flat margin YoY (FY2020: 55.5%).
The reported operating profit increased by $59.2m to
$394.6m. The increase was driven by higher reported
revenue of $48.2m, lower amortisation of acquisition
intangibles of $43.1m, and lower exceptional items of
$18.2m, partially offset by higher costs of share-based
payments of $(24.4)m and increase in other costs of
$(25.9)m, driven primarily by higher investment into
sales and marketing.
The table below presents the Group’s Billings and Revenue for the periods indicated.
$m
FY 2021
FY 2020
Change %
Change %
(excluding FX)3
Billings
948.4
922.0
2.9
1.0
Consumer
896.3
873.6
2.6
0.8
Acquisitions
0.1
–
n/a
n/a
Direct (excl. Acquisitions)
818.4
759.3
7.8
5.8
Disposal Family Safety mobile business4
–
27.0
n/a
n/a
Discontinued Business5
2.2
4.2
(47.7)
(48.4)
Indirect (excl. Acquisition, Disposal, and Discontinued Business)
75.7
83.1
(8.9)
(9.6)
SMB
52.1
48.4
7.5
5.2
Billings excl. Acquisitions, Disposals, and Discontinued Business
946.1
890.8
6.2
4.3
Revenue
941.1
892.9
5.4
3.9
Consumer
889.5
844.8
5.3
3.8
Acquisitions
0.1
–
n/a
n/a
Direct (excl. acquisitions)
811.2
730.1
11.1
9.4
Disposal Family Safety mobile business
–
27.0
n/a
n/a
Discontinued Business
2.2
5.1
(56.9)
(57.4)
Indirect (excl. Acquisition, Disposal, and Discontinued Business)
76.0
82.6
(8.0)
(8.7)
SMB
51.6
48.0
7.4
6.0
Revenue excl. Acquisitions, Disposals, and Discontinued Business
938.8
860.7
9.1
7.5
$948.4m
2021 billings
$941.1m
2021 revenue
$517.6m
adjusted EBITDA
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CFO’s report continued
Business unit performance
2020
2021
16.47
16.36
Number of
customers m
-0.7%
2020
2021
1.41
1.43
Average products
per customer
+1.8%
Average revenue
per customer $
+8.4%
2020
2021
45.60
49.44
2020
2021
759.3
818.4
Billings
$m
2020
2021
730.1
811.2
Revenue
$m
Growth
Actual rates
+7.8%
Organic
+5.8%
Growth
Actual rates
+11.1%
Organic
+9.4%
Consumer Direct
Trading performance
The core Consumer Direct business, which comprises
both desktop and mobile subscriptions, performed
broadly in line with expectations. Billings of $818.4m were
up 5.8% on an organic basis and up 7.8% at actual rates.
The performance reflected a strong comparator period
due to COVID-19 lockdown. Underpinned by the prior
year’s billings performance, revenue of $811.2m grew
9.4% on an organic basis, with actual rates up 11.1%.
Consumer Direct operating KPIs tracked positively.
Average Revenue Per Customer (ARPC)8 increased 8.4%
to $49.44. Average Products Per Customer (APPC)7
increased 1.8% to 1.43. While customer numbers have
increased in some geographies, the End of period
customers6 remained broadly flat versus prior year,
at 16.36m. This reflects the emphasis on ARPC growth
during the period and transition to the new model of
customer proposition, providing all-in-one functionality
under Avast One subscription. This limits the cross-sell
opportunity and puts focus on customer retention.
As the competitive market becomes more dynamic, renewed
investment focus has been placed on marketing and other
top-of-the-funnel initiatives to drive customer engagement,
acquisition, and retention activities, which require higher
levels of margin investment over the medium term.
Users and customer retention
Operationally, our core business can be characterised
by various metrics. The most important metrics that
directly impact Revenue are Customer Count and
ARPC. The general objective of the commercial team is to
balance these two metrics as they see fit to deliver best
possible results. In H2 2021, our main focus was on the
ARPC metric, which grew 8.4%. This was partially driven
by pricing optimisations, which temporarily negatively
affected the Customer Count metric.
In addition to that, in H2 2021 we released a new product
called Avast One. This new product brought a slightly
modified business model. In the original model, growth of the
business was focused on our ability to do up-sells (both free-
to-paid and paid-to-paid), as well as cross-sells. In the Avast
One model, the cross-sell opportunity is limited, because
the customer proposition consists in providing all-in-one
functionality as part of the unified Avast One subscription.
At the same time, more emphasis is put on retention, where
the stronger value proposition of the integrated offering
is expected to limit the number of customers who leave
us. This is further underlined by the fact that Avast One
brought significant improvements in customer satisfaction
by reducing the number of up-sell messages (especially those
in Avast Essential – the free tier). This put additional pressure
on the Customer Count metric in Q4.
It should also be noted that we don't consider paid
customer churn as critical as perhaps some of the other
subscription businesses do. This is because a large part
of our churning paid customers don’t actually leave the
Avast family – they just default back to the basic free
product. That is, they count as churners but are still
staying with us as free users, which allows us to further
communicate with them in the future and potentially win
them back as paid customers again.
Avast has continued to increase investment in improving
retention, through building the customer intelligence
capability to deliver greater value of retained customers.
The team has expanded to cover the Customer Success
function, which includes all customer contacts, in order to
build stronger relationships with the customer base.
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CFO’s report continued
Growth
Actual rates
-31.9%
Organic
-9.6%
Growth
Actual rates
-31.8%
Organic
-8.7%
Consumer Indirect
Product development
Avast has continued to strengthen its privacy offering.
In November, we launched a free privacy and security
enhancing browser extension. Avast Online Security &
Privacy combines effective online protection with our
latest Privacy Advisor. Some of the features included are
a step-by-step tutorial on how to adjust and improve the
privacy settings on popular platforms such as Google,
Facebook, and LinkedIn, an anti-tracking feature that
prevents websites and advertisers from tracking user
data and online behaviour, and a safe search feature
that provides users with safer search engine results by
highlighting those that are malicious or safe with a red
or green status icon.
The Privacy Threat Labs team has partnered with Diffbot,
a developer of public APIs for extracting data from
webpages. Through this collaboration, the team is looking
to learn more about trends in digital privacy and analyse
websites’ privacy practices.
Avast AntiTrack has undergone its first major product
review, and received an excellent 4/5 star rating
from PCMag.
Avast Free Antivirus was a multiple award winner,
including AV-TEST Home users protection Top Product
and SE Labs Home anti-malware protection AAA rating.
Avast One
In September, Avast launched its new innovative
integrated solution Avast One, which combines
the Company's award-winning antivirus technology
with a firewall and software updater feature to protect
people from using outdated software and supply chain
attacks, extensive privacy protection in the form of a VPN
for regular browsing use, and identity protection through
our data breach monitoring service. In the first phase, the
product was released in the United States, Canada, and
the United Kingdom, as well as Australia.
Although new to the market, Avast One is already gaining
recognition with key product reviewers worldwide, having
received the Editor’s Choice award from TechRadar in
the United Kingdom and PC Mag in the United States.
With the free Avast One Essential offering, users get
protection from cyberthreats such as ransomware,
spyware, and phishing attacks; security from malicious
incoming connections via its firewall; and a limited VPN.
The paid-for Avast One Individual and Avast One Family
products have additional features, including protection
from Address Resolution Protocol (ARP) spoofing,
Domain Name System (DNS) hijacking, and webcam spy
attacks. It also offers data breach monitoring to allow
people and their families to see if the passwords of their
online accounts have been exposed and provides them
with unlimited VPN services. Avast One users can also
significantly improve their PC performance with a Disk
Cleaner that allows them to find and clean redundant junk
files to keep their device clean.
Rollout has been supported by significant marketing
investment, with spending continuing in FY 2022 to
expand awareness around the Company’s new leadership
product, which is expected to materially contribute to
billings only in 2022.
2020
2021
114.3
77.9
Billings
$m
2020
2021
114.8
78.3
Revenue
$m
In the Consumer Indirect unit, billings excluding
Discontinued Business of $75.7m were down 9.6%
on an organic basis and down 8.9% at actual rates.
Revenue excluding Discontinued Business of $76.1m
declined 8.7% on an organic basis, with actual rates
down 8.0%. The rate of decline was higher than the
guidance of mid-single-digit organic decline due to
continued challenging trends in our remaining Partner
business and lower number of new Chrome installations.
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CFO’s report continued
Avast completed the disposal of the Family Safety mobile
business on 16 April, recognising a gain of $47.0m. Total selling
price was $85.8m and comprised primarily cash consideration,
1.5m shares of common stock of Smith Micro and earn-out
(see Note 16). Billings and revenue until close of the transaction
have been included in the calculation of organic growth,
together with comparable periods in the baseline.
Avast Secure Browser delivered strong double-digit
growth in the quarter, adding more than 2m active
users, driven by ongoing improvements to customer
engagement and improved feature releases such as
an embedded VPN and an add-on store to help users
personalise their browsers.
In October, heralding further diversification in subscription
revenue from the Avast Secure Browser, Avast launched
a premium version of its free, secure, and private
browser. Avast Browser PRO, a Chromium-based browser
for Windows PCs, includes an integrated VPN and
advanced Adblock technology for people who need
a lightweight but comprehensive suite of security, privacy,
and performance services.
Avast continued its effort to expand marketing support
for Avast Secure Browser and raise its product brand
awareness. As the market learns to better understand
the endemic security and privacy benefits of the platform,
the Company's content and performance marketing
channels in the open market become more effective.
In December 2021, Avast expanded into identity, with the
acquisition of Evernym, a recognised leader in this area.
Evernym's ground-breaking approach to digital identity
provides consumers with autonomy over their online
presence by keeping their personal information with them
and out of centralised databases. Avast will be incorporating
Evernym technology into its future services for consumer-
managed credentials. As the ongoing billings of Evernym
legacy business are fully business-to-business, it has been
included in the Consumer Indirect subsegment.
2020
2021
48.4
52.1
Billings
$m
2020
2021
48.0
51.6
Revenue
$m
Growth
Actual rates
+7.5%
Organic
+5.2%
Growth
Actual rates
+7.4%
Organic
+6.0%
SMB
SMB (small and medium businesses) Billings of $52.1m
were up 5.2% on an organic basis and up 7.5% at actual
rates. Revenue of $51.6m was up 6.0% on an organic
basis, with actual rates up 7.4%, in line with the guidance
of mid single-digit organic revenue growth.
Avast continued to enrich its SMB offering through
product innovation, notably through the launch of the new
Avast Business Hub, a state-of-the-art integrated security
platform. In November, a new, free Network Discovery
tool was launched that aims to help small and medium
businesses, Managed Service Providers (MSPs) and
Value-Added Resellers (VARs) gain full network visibility.
In October, Avast Business Antivirus Pro Plus was certified
for Advanced Threat Protection Test – Enterprise by
AV-Comparatives, and in December it was named Top
Product by AV-Test, earning top scores on protection,
performance, and usability.
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CFO’s report continued
Costs
$m
FY 2021
FY 2020
Change
Change %
Cost of revenues
(149.5)
(196.0)
46.5
23.7
Share-based
payments (incl.
employer’s costs)
2.4
0.8
1.6
Fav9
Amortisation
of acquisition
intangible assets
22.3
65.3
(43.0)
(65.9)
Depreciation
and amortisation
(excl. amortisation
of acquisition
intangible assets)
9.7
9.0
0.7
8.0
Exceptional items
0.0
3.4
(3.4)
(99.2)
Adjusted cost
of revenues
(excluding D&A)
(115.1)
(117.5)
2.4
2.0
Adjusting for disposal of the Family Safety mobile
business and Jumpshot’s costs in 2020 before wind-down,
the increase in adjusted cost of revenues is $(4.9)m.
The increase was driven by $(1.4)m higher sales commissions
driven by revenue, investment into customer support of
$(4.0)m, partially offset by FX impact and other savings of
$0.5m. Adjusted Cost of Revenues represent the Group’s
cost of revenues adjusted for depreciation and amortisation
charges, share-based payments charges, and exceptional
items. Exceptional items in cost of revenues in 2020 related
to Jumpshot wind-down costs.
The Group’s reported Cost of revenues decreased
by $46.5m to $(149.5m) primarily due to the lower
amortisation of acquisition intangibles, as the significant
acquisition intangibles from AVG acquisition are now
becoming fully amortised. The amortisation of acquisition
intangibles represents intangible assets acquired through
business combinations.
$m
FY 2021
FY 2020
Change
Change %
Operating costs
(397.0)
(361.5)
(35.5)
(9.8)
Share-based
payments (incl.
employer’s costs)
44.7
21.8
22.9
Fav
Depreciation
and amortisation
(excl. amortisation
of acquisition
intangible assets)
11.7
12.8
(1.1)
(8.2)
Amortisation
of acquisition
intangible assets
0.5
0.5
(0.0)
(6.3)
Exceptional items
31.7
46.5
(14.8)
(31.8)
Adjusted
operating costs
(excluding D&A)
(308.4)
(279.8)
(28.6)
(10.2)
The increase in Group’s Adjusted Operating costs excluding
the impact of the disposal of the Family Safety mobile
business and Jumpshot’s costs in 2020 before wind-down is
$(47.8)m. This increase was driven primarily by investment
into sales and marketing costs of $(42.5)m, related primarily
to the launch of the Avast new brand identity and the new
flagship product Avast One. Additional costs increase
relates to investment into information security and research
and development of $(5.9)m, partially offset by other
savings, including FX impact of $0.6m. 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 $(35.5)m, from $(361.5)m to $(397.0)m, reflects the
increase in Adjusted operating costs driven by marketing
investment, as described above, of $(28.6)m and increase
in share-based payments costs of $(22.9)m, resulting from
Restricted Stock Units (RSUs) granted to all employees in
the beginning of 2021 and the scheme modification arising
from changes to the arrangements in connection with the
proposed Merger with NortonLifeLock described in Note
2. This has been partly offset by lower exceptional items of
$14.8m and lower depreciation and amortisation expense
of $1.1m.
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. Exceptional items are
identified by virtue of their size, nature, or incidence, so as
to facilitate comparison with prior periods and to assess
underlying trends in the financial performance of the Group
and its reportable segments. In determining whether an
event or transaction is exceptional, management considers
quantitative as well as qualitative factors. Once an item is
disclosed as exceptional, it will remain exceptional through
completion of the event or programme. Examples of such
items include but are not restricted to: legal and advisory
costs related to the proposed Merger, acquisition, disposals
(including gain on disposal), integration, costs incurred due
to discontinuation of business, and COVID-19 donations.
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46
CFO’s report continued
During the year ended 31 December 2021, the Group
incurred legal, professional, and impairment costs of
$4.0m in relation to the disposal of Family Safety
mobile business (see Note 16), legal and professional
costs of $2.6m in relation to the acquisition of Evernym
(see Note 15), exceptional impairment and onerous contract
provision costs of $7.5m related to data servers necessary
to remain in operating condition due to an ongoing
regulatory investigation, and $9.2m of personnel, legal
and consultancy costs related to the proposed Merger
with NortonLifeLock Inc. Personnel costs related to the
proposed Merger of $2.6m comprise primarily retention
bonuses, which are accrued over the retention period.
The remaining $8.4m of exceptional items relates to costs
of restructuring programme and the change in provisions
related to regulatory investigation and contract indemnity
claims relating to Jumpshot (see Note 25). The restructuring
programme focused on transformation of operations,
primarily in the commercial area, will be completed in 2022.
Out of a total $31.7m of exceptional items included in
operating profit, $3.2m was included in the cash flow from
investing activities and $5.5m of impairment charges were
non-cash items. Out of the remaining $23.0m exceptional
items that entered operating cash flows, $14.9m were not
paid before year end and included in liabilities.
On top of exceptional items in operating profit, the Group
recognised an exceptional gain of $47.0m in relation to the
disposal of the Family Safety mobile business, which was
included in the cash flows from investing activities.
Exceptional items in FY 2020 consisted primarily of
donations on R&D initiatives related to COVID-19 and
personnel and non-personnel costs related to the Jumpshot
wind-down (see Note 6 Exceptional items). Related cash
flows have been included in the net cash flows from
operating activities.
Finance income and expense
Adjusted finance expense on a net basis was $(23.5)m in
FY 2021, $13.5m lower compared with $(37.0)m in FY 2020.
The decrease in adjusted finance expense is related to lower
loan interest costs of $8.4m resulting from the repayment
of debt of $200m on top of mandatory repayments in
2020 and refinancing in H1 2021, one-off realised FX gain
on repayment of prior loan of $5.6m, partially offset by
other FX and other finance costs of $(0.5)m.
The Group’s reported net finance costs decreased by
$107.8m, resulting in income of $8.7m in FY 2021 caused by
the decrease in adjusted finance costs described above and
significant unrealised FX gains from the Euro denominated
debt compared to losses generated in the prior year.
$m
FY 2021
FY 2020
Change
Change %
Finance income and
expenses, net
8.7
(99.1)
107.8
Fav
Unrealised FX
(gain)/loss on EUR
tranche of bank loan
(32.2)
62.1
(94.3)
Unf
Adjusted finance
income and
expenses, net
(23.5)
(37.0)
13.5
36.5
Income tax
In the year ended 31 December 2021, the Group reported
an income tax expense of $(101.9)m, compared with
the income tax expense of $(66.7)m in the year ended
31 December 2020.
Income tax was impacted by the tax benefit from the
FX movements on intercompany loans arising in the
statutory accounts of the subsidiary concerned of
$1.5m (tax expense of $4.4m in FY 2020).
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 disposal of a business operations
represents a tax expense related to disposal of the
Family Safety mobile business of $(16.7)m.
The tax impact of other adjusted items represents the
tax impact of amortisation of acquisition intangibles
or exceptional items, which have been calculated applying
the tax rate that the Group determined to be applicable
to the relevant item, and other adjusted items.
Adjusted Income tax is $(83.3)m for FY 2021, resulting in
an adjusted effective tax rate of 17.6% (FY 2020: 17.5%).
The Adjusted effective tax rate is the Adjusted Income
tax percentage of Adjusted Profit before tax of $472.7m
(defined as Adjusted Net Income of $389.4m before the
deduction of Adjusted Income tax of $(83.3)m).
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Avast plc annual report 2021
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CFO’s report continued
$m
FY 2021
FY 2020
Change
Change %
Income tax
(101.9)
(66.7)
(35.2)
(52.8)
Tax impact of
FX difference on
intercompany loans
(1.5)
4.4
(5.9)
Unf
Tax impact of
IP transfer
6.3
6.3
0.0
0.0
Tax impact of
disposal of a
business operations
16.7
–
16.7
Fav
Tax impact of
donations
–
(4.7)
4.7
Fav
Tax impact on
adjusted items
(2.9)
(15.7)
12.8
81.5
Adjusted income tax
(83.3)
(76.4)
(6.9)
(9.1)
Cash flow
Unlevered free cash flow represents the amount of
cash generated by operations after allowing for capital
expenditure, taxation, and working capital movements.
Unlevered free cash flow provides an understanding of
the Group’s cash generation and is a supplemental measure
of liquidity in respect of the Group’s operations.
Levered free cash flow represents amounts of incremental
cash flows the Group has after it has met its financial
obligations (after interest and lease repayments) and is
defined as Unlevered Free Cash Flow less cash interest
and lease repayments.
$m
FY 2021
FY 2020
Change
Change %
Adjusted cash
EBITDA
526.1
522.7
3.4
0.7
Net change in
working capital
(excl. change in
deferred revenue
and deferred COGS)
26.3
19.9
6.4
32.2
Capex
(13.3)
(15.1)
1.8
11.9
Cash tax
(61.8)
(52.0)
(9.8)
(18.8)
COVID-19 donations
–
(24.5)
24.5
Fav
Unlevered free
cash flow
477.4
451.1
26.3
5.8
Cash interest
(18.7)
(27.5)
8.8
32.0
Lease repayments
(8.6)
(9.2)
0.6
6.5
Levered free
cash flow
450.1
414.3
35.8
8.6
Cash conversion10
91%
86%
Favourable change in working capital in FY 2021 reflects
favourable timing of payments (spend heavily weighted
towards Q4), including exceptional items included in
liabilities at year end, which is expected to partially
reverse in Q1 2022.
Capex investment represents only 1.4% of Revenue in
FY 2021. That represents a decrease versus 2020
(FY 2020: 1.7%), driven by ongoing migration of the
Group’s systems and infrastructure from on-premises
to the public cloud.
Cash interest paid included in the calculation of Unlevered
Free Cash Flow of $(18.7)m includes $(4.3)m of interest
netted by the bank at the loan refinancing in H1 2021,
which is included in the row 'Proceeds from borrowings'.
Lease repayments include both interest and principal.
The increase 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 are offset against the
final tax liability. In H1 2020, the Group received a significant
refund related to previous periods. No such refund was
received in 2021.
$m
FY 2021
FY 2020
Change
Change %
Net cash flows from
operating activities
469.4
456.5
12.9
2.8
Net cash used in
investing activities
(0.9)
(16.4)
15.5
94.5
Net cash flows from
financing activities
(204.6)
(484.2)
279.6
57.7
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Avast plc annual report 2021
48
CFO’s report continued
The following table presents a reconciliation between the
Group’s Adjusted Cash EBITDA and Net cash flows from
operating activities as per the consolidated statement of
cash flows.
$m
FY 2021
FY 2020
Change
Change %
Adjusted
cash EBITDA
526.1
522.7
3.4
0.7
Net change in
working capital
(excl. change in
deferred revenue
and deferred COGS)
26.3
19.9
6.4
32.2
Cash tax
(61.8)
(52.0)
(9.8)
(18.8)
Movement of
provisions and
allowances
(1.1)
14.5
(15.6)
Unf
Exceptional items
included in operating
cash flows
(23.0)
(49.9)
26.9
53.9
Employer’s costs
on share-based
payments
(1.1)
(0.8)
(0.3)
(37.5)
Realised FX gains/
(losses) and other
non-cash items
4.0
2.0
2.0
Fav
Net cash flows from
operating activities
469.4
456.5
12.9
2.8
The Group’s net cash flow from operating activities
increased by $12.9m, primarily due to lower exceptional
costs included in operating cash flows of $26.9m, higher
billings of $26.4m, positive impact of working capital
movement (excl. change in deferrals) of $6.4m offset by
higher cash tax of $(9.8)m, increase in Adjusted costs
of $(26.2)m, and unfavourable impact of movement in
provisions and other of $(10.8)m.
The Group’s net cash outflow from investing activities of
$(0.9)m included net proceeds from disposal of the Family
Safety mobile business of $62.4m (additional 1.5m shares
of common stock of Smith Micro were included in total
consideration received; see Note 16), capex investment of
$(13.3)m, settlement of contingent consideration related to
Tenta acquisition of $(0.7)m, consideration paid for Evernym
acquisition of $(49.4)m (see Note 15), and interest received
of $0.2m. The Group’s net cash outflow from investing
activities in FY2020 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 financing activities
includes $(115.4)m final dividend paid in respect of
2020, $(49.6)m interim dividend paid in respect of 2021,
net proceeds from loan refinancing in H1 of $6.6m,
mandatory loan repayment of $(31.3)m, transaction costs
paid in relation to refinancing of $(2.7)m, interest paid of
$(14.3)m, lease repayments of $(8.6)m, and proceeds from
the exercise of options of $10.7m. Net proceeds from loan
refinancing consist of repayment of old loan of $(827.6)m,
new loan drawn of $843.6m, portion of transaction costs
related to borrowings deducted by bank of $(5.0)m, and
portion of cash interest deducted by bank of $(4.3)m.
The Group’s net cash outflow from financing activities
in FY 2020 included $(105.4)m final dividend paid in
respect of 2019, $(49.3)m interim dividend paid in respect
of 2020, $(200)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.
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Financial statements
Avast plc annual report 2021
49
CFO’s report continued
Financing
On 22 March 2021, the Group successfully completed
a refinancing of its debt, decreasing the margin on both
tranches by 25bps and extending the repayment period a
further five years from the prior expiry date to March 2028.
The new term loan was drawn with a USD and EUR tranche
of $480m and €300m respectively (see Note 27 Term
Loan). As of 31 December 2021, the total Gross debt11 of the
Group was $841.6m and the total Net debt was $412.5m.
The decrease in gross debt since 31 December 2020 is
attributable to the repayment of old loan of $(827.6)m, new
loan drawn of $843.6m, quarterly repayment of borrowings
of $(31.3)m, decrease in lease liabilities of $(11.9)m, and a
positive unrealised FX gain of $(32.2)m on the EUR tranche
of the loan.
$m
31 December
2021
31 December
2020
Margin
USD tranche
principal
462.0
113.8
USD LIBOR
plus 2.00%
EUR tranche
principal
327.0
722.7
EURIBOR
plus 2.00%
Revolver/
Overdraft
–
–
USD LIBOR
plus 2.00%
Lease liabilities
52.6
64.5
Gross debt
841.6
901.0
Cash and cash
equivalents
(429.0)
(175.4)
Net debt
412.5
725.6
Net debt/LTM
Adjusted EBITDA
0.8x
1.5x
Principal exchange rates applied
The table below summarises the principal exchange rates
used for the translation of foreign currencies into USD.
The assets and liabilities are translated using period-end
exchange rates. Income and expense items are translated
at the average exchange rates for the period.
($:1.00)
FY 2021
average
FY 2020
average
AUD
0.7527
0.6876
BRL
0.1866
0.1975
CAD
0.7981
0.7444
CHF
1.0975
1.0624
CZK
0.0462
0.0431
EUR
1.1894
1.1384
GBP
1.3778
1.2860
ILS
0.3088
0.2905
NOK
0.1166
0.1063
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 $0.34 (see Note 14 for the
statutory earnings per share) compared with $0.16 in
FY2020. This increase in statutory diluted EPS was driven
primarily by the positive impact of unrealised FX gains on the
EUR tranche of the loan, a one-off gain from disposal of the
Family Safety mobile business, and higher operating profit.
$m
FY 2021
FY 2020
Adjusted net income
attributable to
equity holders
389.4
360.2
Basic weighted average
number of shares
1,031,854,145 1,022,001,218
Effects of dilution from
share options and
restricted share units
7,425,430
14,815,576
Dilutive weighted average
number of shares
1,039,279,575 1,036,816,794
Basic adjusted earnings
per share ($/share)
0.38
0.35
Diluted adjusted earnings
per share ($/share)
0.37
0.35
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Financial statements
Avast plc annual report 2021
50
CFO’s report continued
Dividend
The Board announced on 7 February 2022 that it had
declared a conditional interim dividend of 11.2 cents
per share. The payment of this dividend is subject to
the terms of the Scheme and is therefore conditional
on the Merger not having become effective before
1 March 2022. On 18 February 2022, NortonLifeLock
announced an updated Merger timetable, which included
an expected Scheme effective date of 4 April 2022.
Following this announcement, the Board confirmed on
18 February 2022 that the conditional interim dividend
would be paid on 3 March 2022 to shareholders on the
register as of 18 February 2022, with an ex-dividend date
of 24 February 2022.
Presentation of results and definitions
This full-year report contains certain non-International
Financial Reporting Standards (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, reported measures. The APMs are not defined
or recognised under IFRS including Billings, Organic Growth,
Adjusted EBITDA, Adjusted Cash EBITDA, Adjusted Net
Income and Unlevered Free Cash Flow as defined and
reconciled below.
These non-IFRS financial measures and other metrics
are not measures recognised under IFRS. The non-IFRS
financial measures and other metrics, each as defined
herein, may not be comparable to similarly titled measures
presented by other companies, as there are no generally
accepted principles governing the calculation of these
measures and the criteria upon which these measures are
based can vary from company to company. Even though
the non-IFRS financial measures and other metrics are
used by management to assess the Group’s financial
results and these types of measures are commonly used
by investors, they have important limitations as analytical
tools, and investors should not consider them in isolation or
as substitutes for analysis of the Group’s position or results
as reported under IFRS. The Group considers the following
metrics to be the KPIs it uses to help evaluate growth trends,
establish budgets, and assess operational performance
and efficiencies.
Adjusted Billings and Adjusted Revenue were presented
in the full-year report for the year ended 2020 due to
differences between reported and adjusted metrics
resulting from historical acquisitions, which were presented
in comparatives. As there are no further adjustments
applicable to revenue or billings in neither 2020 nor 2021,
APMs were limited to Billings and Revenue to decrease
complexity for users of these accounts.
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. In the case of disposals, billings and revenue
until close of the transaction are included in the calculation
of organic growth, together with comparable periods in
the baseline. The definitions of non-GAAP measures in the
year ended 31 December 2021 are consistent with those
presented in the report for FY 2020 and there have been
no changes to the bases of calculation.
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Financial statements
Avast plc annual report 2021
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CFO’s report continued
CONSOLIDATED STATEMENT OF ADJUSTED PROFIT AND LOSS
FOR THE YEAR ENDED 31 DECEMBER 2021
Year ended
31 December 2021
Year ended
31 December 2020
REVENUES
941.1
892.9
Cost of revenues
(115.1)
(117.5)
GROSS PROFIT
826.0
775.4
Gross profit margin
87.8%
86.8%
Sales and marketing
(164.2)
(122.5)
Research and development
(64.6)
(71.1)
General and administrative
(79.6)
(86.2)
Total operating costs
(308.4)
(279.8)
EBITDA
517.6
495.5
EBITDA margin
55.0%
55.5%
Depreciation & Amortisation12
(21.4)
(21.8)
EBIT
496.2
473.7
Finance income and expenses
(23.5)
(37.0)
PROFIT BEFORE TAX
472.7
436.7
Income tax
(83.3)
(76.4)
NET INCOME
389.4
360.2
Net Income margin
41.4%
40.3%
Earnings per share (in $ per share):
Basic EPS
0.38
0.35
Diluted EPS
0.37
0.35
Billings
Billings represent the full value of products and services
being delivered under subscription and other agreements
and include sales to new end customers plus renewals
and additional sales to existing end customers. Under the
subscription model, end customers pay the Group for the
entire amount of the subscription in cash upfront upon initial
delivery of the applicable products. 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.
$m
FY 2021
FY 2020
Change
Change %
Revenue
941.1
892.9
48.2
5.4
Net deferral
of revenue
7.3
29.2
(21.8)
(74.8)
Billings
948.4
922.0
26.4
2.9
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, and amortisation of acquisition
intangible assets.
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Financial statements
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CFO’s report continued
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 and the net change in deferred cost of goods sold. The following is a reconciliation of
the Group’s reported Operating profit to Adjusted EBITDA and Adjusted Cash EBITDA:
$m
FY 2021
FY 2020
Change
Change %
Operating profit
394.6
335.4
59.2
17.7
Share-based payments (incl. employer’s costs)
47.1
22.7
24.4
Fav
Exceptional items
31.7
49.9
(18.2)
(36.4)
Amortisation of acquisition intangible assets
22.7
65.8
(43.1)
(65.4)
Depreciation
19.0
19.7
(0.7)
(3.7)
Amortisation of non-acquisition intangible assets
2.5
2.1
0.4
17.4
Adjusted EBITDA
517.6
495.5
22.1
4.5
Net change in deferred revenues including FX re-translation/Other
7.3
29.2
(21.9)
(74.8)
Net change in deferred cost of goods sold
1.1
(1.9)
3.0
Fav
Adjusted cash EBITDA
526.1
522.7
3.4
0.7
Adjusted net income
Adjusted Net Income represents reported net income plus share-based payments, exceptional items, amortisation of
acquisition intangible assets, unrealised foreign exchange gain/loss on the EUR tranche of the bank loan, the tax impact
from the unrealised exchange differences on intercompany loans, tax impact from disposal of business operation, 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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Avast plc annual report 2021
53
$m
FY 2021
FY 2020
Change
Change %
Net Income
348.4
169.6
178.8
Fav
Share-based payments
47.1
22.7
24.4
Fav
Exceptional items
31.7
49.9
(18.2)
(36.4)
Amortisation of acquisition intangible assets
22.7
65.8
(43.1)
(65.4)
Unrealised FX gain/(loss) on EUR tranche of bank loan
(32.2)
62.1
(94.3)
Unf
Tax impact from FX difference on intercompany loans
(1.5)
4.4
(5.9)
Unf
Tax impact of donations
–
(4.7)
4.7
Fav
Tax impact on adjusted items
(2.9)
(15.7)
12.8
81.5
Tax impact of IP transfer
6.3
6.3
–
0.0
Gain on disposal of business operation
(47.0)
–
(47.0)
Unf
Tax impact from disposal of business operation
16.7
–
16.7
Fav
Adjusted net income
389.4
360.2
29.2
8.1
Unlevered Free Cash Flow
Represents Adjusted Cash EBITDA less capex, cash flows, COVID-19 donations (in 2020) and taxation, 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). Changes in working capital are as per the cash flow statement on
an unadjusted historical basis and unadjusted for exceptional items. In 2020, $24.5m of COVID-19 donations were included
in the calculation of Unlevered Free Cash Flow, as all other exceptional costs are excluded from Adjusted Cash EBITDA
(as defined above) and thus from 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 Revenue.
3
Growth rate excluding currency impact calculated by restating 2021 actual
to 2020 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
On 16 April, 2021 the Group sold a portfolio of mobile parental controls services
including location features, content filtering, and screen time management to
Smith Micro Software Inc (‘Family Safety mobile business’). In the year ended
31 December 2020 the asset generated less than $40m of revenue (USD million),
with a materially lower margin profile than the Group. Billings and revenue until
close of the transaction have been included in the calculation of organic growth,
together with comparable periods in the baseline.
5
In January 2020 Avast decided to terminate the provision of anonymised data
to its data analytics business, Jumpshot, having concluded that the business
was not consistent long term with the Group’s privacy priorities as a global
cybersecurity company. As the company is also exiting its toolbar-related search
distribution business (which had previously been an important contributor to
AVG’s revenues) and the browser clean-up business, the growth figures exclude
all of these (referred to above and throughout the report as 'Discontinued
Business'), which are negligible. 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.
6
Users who have at least one valid paid Consumer Direct subscription (or licence)
at the end of the period.
7
APPC defined as the Consumer Direct 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 revenue for the period of the last
12 months divided by the simple average number of Customers during the
same period.
9
’Fav’ in change % represents a favourable growth rate figure over 100 percent,
‘Unf’ represents an unfavourable decline greater than negative 100 percent.
10 Cash conversion is defined as Unlevered Free Cash Flow divided by Adjusted
Cash EBITDA.
11
Gross debt represents the sum of the total book value of the Group’s loan
obligations (i.e. sum of loan principals) and lease liabilities. Net debt indicates
gross debt netted by the company’s cash and cash equivalents. Both gross debt
and net debt exclude the amount of capitalised arrangement fees (which reflect
the fact that the loan is measured at amortised cost using the effective interest
method) on the balance sheet as of 31 December 2021 of $3.2m (31 December
2020: $2.6m and accrued interest of $(0.1)m).
12 Depreciation and amortisation included in Adjusted Net Income excludes
amortisation of acquisition intangibles.
CFO’s report continued
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54
Principal risks and uncertainties
Our approach to
Risk Management
The Board sets the policy
for managing risks in the
business and in particular
recognises the importance
of robust systems, processes,
and staff training to
ensure an effective risk
management environment.
The policy for managing risks is based
on the appetite of the Board to take
risks in pursuit of the business’ strategy.
The Board’s risk appetite is articulated in
the form of risk appetite statements which
are in the process of being operationalised
through the business.
Our Board and Audit and Risk Committee
provide oversight of our principal risks
and associated management responses to
mitigate those risks, as described below
on page 56. In addition, the newly formed
Security and Privacy Committee has
specifically been delegated responsibility
for information security risk and will
report its outcomes to the Audit and Risk
Committee. The Audit and Risk Committee
monitors the overall effectiveness of risk
management and internal controls.
We scan the internal and external
environment constantly, through the
newly appointed Risk and Compliance
Director, for emerging risks and these
have been reflected in the update to this
year’s principal risks. The principal risks
and uncertainties, including any emerging
risks, have been identified by benchmarking
ourselves against our competitors and
other premium listed companies. We then
reviewed the previously identified risks with
the relevant executives, who assessed the
impact and mitigation strategies. We will
continue to review and update both the
risks, the impacts, and our management
responses to these. There are ongoing
discussions around risk management at
both the Audit and Risk Committee and
the newly formed Security and Privacy
Committee, who provide both challenge
and oversight to the Executive team.
We have implemented a 3 Lines of Defence
Model, where the responsibilities for
risk management and risk mitigation are
allocated as follows:
1st Line of Defence – the Business
Line Management – primarily responsible
for managing its own processes
and identifying and controlling risks
using control frameworks and
implementing internal processes
and appropriate controls.
2nd Line of Defence – the Compliance
and Risk Management function –
responsible for setting the enterprise
frameworks and for independent
reporting to the Audit and Risk and
Security and Privacy committees.
Also advises the 1st line.
3rd Line of Defence – Internal Audit –
provides assurance about the design and
effectiveness of the 1st and 2nd lines and
reports to the Audit and Risk Committee.
Also advises to improve processes.
The Board recognises
the importance of an effective
risk management environment
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55
Principal risks and uncertainties continued
Developments in risk management
over the year
There have been a number of developments
in risk management at Avast throughout
2021. In June 2021, Avast created a new
role and appointed a Risk and Compliance
Director, who has responsibility for
developing a risk, compliance, and control
framework suitable for a FTSE 100
company. Over the course of the year,
the Head of Internal Audit function left the
business, which provided the opportunity
to reorganise the reporting lines, such that
the Internal Audit function now reports to
the Risk and Compliance Director, who, for
the purposes of Internal Audit, has a dotted
reporting line to the Chair of the Audit and
Risk Committee.
As Avast matures from a newly listed
Company to an established constituent
of the FTSE 100, the Board is keen to
ensure that the development of the risk
management framework evolves to keep
pace with the needs of a premium listed
FTSE 100 company.
As the next step in maturing the risk
management environment, this year the
Board has placed a particular focus on
the importance of identifying, assessing,
managing, monitoring, and reporting
risk within the business. In particular, the
Company has developed and set in motion
a roadmap of activity, approved by the
Audit and Risk Committee, to bring the
risk management, compliance, and control
practices in line with the standards set out
by the COSO framework (see page 101 for
further details). This roadmap is progressing
well, with it estimated that this work will
take two to three years to fully complete.
The Audit and Risk Committee considered
and approved a similar roadmap of activity
to develop the Internal Audit function.
To support the delivery of both roadmaps,
we have partnered with Deloitte LLP to
leverage their expertise and resources.
The Board have carried out a robust
assessment of the Company’s emerging and
principal risks. In considering the principal
risks for the year ended 31 December 2021,
the following changes have been made:
The ‘Global Pandemic’ risk has been
replaced with the ‘Macroeconomic
Environment’ risk, given that the
pandemic ‘event’ has occurred.
This updated risk includes the ongoing
recovery from the pandemic and the reset
of the global economy to a ‘new normal’
and the inherent uncertainties that are
within this. We also recognise that
further pandemics remain a risk.
The ‘People’ risk has been amended to
include ‘Culture’, to reflect the risk of
the wrong culture inhibiting our ability to
retain and recruit the right talent.
Our ‘Offering’ risk has also been amended
to include ‘customer needs’, to reflect
the need to really understand the trends
in customer demand now and in the
future, and the need for Avast to adapt
its offering accordingly.
We have split out the ‘Privacy and
Security’ risk into two separate risks,
‘Data and Privacy’ and ‘Cybersecurity/IT
Systems and Infrastructure’, to reflect the
growing importance of managing these
risks well to protect our customers and
the reputation of the Company.
Finally the ‘Regulatory’ risk has been
updated to ‘Legal and Regulatory
Compliance’, and included within
this we recognise the growing risk of
climate change and the regulations
surrounding this.
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56
Principal risks and uncertainties continued
Principal risks
The principal risks identified for the year ended 31 December 2021 are:
Description of risk
Movement
Potential impacts
Mitigation and strategy
The Macroeconomic Environment
(including the pandemic)
The COVID-19 pandemic
continues to create uncertainty
and sets a challenging economic
environment within which the
business operates. The imposition
of controls set by governments
limits the movement of people
and slows down the economic
growth in most countries. There
is uncertainty about when we will
return to a ‘new normal’, or even
what a ‘new normal’ is, and the
threat of a further disruption from
global political, environmental,
social, and health events exists.
The uncertainty and lower level of economic activity may
reduce consumer demand.
In addition, employees may continue to be forced to work
from home or adopt a hybrid working model, with the risk of
reducing productivity and efficiency.
The travel restrictions imposed by governments may also
limit the ability of staff to travel internationally, or locally,
and hence collaborate with each other and third parties.
Business processes and working practices are changing to
accommodate these new ways of working, and will be constantly
reviewed as the situation evolves.
Avast maintains a strong balance sheet and sufficient cash to meet
its obligations, and is diversifying its business model.
It has also invested in technologies and working practices to help
its staff to continue to work effectively and as efficiently as possible.
It will continue to adapt and respond as the new normal emerges.
Competitors
The consumer security business
continues to be complex and
competitive. As new technologies
emerge from existing and new
competitors, these can quickly
disrupt the market. These
competitors may also limit or
restrict access to existing product
interfaces, and hence it may
become harder to develop our
products on their platforms.
This increasingly competitive and complex landscape
may impact the operational and financial performance
of the business.
It is harder to deliver our products to consumers if these
competitors are more successful at developing and
marketing their products.
In response, we track the activity in the market and analyse this in order
to adapt our strategy.
To enable this strategy, we develop products internally, partner
with third parties where it is commercially sensible to do so, and also
acquire firms to bring their product in-house.
We also continue to evolve the Avast brand and invest in marketing the
new brand, to increase the level of recognition in the market.
Our diversification strategy will also deliver new products which
complement our existing products.
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57
Description of risk
Movement
Potential impacts
Mitigation and strategy
Offering and Customers’ Needs
Failure to keep track of
customers’ demands and
needs will result in products that
are less appealing to users.
The impact of failing to keep up to date will see a decline in
the free user base and also a less attractive set of products
that customers are prepared to pay for, that can generate
revenue for the Company.
The widespread acceptance of products and services
(such as Identity and Avast One) in the marketplace is
necessary to remain competitive.
We have carried out extensive market research in order to target
our investment in product innovation and product management.
This investment has not been affected by the pandemic.
The recent launch of Avast One is our key strategy to meet the needs
of the global customer base.
We are also diversifying into the Identity market, and our recent
acquisition of Evernym, alongside an organic growth strategy,
reflects customers' growing need for products in this market.
We will continue to pursue organic and inorganic strategic
opportunities to meet customers' needs, now and in the future.
People and Culture
The success of the business
depends on the talents and
commitment of highly skilled
individuals and teams, in a tight
talent market where employees’
attitudes are changing due to
the pandemic and the demand
for flexible/hybrid working.
Competition for these individuals
is high, and setting the right culture
for these individuals to operate
within is key. This risk is elevated
as a result of the corporate
activity underway, including the
NortonLifeLock Merger.
Failing to create and maintain the right culture may result in
individuals leaving and/or making it difficult to attract talent
from the market.
This risk is heightened with the announcement of the
proposed Merger with NortonLifeLock.
We continue to implement our People Strategy, with the aim
of increasing engagement and measured through our
engagement surveys.
We have also created a Diversity and Inclusion Committee, which
helps to set and drive the strategy to create a diverse workforce and
an inclusive environment within which people can be at their best.
In spite of the headwinds created by the pandemic and ongoing
corporate activity, the Company is committed to, and continues to,
deliver its Diversity and Inclusion programme.
We offer a diverse range of training at all levels of the organisation,
to help colleagues continually improve and develop.
We also host regular 'All Hands' calls for the entire Company, which give
the CEO and the Executive team the ability to communicate openly and
candidly on a range of topics.
First Line managers are being trained and skills enhanced to help them
manage in the ‘new normal’.
Data and Privacy
We store and use a lot of data,
including customer data. The
data must be managed and used
in accordance with the relevant
privacy rules and regulations.
Failure to manage data in an appropriate manner increases
the risk of reputational damage.
The failure to provide the products and services that our
customers demand.
Litigation and enforcement action by regulators.
Increased management time in addressing any issues.
We mitigate and manage this risk through a robust data
management programme.
The implementation of privacy-by-design within our infrastructure
and systems.
This is supported by employing privacy and data specialists within the
Data Office and the wider business.
We are focused on the continual improvement of our internal controls
relating to data and privacy.
Employees have been, and will continue to be, trained on data
and privacy.
Principal risks and uncertainties continued
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Description of risk
Movement
Potential impacts
Mitigation and strategy
Cybersecurity/IT Systems
and Infrastructure.
There is an inherent risk in the
industry we operate within that our
systems become compromised
through a cyberattack or similar.
Should our systems become compromised, this may result
in the leakage of data and/or the interruption of services
for customers.
The impact of any such attack would be on the reputation
and brand of the Company, and also on management time
and resources to resolve the issue.
We strive for strong, effective, and comprehensive 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.
We follow the security lifecycle of prevent-detect-respond-verify
as a continuous improvement process at Avast.
We try to prevent security incidents by creating policies and a
defensible architecture.
As we develop new systems and products, we design the required
level of security into these, and we continue to migrate our systems
and infrastructure from on-premises to the public cloud, to meet
increasingly complex security demands in a cost-effective way.
Our ‘red’ team, as part of the Information Security function, is
responsible for finding weaknesses within the Group’s systems and
technologies before bad actors can, and we continue to ensure
sufficient resources and employees with appropriate experience
are hired.
As part of our detection and response capability, our Security
Operations Centre/Computer Emergency Response Team make sure
that we have continuous 24x7, 365 days per year monitoring of our
networks and systems.
Principal risks and uncertainties continued
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Description of risk
Movement
Potential impacts
Mitigation and strategy
Legal and Regulatory Compliance.
We operate a digital business
globally, and the scale and
complexity of new laws, including
those regarding data protection,
auto-renewal billing, and tax, are
increasing as the digital economy
becomes the backbone of global
economic growth. As new laws and
regulations are introduced and/
or there are new interpretations of
existing laws, these may impose
restrictions on the business. We
also recognise the growing threat
of climate change and the role
Avast has within this – the key risk
is not complying with the emerging
regulations and the reputational
impact that would arise from this.
There is a risk that we fail to comply due to the fast-changing
nature of the global environment.
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.
There is also the impact on management time and resources
to resolve any issues.
To manage this risk, we actively monitor global legal developments to
identify and meet our regulatory obligations and respond to emerging
requirements, and 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.
A Risk and Compliance Director was appointed midway through
2021 to modernise the risk, compliance, and audit capability.
Additional considerations/
emerging risks
The Board continues to monitor 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 our approach to ESG and
Task Force on Climate-Related Financial
Disclosures (TCFD), Avast is committed
to managing its environmental impacts
responsibly, and this is set out in our
TCFD disclosure on page 71.
Brexit
Following the end of the transition period
on 31 December 2020, the UK has exited
the EU. 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 Co-operation
Agreement). 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. While there may be additional
administrative burdens, the Board still
considers that Brexit and the new trade
deal will have a limited impact on the
Company and its business.
Given the European Commission’s decision
to grant adequacy to the UK with respect
to transfers of personal data between the
UK and the EU, Brexit had no impact on
transfers of personal data to our Group
companies and partners located in the UK,
and continues to have no impact.
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.
Principal risks and uncertainties continued
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Viability statement
The Directors have considered that the
recommended Merger with NortonLifeLock
Inc. ('NortonLifeLock') represents the
most significant event impacting the
Company in the viability period. In forming
their view on the viability of the Group, the
Directors have considered two scenarios,
being where the Merger does not proceed
and the Group continues to operate as in
prior years (‘Standalone Scenario’) and
the scenario where the recommended
Merger proceeds as expected (‘Combined
Company Scenario’).
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 56 to 59 of the
annual report. Based on this 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 2024.
The Group’s prospects are assessed
primarily via its annual planning and
budgeting processes, which produce a
three-year strategic plan supported by a
more detailed one-year budget. Planning
processes include liquidity and covenant
headroom profile analyses which consider
sensitivity to business as usual risks
impacting EBITDA. Progress against the
strategic plan is reviewed regularly by the
Board through presentations from senior
management on the performance of their
respective business units.
While the Directors have no reason to
believe that the Group will not be viable
over a longer period, the period of three
years has been chosen, as it 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 13 months), thereby providing
a degree of certainty over the forecasting
assumptions used while also, in the view
of Directors, providing an appropriately
long-term outlook. The Directors considered
whether three years remained appropriate
in the Combined Company Scenario and
concluded that it was appropriate, given
there is an expectation that the Avast brand
and business model continue through the
viability period.
Standalone Scenario
In making this viability statement, Directors
reviewed the assessment of principal
risks facing the Group, including those
that would threaten its business model,
future performance, solvency, or liquidity.
Although the output of the three-year
planning process represents Directors' best
estimate of the future prospects of the firm,
the base financial plan has been assessed
against a range of alternative scenarios
representing plausible manifestations of
the principal risks. The scenario with the
most significant individual impact was
a sustained 20% year-on-year decline in
billings in the Customer Direct Desktop
business. The stress testing, in which
scenarios were applied both individually
and in combination, did not result in either a
liquidity issue or a covenant breach during
the assessment period.
Directors 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 breach the Group’s
covenants or exhaust all available cash
within the assessment period. Only in an
extreme scenario, in which Consumer
Direct Desktop billings contracted by
approximately 34% year-on-year (or
approximately 70% over three years)
with no meaningful mitigating actions
and while still paying a dividend,
was the covenant breached.
The process of identifying, assessing, and
managing principal risks is set out in the
Audit and Risk Committee report on pages
97 to 103. 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.
Combined Company Scenario
In addition to the above, the Directors
considered the impact of the expected
Merger with NortonLifeLock on the viability
of Avast. The Boards of NortonLifeLock
and Avast believe the recommended
Merger has compelling strategic logic and
represents an attractive opportunity to
create a new, industry-leading consumer
cybersafety business, leveraging the
established brands, technical expertise,
and innovation of both groups to deliver
substantial benefits to consumers,
shareholders, and other stakeholders.
In forming a view on the impact on Avast’s
viability, the Directors considered specific
factors listed in their going concern
conclusion on page 134. In addition to
those, the Directors considered that the
Combined Company will be in the control of
a largely new Board, and therefore, as time
extends beyond the going concern period,
the current Board of Avast has more limited
insight into the future direction of the
Combined Company. Further, the Directors
have not had sight of the Combined
Company’s long-term plan in forming their
view of viability. The Directors did, however,
consider that per NortonLifeLock regulatory
filings, Consensus Financial Projections
indicate that both the Company and
NortonLifeLock will grow individually in the
long term. Further, they considered in the
viability period there will have been more
time for the Merger synergies to be realised.
The Directors also considered that the
majority of the Combined Company’s
debt is repayable in 2027 and subsequently.
Further, the Directors considered the
$1.5 billion Revolving Credit Facility
available to the Combined Company also
has a maturity of 2027.
Based on all of the above, the Directors
consider the Company to be viable in the
scenario where it proceeds as a Standalone
Company or as a Combined Company with
NortonLifeLock.
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61
2021 was a year
of unprecedented
change for Avast
The year began with a focus
on engaging and mobilising
our people to deliver the new
vision and strategic plan,
launched in Q4 2020.
As a consequence, the areas of focus as
we entered 2021 included support for
embedding new ways of working and
stabilising teams following a period of
significant transformation and restructuring
in support of the new strategy. Over the
course of the year, our focus turned towards
other strategic activities, including the
divestment of the Avast Family Safety
business to SMSI, as well as ensuring we had
the optimum talent acquisition approach
to meet the growing need for talent to fuel
business growth in a far more competitive,
global labour market.
During the course of the year, we continued
to navigate the challenges presented by
the global pandemic. We provided ongoing
wellbeing support for Avastians globally
and during the course of the year launched
a new Global Employee Health & Wellbeing
Programme, providing a blended offer of
services to help keep our teams productive
and engaged. As local COVID-19 regulations
eased, colleagues were safely welcomed
back to our offices. The focus on developing
capability in the business also continued,
with the implementation of the new
Avast Learning Hub and launch of the
second cohort of our First Line Leader
programme. The end of 2021 saw an
uptick in preparations for the Merger
with NortonLifeLock, with particular
focus on internal communications and
change-related development programmes
to ensure colleagues were engaged,
informed, and supported through the
process. The consequence of the Merger
on the activity of the People and Culture
function was the reprioritisation of
programmes of work, resulting in some
activities, such as the relaunch of our values
and the revised Reward and Performance
Strategy, being placed on hold. However,
other initiatives became more critical,
such as the retention of key talent, helping
colleagues to understand their RSU
holdings, and ensuring people data, policies,
and processes were robust to support
integration preparations.
People and culture
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Company culture
Throughout 2021, we continued to place
significant emphasis on articulating and
strengthening our desired culture and
ways of working. In addition to our values
– Customer comes first, Think big, No BS,
Give back – we focused on embedding
the concept of Growth Mindset as the
foundation on which our behaviours
and approach to work are built. We also
continued to work closely with the Change
Engagement Group (CEG), which 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
at least once a month to discuss topics such
as the Your Voice survey results, employee
wellbeing, and our approach to performance
management, as well as being given the
opportunity to share feedback or concerns
on business change programmes such as the
divestment of the Family Safety business
and the Merger with NortonLifeLock.
In addition to the annual employee
engagement survey, Your Voice
(see page 65), when it is appropriate
Avast also conducts ad-hoc pulse check
surveys to monitor employee sentiment
and obtain real-time feedback. Such
pulse checks were undertaken prior to the
reopening of our offices and also following
the announcement of the Merger with
NortonLifeLock. The highlights from these
surveys, as well as updates on initiatives
which support the development of our
culture and ways of working in general,
are reported to the Board on a quarterly
basis through the People and Culture Board
Report. Following the announcement of
the Merger, such updates were provided
on a daily basis, to ensure the Board were
apprised of the employee response to
these changes immediately.
The Future of Work initiative
Following its launch in late 2020, the
Future of Work initiative was successfully
embedded in 2021, enabling all our people
to work in a more flexible way and receive
the benefit of RSUs, which were granted
in January 2021. This programme saw
the successful rollout of the ‘Whole Life
Flexibility’ framework, which empowers
employees to choose where, when, and how
they work. This meant the removal of strict
requirements on specific work start and
end times or daily number of working hours;
employees are also able to take time off in
the middle of the day, when and if needed.
Unlimited personal time off (PTO) has also
become a standard in all jurisdictions,
allowing employees to take days off for
their mental wellbeing, to spend with their
families, or pursue personal goals, provided
they are able to meet the obligations of
their roles. The framework also provides
a formal approach to the ‘Work From
Anywhere’ concept, including supporting
those who wish to work from abroad to
do so in a compliant way and delivering
contractual changes to a significant
proportion of colleagues, who chose to
work remotely rather than from the office
on a permanent basis.
Customer focus
An innovative, digital Customer Academy
was developed and launched, helping all
colleagues to understand more about our
customers and the impact they can make
on improving their product and service
experience with Avast.
Growth mindset
Our work on culture was aligned with the
business strategy, specifically focusing
on the development of the behaviours
needed to support and accelerate future
growth. A Leadership Summit took place on
10 February and introduced the concept of
Growth Mindset to leaders and colleagues.
A wealth of development materials was
launched to support behavioural change,
with a specific focus on improving operating
performance and developing others.
Furthermore, Avast’s First Line Leader
programme, which incorporates 37 hours
of targeted leadership development
activities, was relaunched and aligned
to Growth Mindset, to ensure our new
people managers are able to role model
this concept in how they lead their teams.
People and culture continued
2021 highlights
37
hours of targeted leadership
development activities,
part of Avast's First Line
Leader programme
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63
People and culture continued
2021 highlights
Your Voice engagement survey
Every December, Avast runs a
company-wide Your Voice survey to
measure employee engagement and
reflect on the year that passed. The 2021
engagement score was 64.8%, based on
the participation of 53% of our workforce.
This compares with an engagement score
of 65% and participation of 81% in 2020.
The 2021 results and participation were
influenced by the global COVID-19
pandemic, as well as the announcement of
the Merger with NortonLifeLock and the
subsequent transaction closing period.
The 2021 survey format and questions were
modified to reflect on the changes and
capture employees' concerns in the context
of the transaction. Despite the uncertainty
and the drop in participation rate, the
engagement score remains the same as
in the previous year, and Avast employees
disclose a positive sentiment about the
Company’s future and vision. 77.4% are
proud to work for the Company and 74.1%
feel like they belong to Avast and are equally
respected, regardless of their background.
This is a testament to the high importance
of diversity and inclusion (D&I), in the
Company culture and the success of our
D&I agenda.
Talent acquisition
By early 2021, it was already clear that the
talent acquisition landscape had become
far more competitive as a result of non-tech
firms dipping into the technology sector
to source digital skills, as more of their
business moved online. This, coupled with
investment in new headcount to support
the business strategy, meant one of the
biggest challenges we faced this year
was the volume of hiring to be delivered.
A new Talent Acquisition Strategy was
implemented to allow for a faster response
rate and greater flexibility in attracting the
best talent globally. A recruitment process
outsourcing arrangement was introduced in
the first half of the year to supplement the
internal resourcing team, and a refreshed
set of preferred supplier partnerships was
introduced to support Executive hiring for
leadership positions across the globe.
Once new colleagues were hired, a revised
onboarding and integration approach was
launched to create a positive and welcoming
experience, and enable new recruits to
integrate and make an impact more quickly,
particularly given the ongoing remote
working situation.
Succession planning
While attracting new talent has been the
priority, focus continued to be placed on
identifying and developing high-potential
employees, particularly those in roles
where there is a highly competitive labour
market or who provide succession to critical
business roles. Following the successful
implementation of a new approach to
Executive succession planning and talent
development in 2020, which included a new
approach to high-potential identification
and assessment, a further cohort of
potential Executive Committee successors
were identified and followed the previous
year’s successors with tailored development
plans. Where appropriate, Board members
have continued to act as mentors to these
individuals, to support their career and
personal progression. The Executive
Committee succession plan was further
improved as a consequence of new high-
calibre and high-potential colleagues joining
the business at a senior level.
Employee experience
The implementation of Workday HRIS,
an integrated HR technology platform,
enabled the continued digitalisation of the
employee experience. The system is now
our single source of truth for people data,
while enabling employee and manager
self-service in the delivery of day-to-day HR
transactions, optimising our service delivery
model. Workday has also been leveraged to
drive more efficiency in reporting as well as
in delivery in areas such as recruitment and
reward, and has enabled the launch of the
Avast Learning Hub, which has become a
one-stop shop for all learning activity within
the business.
To support our employees to balance their
work and home lives, particularly against the
backdrop of continued working from home
arrangements, we introduced a
new approach to wellbeing, including
'Zoom Free Fridays' and extended Easter
and Christmas breaks.
One of the key priorities for the D&I team
was to make Avastians accountable and
engaged in co-creating inclusive culture.
Multiple campaigns were launched across
the year, including International Women's
Day, and Pride Month, as well as the events
hosted by our NGO partners.
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64
Operating model
2021 saw the divestment of the Avast
Family Safety business to Smith Micro
Software, involving the transfer of 152
colleagues. A subset of the People and
Culture team has continued to support the
strategic operating model development
for the Identity business, including due
diligence for potential M&A targets and
the successful acquisition of Evernym.
Global pandemic &
hybrid working
Caring for our colleagues' mental
health and wellbeing continued to be a
significant priority for the business
in 2021. We replaced the previous
Employee Assistance Programme with
new partnerships with MYNDUP and
LifeWorks. These external providers offer
a different set of more tailored services to
Avastians, including access to confidential
one-on-one video sessions with trained
counsellors across the whole mental health
and wellbeing spectrum.
At the same time, changes were made to our
ways of working to help combat fatigue with
remote working, including the introduction
of concepts such as 'Mindful Mondays' and
'Zoom Free Fridays', as well as full Company
shutdowns over the Easter and Christmas
holidays, to help people fully switch off and
take a break from work.
Following the peak of the pandemic,
Avast safely reopened almost all of
its offices, ensuring appropriate risk
assessments were completed and control
mechanisms remain in place to deal with
the eventuality of a COVID-19 outbreak
at work. Where the regulations permit,
we have seen gradually higher levels of
daily attendance in all locations.
The completion of a redesign of our
Head Office in Prague, which saw
investment in both the layout and interior
of our office space across seven floors
of our building to create more areas for
collaboration and activity-based work,
has enabled us to fully embrace hybrid
working to help our people be at their most
productive, whatever the task or location.
Employee volunteering
and initiatives
Working with organisations such as
Czechitas, Aj ty v IT, and Code First
Girls, dozens of colleagues across the
business have assisted in training women
in a range of age groups who are inspired
to pursue a career in IT, by mentoring them
in a number of areas such as programming,
testing, data analysis, and cybersecurity.
Also, intending to spread awareness and
enlightenment, we participated in a unique
programme supporting individuals with
autism spectrum disorder (ASD) seeking
employment in the IT sector. We have
trained volunteers from the Avast team to
mentor individuals with ASD to help them
improve their IT skills, raise their confidence
levels, and provide structured social
interaction. See the 'Diversity and inclusion'
section for further details.
One
on One
video sessions tailored to
Avastians, with trained counsellors
across the whole mental health
and wellbeing spectrum
People and culture continued
2021 highlights
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65
Diversity and inclusion
Driven by social responsibility and perceived
economic value, Avast management is
committed to increasing the representation
and belonging of underrepresented talents
in Avast at all levels and in cybersecurity
in general. Therefore, we made D&I one
of our key priorities for 2021 and beyond,
to create a truly inclusive environment so
that representation of women within Avast
increases by 4 points. While focusing on
attracting talented women, especially
into tech roles and leadership positions,
at the same time, we aimed at fostering an
inclusive culture, and equal opportunities
and processes.
Through international partnerships with
non-profit organisations and communities,
a people-processes redesign, awareness
campaigns, inclusive leadership and
allyship training, and unique programmes
for parents, the representation of women
among all employees in Avast grew by
2.2% just in 2021, up to 36.4% among
women in the Executive Management
team, and to 34.6% in senior management.
Governance
The D&I team and agenda are advised by
the D&I Committee, which meets quarterly
and is chaired by Interim Chief Financial
Officer Stuart Simpson and attended by:
Rebecca Grattan, CPCO, Jaya Baloo,
CISO, Pavel Baudis, Non-Executive
Director and Chair for Workforce
Engagement, Maggie Chan Jones,
Independent Non-Executive Director,
Dita Formankova, Diversity and Inclusion
and Communities Director, Chairs from the
employee resource groups, and employee
representatives from across the business.
Further, Avast has a dedicated D&I function
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 each location with more than
100 employees, we have D&I Champions
volunteer, coordinating local activities
and partnerships and representing a voice
of their community and trusted point
of contact in their networks. Moreover,
for each NGO we partner with, we have
community leads, managing the volunteer
mentors, speakers, and lecturers. To build a
genuinely diverse and inclusive culture,
we launched the Employee Resource
Groups at Avast – The Rainbow Alliance,
Women@Avast, and Asians at Avast –
identity or experience-based forums with
the power to voice individual concerns and
to advocate for the group perspectives
via the Executive sponsors. All groups
were actively involved in the design and
delivery of Avast’s biggest D&I campaigns:
International Women’s Day, Pride Month,
and Culture Awareness Day.
Data
We continued operating within our
three strategic pillars we set in 2020,
enabling us to focus on our priorities and
deliver key initiatives with the highest
and measurable impact. Signalling
our commitment to gender diversity
improvements, we set multiple targets,
including the representation of
women at Board level, in Executive
positions, and overall.
2021 highlights
1 Diverse talent pool
2 Inclusive culture
3 Visible impact
Diversity strategic pillars
People and culture continued
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On inclusion, we focused on employee
engagement in D&I advocacy, internal
awareness campaigns, training, and
employee resource groups across leadership
and the organisation, as well as the number
of volunteers engaged in the mentoring,
speaking, teaching, and external outreach
opportunities related to closing gender tech
skills gaps. Additionally, a specific index
has been created within the Your Voice
survey to measure the extent to which
Avastians feel a sense of belonging within
the organisation, with a resulting action
plan. The belonging index increased by
4.1%, to 74.1%, just in 2021.
Employee category
Women
Men
% Women
Board
3
6
33.3%
Executive Management team*
4
7
36.4%
Senior management**
18
34
34.6%
All employees
540
1313
29.1%
Employees in technical roles
186
940
16.5%
Numbers as of 31 December 2021.
*
Executive Management team includes CEO and his direct reports.
**
Senior management includes direct reports to the Executive Management (excluding CEO and administrative support staff reporting
to the Executive Management team).
2021 highlights
Representation in our technology roles had
exceeded by 1.5% the target of 15.0%, and
in our Executive team 36.4% outstripped
the target of 33.0%. Work continues in 2022
to rebalance the overall representation of
females, currently running at 29.1% against
a target of 30.9%.
Board and Executive team diversity
At the end of 2021, Avast’s nine-member
Board comprised of three women as
Non-Executive Directors and six men:
Chair of the Board, two Executive Directors,
and three Non-Executive Directors. We
aimed to reach 33% or higher representation
on our Board and Executive Management
team by the end of 2021, as Ondrej Vlcek
joined the 30% Club in 2020, a global
campaign of CEOs and chairpersons which
aims to increase female representation at
Board and Executive level to at least 30%
through voluntary action. With Avast’s
Board composition at 33.3%, we hit that
goal. Additionally, we met a target on
ethnicity in the boardroom suggested by
the Parker Review: Maggie Chan Jones,
Non-Executive Director, Security and
Privacy Committee Chair, identifies with
an Asian-Chinese ethnic background.
At the beginning of 2021, the Executive
Management team comprised 30% women
(10 members in total), as opposed to 9% in
spring 2020. Kelby Barton, General Counsel
and Corporate Secretary, left Avast in
April and was replaced in the role by
Trudy Cooke, who joined Avast on 1 March.
The gender balance improved to 40%
until 1 July, when Charles Walton joined
the Executive team to lead the emerging
identity business. Further team changes
did not affect the overall representation
of women until the end of 2021, therefore
we closed the year with 36.4% women in
Executive leadership.
36.4%
of the Executive Management team
are women
People and culture continued
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Gender pay equity
We are committed to designing all
people-related programmes with a diverse
perspective at the core. Additionally, to
ensure pay equity, gender-based analysis
and adjustments of salaries at each staff
level across the entire organisation were
conducted as part of the annual salary
review. We introduced a gender peer
comparison ratio (difference in rewards
between men and women peer groups of at
least five peers working in the same location,
the same job family, and the same grade)
as well as the gender pay gap dashboard,
informing each manager on existing pay
equity issues in their teams. The actions to
close the gaps were taken and reinforced by
the Rewards Committee. While our overall
organisational gender pay gap still exists 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.
Diversity and
inclusion programmes
We are building awareness and
accountability internally and externally in a
variety of ways, as well as driving impactful
projects supporting women in technology,
parents at Avast, the LGBTQ+ community,
and individuals with ASD. The D&I agenda is
visibly supported by Avast leadership both
through engagement with our employees,
partners, and press and events.
Supporting women in technology
Within our industry, gender diversity
is sorely lacking, and we have a
responsibility to improve the gender
balance. We established strong partnerships
with NGOs across Europe to improve
our outreach to diverse communities and
become more active in bringing women
and girls into cybersecurity in general, thus
investing in building a pipeline of female
candidates. Internally, we continually strive
to improve our interview and development
processes to ensure that everyone has a fair
and equal chance to live their dream career.
We continued our long-standing partnership
with Czechitas to support digital academies
and requalification courses for women
in data analytics, web development, and
testing (finished by International Software
Testing Qualifications Board certification).
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 sponsored women into
Code First Girls Massive Open Online
Courses and nanodegree programmes.
This organisation serves a community
of more than 50,000 women, 55% of
whom come from a Black or minority
ethnic background. We also funded the
diversitytalentpool.cz platform launched
by non-profit association OPIM, which
connects diverse candidates or those from
minority or underrepresented backgrounds
to companies that value diversity and
create inclusivity. We strengthened our
commitment to closing the gender gap in
technology through sponsoring a number of
diversity-focused events: Code Fest 2021,
womENcourage 2021, Codebar festival,
Czechitas Job Fair, and Meeting C++.
On the occasion of the international 'Girls in
ICT' celebration in April, for more than
50 girls aged 12–19 years we organised a
Code Like a Hero Javascript workshop.
To drive a strong pipeline of diverse
talent, visibility as well as social impact,
we engaged 45 Avast mentors in
partnership programmes. We sponsored
launching seven reskilling academies for
women into Python programming, data
analysis, SQL, and testing, and through
all initiatives impacted 615 female
students, resulting in 10 graduates hired
for internships or entry-level positions.
45
mentors engaged in
partnership programmes
I signed up to the Code First
Girls Nanodegree in March 2021,
having come from retail and
eager to retrain into software
development. I was absolutely
thrilled when I was offered a position
on the course sponsored by Avast!
I had a wonderful mentor from the
Company, who I spoke with every
week and who helped me through
the course. Once I'd passed the
course, I was offered an internship
on the CCleaner web team, where
I've been working for nearly four
months now, and am staying on
as a junior developer – and I'm so
grateful for the support I've been
given by the Company, even before
I worked here!
Heather Cartwright
CCleaner Web Junior Developer
People and culture continued
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Advocacy and
awareness campaigns
All around the globe, the month of March
has always been a matter of remembering
women’s achievements but also about
challenging inequalities. Reflecting the
theme #ChooseToChallenge, more than 400
Avastians actively participated in the rich
International Women’s Month programme
and voted in the International Women's
Day award for an exceptional Avast female
role model. On 8 March, we hosted a
Charity day; based on Avastians’ votes,
we provided donations to three charities
doing exceptional work towards women in
society and raising awareness about the lack
of women in STEM – Black Girls Code in the
US, domestic and cyber violence against
women – ROSA, and also single motherhood
– Klub svobodných matek.
In September, we kicked off the long-term
awareness and educational programme
Bridging Cultural Differences, to highlight
the importance of cultural diversity and
the need for empathy and understanding
in order to foster work relationships, build
trust, respect, and productivity, and
streamline communication. Through D&I
self-paced online learning, live webinars,
and facilitated open discussions, we are
developing a multicultural competence,
required for success in a global working
environment. Throughout the online
learning as well as a number of in-person
sessions, we aimed to enable more inclusive
leadership and managerial behaviours,
to increase cultural competencies and
awareness, equip Avastians with courage to
become allies, to avoid biases in processes
and behaviours, and understand D&I efforts
and benefits globally.
Supporting the
LGBTQ+ community
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 inclusivity generally.
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.
We collected qualitative data from the
LGBTQ+ community revealing that the
greatest opportunities for making Avast
a more inclusive environment rest with
leadership development and engagement
to interrupt bias or harmful comments,
and policies that are clearly supportive
of gender non-binary and transgender
people. The Rainbow Alliance, an employee
resource group, was established, promoting
equality inside and outside Avast, with
emphasis against discrimination based on
gender identity, expression, and orientation,
so that everybody can feel safe and
comfortable with who they are.
The community was involved in the Pride
Month campaign, celebrating authenticity
and allyship. We also sponsored local pride
events and community talks in Prague and
Belgrade, as well as becoming a signatory of
Jsme Fér, an initiative for marriage equality.
To really protect everyone’s digital
life, we need to understand the
needs of specific groups and
minorities such as LGBTQ+ people.
Both common citizens and activists
are targeted around the world and
rely on Avast to ward them against
attacks against their safety and
lifestyle. Keeping Avast diverse is
imperative to be able to protect
those who really need it
Fabrizio Bondi
AI Staff Scientist, Chair of the
Rainbow Alliance ERG
400+
Avastians actively participated
in the rich International
Women’s Month programme
People and culture continued
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Autism@IT
With a goal to spread awareness and
enlightenment, we took part in a unique
programme supporting individuals with
autism spectrum disorder (ASD) who are
seeking employment in the IT sector.
We have trained volunteers from the
Avast team to mentor individuals with
ASD to help them improve their IT skills,
raise their confidence level, and provide
structured social interaction. Mentors
had a chance to try to collaborate with
people on the spectrum and gained
valuable skills and space for personal and
leadership development.
Parents@Avast
We support our employees in all stages of
their lives and careers, including parents
going on or returning from parental leave,
so they continue growing their careers
within Avast. We established a unified,
transparent, automated, and friendly
process for parents leaving for parental
leave and their managers, secured parents
with access to learning opportunities and
Company updates while being on parental
leave, and designed a straightforward
re-onboarding process for parental leave
returns and assistance with childcare in
two main locations: Prague and Brno.
Apart from the unlimited PTO, flexible work
arrangements, and Work from Anywhere
contracts, we offer childcare, entertainment,
and educational services (such as coding
courses for kids) in our primary locations.
We introduced virtual programmes for
parents and children to reflect the pandemic
restrictions applied in many countries
resulting in closed kids' corners. Also, we
introduced a new financial benefit for
working parents on secondary contracts
to maternity leaves in the Czech Republic,
allowing them to balance childcare with
their workload.
D&I is about creating a diverse environment and
supporting people to be open-minded, tolerant,
and empathetic. It is about creating opportunities,
in my case opportunities for parents who want to stay
connected with their work life, helping them to realise
themselves and supporting them to be the version of
themselves they want to be
Zuzana Janečková
Payroll Specialist, HR Business Partner
People and culture continued
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Since our inception,
we have always
looked to be a
responsible business
Social responsibility and sustainability
In 2021, we initiated a
programme to define our
priorities when it comes
to environmental, social,
and governance aspects.
While still early in the process, as part
of our overall ESG programme, we have
developed report cards on ESG metrics
and performance. Each card references
frameworks of the Sustainability Accounting
Standards Board (SASB) and Global
Reporting Initiative (GRI) and is publicly
available for download on our website:
https://investors.avast.com/esg/.
We also took part in the annual
S&P Global Corporate Sustainability
Assessment, widely recognised as the
premier independent ESG evaluation
on companies around the globe. Our total
score was 45 points, which places us in
the 93rd percentile in our industry sector,
comprising 109 participating companies.
By comparison, our 2020 score was
13 points, which placed us in the
39th percentile.
We rated higher than the sector average
in 18 out of the 20 headline factors,
including corporate governance, customer
relationship management, information
security, privacy protection, environmental
reporting, human capital development,
and talent attraction and retention.
By comparison, in 2020 we rated higher
than the sector average in only one factor.
Our scores for each factor (environmental,
social, and governance) have increased
significantly.
Our results show remarkable progress
and improvement, and they emphasise
our ongoing efforts to address the social,
economic, and environmental factors
impacting our business, our employees,
our customers, and our communities.
Company
score
Percentile
ranking
Year
Governance and economic dimension
16
11
2020
Environmental dimension
11
65
Social dimension
8
54
Total sustainability score
13
39
Governance and economic dimension
53
94
2021
Environmental dimension
36
92
Social dimension
36
88
Total sustainability score
45
93
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Social responsibility and sustainability continued
and infrastructure from on-premises
to the public cloud. As a consequence,
the physical footprint of the business is
becoming smaller and more geographically
dispersed. Direct physical climate-
related risks are limited, as the risk of data
disruption is shared across the supply chain.
Avast’s 10 data centres, with the exception
of the two linked to the Prague and Brno
facilities, are currently in the process of being
fully migrated to a public cloud platform.
Seven of these eight data centres being fully
migrated already use renewable energy. It is
planned that the workload from the remaining
Prague and Brno data centres will be partially
offloaded to a public cloud platform.
The transition of the global economy to
reduce carbon emissions and evolving
regulatory requirements at a national level
are important considerations for the Group.
Management also believes that addressing
climate risks could provide opportunities
for increased business efficiencies in
the medium to long term. It is also a
consideration in the competition to recruit
and retain industry talent.
Risk management
The Audit and Risk Committee makes
recommendations to the Board on the principal
risks of relevance to the business. Climate-
related issues are considered in terms of
potential for contribution to these principal risks.
The issues considered include both
the risk of physical disruption to the
business from climate change, and the
risks and opportunities as the global
economy transitions to significantly lower
carbon emissions. In the current period,
the Audit and Risk Committee concluded
that climate-related risks did not rise to the
level of a principal risk, except as part of
Legal and Regulatory Compliance.
Metrics and targets
Avast has measured its GHG emissions
since 2018. These GHG emissions cover
Scope 1 direct emissions from the usage
of fuel and operation of its buildings,
and indirect Scope 2 emissions from
electricity consumption on site. Electricity
consumption makes the highest overall
contribution to GHG emissions.
Management intends to expand the
measurement and reporting on environmental
sustainability in support of continual
improvement. Avast is moving to a carbon-
neutral service for most of the data centres,
using a cloud platform. Data consumption
in applications is optimised to work in the
cloud effectively, saving money, energy, and
data-processing requirements. The Company
also purchases green energy for the offices in
Prague and Brno, Czech Republic.
Additional statement
Before the ongoing Merger negotiations
with NortonLifeLock, it was our plan to
conduct and assess a comprehensive
climate-related scenario or scenarios and
examine in detail the respective physical
and transition risks and opportunities.
These would then have been discussed and
analysed to understand if any adjustments
needed to be made from a financial or
operational perspective. The outcomes and
implications from this scenario or scenarios
would have then been reported.
Task Force on Climate-related
Financial Disclosures
The Financial Stability Board
created the Task Force on Climate-
related Financial Disclosures
(TCFD) to improve and increase
reporting of climate-related
financial information.
This is our first TCFD disclosure, and we
will continue to evolve our approach and
reporting in future years.
Bearing in mind the ongoing Merger
discussions between Avast and
NortonLifeLock (described on page 7),
it was decided not to conduct scenario impact
assessments at this point but to ensure that
the necessary governance is in place and that
climate risk has been properly integrated.
In this section, we have provided an overview
of our progress and priorities against the
requirements of Listing Rules 9.8.6R. The
Company has assessed its compliance with the
TCFD Recommendations and Recommended
Disclosures and the table on the following page
sets out the areas where it is not compliant,
together with the reasons and any next steps.
Governance
Avast is committed to managing its
environmental impacts in a responsible way.
The Board assumes overall responsibility
and accountability for the management of
climate-related risks and opportunities.
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.
Strategy
Avast’s principal product is software. The
business does not contribute significantly
to direct greenhouse gas (GHG) emissions.
However, the business does recognise that
the energy consumed in its supporting
operations and value chain, including its
servers and data centres, does impact on
GHG emissions indirectly.
Through the Company’s risk management
framework, management has identified
physical climate risks as those which arise
from both gradual changes in climatic
conditions and extreme weather events
that can result in asset damage, resource
depletion, and disruption. Transition risks
have been identified as those that occur in the
process of moving to a low-carbon economy.
These include government policy changes
and reputational impacts, as well as shifts in
market preferences, norms, and technology.
Management recognises that major physical
impacts from climate change could lead
to failure across interdependent networks,
disruption to power networks, flooding,
and reputational damage. As a result, the
Group has been migrating its systems
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Disclosure
Commentary
Compliance
Describe the Board’s oversight of
climate-related risks and opportunities
The Board, supported by the Audit and Risk Committee, assumes overall responsibility and accountability for the
management of climate-related risks and opportunities. The Audit and Risk Committee makes recommendations to the
Board on the principal risks of relevance to the business; climate-related issues are considered in terms of potential for
contribution to these principal risks. In August 2021, an overall assessment of Avast’s approach and performance around
ESG, including climate, was conducted by management, in conjunction with external consultants, and a report and
recommendations were submitted to the Executive team for consideration. Consideration of climate risk and the need
to consider, implement, and report on the TCFD methodology were part of these recommendations.
In response, a TCFD working committee was established, which reports through to the Audit and Risk Committee.
Compliant
Describe the management’s role in
assessing and managing climate-related
risks and opportunities
Management has undertaken a review of the Company’s enterprise management risk approach, and climate-related issues
have been integrated into the core risk management process.
Compliant
Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium, and long term
Physical and transition risks are considered to be principally linked to the Company’s use of data centres. The majority of
these are in the process of being migrated to a cloud platform, which will reduce risks. Management is in the process of
identifying climate-related opportunities for the business.
Partially
compliant
Describe the impact of climate-related risks
and opportunities on the organisation’s
businesses, strategy, and financial planning
Climate-related risks have been integrated within the Company’s principal risks under legal and regulatory compliance risks.
As the TCFD working committee continues its work, in future periods these climate-related risks and opportunities will be
integrated into the business, strategy, and financial planning.
Partially
compliant
Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C
or lower scenario
Bearing in mind the ongoing Merger discussions between Avast and NortonLifeLock, it was decided not to conduct
scenario impact assessments at this point but to ensure that the necessary governance is in place and that climate risk
has been properly integrated.
Non-
compliant
Describe the organisation’s processes for
identifying and assessing and managing
climate-related risks
Avast has formed a TCFD working committee to identify, assess, and manage climate-related risks, which reports through
to the Audit and Risk Committee. The Audit and Risk Committee oversees the risk management process and framework,
with the Board considering climate-related risks and opportunities.
Partially
compliant
Describe the organisation’s processes for
managing climate-related risks
Avast considers climate-related risks and opportunities through the Board, Audit and Risk Committee, and its risk
management process and framework. These are described on pages 54 to 59.
Partially
compliant
Disclose the metrics used by the organisation
to assess climate-related risks and
opportunities in line with its strategy
and risk management processes
GHG emissions are disclosed in the annual report, including Scope 1 and 2, and are aligned to the Greenhouse Gas
Protocol Corporate Standard. It is intended that further metrics for climate-related risks and opportunities will be identified
after the Merger with NortonLifeLock is completed and integrated into the business and management processes.
Partially
compliant
Describe Scope 1, Scope 2, and, if appropriate,
Scope 3 GHG emissions, and the related risks
GHG emissions are disclosed in the annual report, including Scope 1 and 2, and are aligned to the Greenhouse Gas Protocol
Corporate Standard. The Company is taking steps to better understand Scope 3 emissions.
Compliant
Describe the targets used by the organisation to
manage climate-related risks and opportunities,
and performance against targets
Bearing in mind the ongoing Merger discussions between Avast and NortonLifeLock, targets have not yet been set at this
stage. It is intended that targets for climate-related risks and opportunities will be identified and set after the recommended
Merger with NortonLifeLock is completed, and performance of these targets will be monitored.
Non-
compliant
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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 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.
The emission factors (i.e. factors/
coefficients that determine the emission
intensity of particular activities) for the
carbon footprint calculation are taken
from several sources. Where available,
national documents and tools are used
to provide specific emission factors for
the Czech Republic (mainly for energy-
related aspects). For other activities
and aspects, the emission factors are
obtained from international documents
(e.g. Intergovernmental Panel on Climate
Change – IPCC – Guidelines for National
Greenhouse Gas Inventories) and the
UK Government GHG Conversion Factors
for Company Reporting tool.
Even though the main headquarters of the
Company are located in Prague, Avast
operates across the world. The first caveat
lies in calculation of a carbon footprint in
these different countries. While in the case
of the Czech Republic, specific emission
factors were calculated based on the
country energy mix, for the rest of the world,
generic emission factors derived from the
UK Government GHG Conversion Factors
for Company Reporting tool (Department
for Environment, Food and Rural Affairs –
Defra factors 2021) were used instead.
This inevitably introduces a certain
inaccuracy into calculations, but on the
other hand, consumption of electricity
from these countries represents only about
10% of the total electricity consumption.
In case of emissions from diesel combustion,
Defra factors were used as well, in order to
maintain consistency among the reports
(in previous reports, Defra factors were
used for calculating emissions of the
diesel), even though coefficients from
IPCC guidelines are often used in the Czech
Republic. When it comes to electricity, for
spaces that are leased, an estimate was
calculated based on the area of each office
(an average of kWh/m2 was obtained from
the offices, which was then extrapolated).
These offices represent only 2% of all
building operations (data centres excluded)
and 0.7% of all operations (data centres
included), therefore the simplification is less
influential. When it comes to heating, the
extrapolation represents about 30% of the
total heated area.
The calculation of the 2021 carbon footprint
was obtained using emission factors for
the Czech Republic determined by the
Decree No. 140/2021 Coll. on Energy
Audit, supplemented with emission factors
from other external sources (e.g. IPCC
Guidelines for National Greenhouse Gas
Inventories, Defra).
For the operations in the Czech Republic,
the emission factor for electricity was
derived from yearly electricity consumption
(published by the Czech Energetic
Regulatory Office) and CO2 inventory
for the Czech Republic.
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74
2021 greenhouse gas calculation
The majority of Avast’s emissions come
from the operation of office facilities and
data centres. As the Company is looking
at ways to improve energy efficiency and
reduce overall carbon emissions, a number
of measures are already in place. These
include PET-free offices, which are also
equipped with waste separation, recycling
programmes, and light- and climate-control
mechanisms to reduce energy consumption.
Starting in 2021, Avast purchased
green energy1 for its two largest offices,
in Prague and Brno, Czech Republic; both
are housed within BREEAM Excellent
New Construction certified buildings,
and have been used since 2016 and 2018,
respectively. In Prague, Avast employees
can find chargers for electric vehicles, with
dedicated parking allotted to those who
drive electric cars. Avast uses 10 primary
data centres, of which seven operate on
green energy only. Purchased hardware
– both for employee use and within data
centres – comes from reputable suppliers.
Older hardware is either sold to employees,
donated, or recycled with certified
electronics suppliers.
1
According to GHG protocol (A Corporate Accounting
and Reporting Standard, revised edition), green energy
is a generic term for renewable energy sources and specific
clean energy technologies that emit fewer GHG emissions
relative to other sources of energy that supply the electric
grid. This includes solar photovoltaic panels, solar thermal
energy, geothermal energy, landfill gas, low-impact
hydropower, and wind turbines.
Table 1: Carbon footprint summary
Scope
2018
2019
2020
2021
(t CO2e)
(%)
(t CO2e)
(%)
(t CO2e)
(%)
(t CO2e)
(%)
Scope 1
(usage of fuel
and operation
of buildings)
96.1
2.14
77.6
1.72
57.9
1.49
43.5
1.20
Scope 2
(emission from
electricity)
4,395.8
97.86 4,443.6
98.28 3,886.1
98.51 3,613.2
98.80
Total
4,491.0
4,521.2
3,944.0
3,656.7
Intensity ratio
(tCO2e/$m
adjusted revenue)
5.42
5.18
4.42
3.88
10
primary data centres,
of which seven operate
on green only
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75
UK vs offshore emissions
In addition to the general calculation of the overall carbon footprint, the carbon footprint of UK operations and other/offshore operations1 was carried out. The results are provided in the
following table.
Table 2: UK vs offshore carbon footprint
Location
2020
2021
Scope 1
(t CO2e)
Scope 2
(t CO2e)
Overall
(t CO2e)
Scope 1
(t CO2e)
Scope 2
(t CO2e)
Overall
(t CO2e)
UK
19.5
36.7
56.2
39.3
21.4
60.7
Offshore
0.0
0.0
0.0
0.0
0.0
0.0
Other
38.4
3,849.4
3,887.8
4.2
3,591.8
3,596.0
Total
57.9
3,886.1
3,944.0
43.5
3,613.2
3,656.7
Table 3: UK vs offshore consumption in 2021 (kWh), excluding green energy
Location
Scope 2
Scope 1
UK vs offshore
EE (KWh)
Steam (KWh)
Heat (KWh)
Total (KWh)
Diesel (KWh)
Gas (KWh)
Total (KWh)
Offshore
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Other
6,279,749.6
0.0
1,013,838.4 7,293,588.0
16,482.3
0.0
16,482.3
UK
100,691.9
0.0
0.0
100,691.9
0.0
193,650.5
193,650.5
Grand Total
6,380,441.5
0.0 1,013,838.4 7,394,279.9
16,482.3
193,650.5
210,132.8
Table 4: UK vs offshore consumption in 2020 (kWh), excluding green energy
Location
Scope 2
Scope 1
UK vs offshore
EE (KWh)
Steam (KWh)
Heat (KWh)
Total (KWh)
Diesel (KWh)
Gas (KWh)
Total (KWh)
Offshore
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Other
7,255,239.2
436,388.9
802,872.0 8,494,500.1
21,497.9
180,611.5
202,109.4
UK
151,478.1
0.0
8,034.8
159,513.0
0.0
106,133.0
106,133.0
Grand Total
7,406,717.3
436,388.9
810,906.8 8,654,013.0
21,497.9
286,744.5
308,242.4
1
The Company offices (and data centres) are categorised based on their location. The categories used are UK, other, and offshore. The offices based in the UK are categorised as UK, while all other offices are categorised as other; no office is categorised as offshore at the moment.
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Scope 1: Direct emissions (energy)
Scope 2: Indirect emissions (energy)
This scope, sometimes also referred to as direct emissions, covers production of
GHG by sources owned or controlled by Avast (natural gas and fuel for vehicles).
The emission factors for both the natural gas and fuels (diesel) were used based on the
UK Government GHG Conversion Factors for Company Reporting tool (Defra factors).
Table 5: Carbon footprint – Scope 1
Fuels
Emission factor
(kg CO2e/unit)
2020
2021
Consumption
(unit)
Carbon
footprint
(t CO2e)
Consumption
(unit)
Carbon
footprint
(t CO2e)
Natural gas
183/203.01 286.74 MWh
52.7
193.7 MWh
39.3
Diesel
2.6
2,031.94 l
5.2
1,657.8 l
4.2
Total
57.9
43.5
1
The first number is the emission factor used in 2020, the second is the one used in 2021.
Scope 2 investigates emissions of GHG from the generation of purchased energy
consumed by the Company. Most typically this is electricity, but sometimes also
heat or steam used for heating operations.
For the operations in the Czech Republic, the emission factor for electricity was
derived from yearly electricity consumption (published by the Czech Energetic
Regulatory Office1) and CO2 inventory for the Czech Republic.2
For the rest of the operations (outside the Czech Republic), the emission factors
were used based on the UK Government GHG Conversion Factors for Company
Reporting tool.
1
Accessible at https://www.eru.cz/en/zpravy-o-provozu-elektrizacni-soustavy.
2
Accessible at https://unfccc.int/documents/271576.
Table 6: Carbon footprint – Scope 2, excluding green energy
Energy
Emission
factor
kg CO2e/
MWh
2020
2021
Consumption
MWh
Carbon
footprint
t CO2e
Consumption
MWh
Carbon
footprint
t CO2e
Electricity CZ – buildings
540/5621
2,855.3
1,541.9
0
0
Electricity rest of the
world – buildings
233/2121
858.5
200.1
579.5
123.1
Electricity CZ – data centres
540/5621
3,093.1
1,670.3
5,581.6
3,136.8
Electricity rest of the
world – data centres
233/2121
599.9
139.8
219.4
46.6
Heat CZ
343/3961
696.8
239.0
589.0
233.4
Heat rest of the world
172
114.1
19.6
424.9
73.3
Steam
172
436.4
75.1
0
0
Total
8,654
3,885.6
7,394.3
3,613.2
1
The first number is the emission factor used in 2020, the second is the one used in 2021.
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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's
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: Supplier
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, 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 US
Department of Commerce Denied Persons
List; the US Department of Treasury’s
Specially Designated Nationals List;
US 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.
Over the course of 2021, Avast engaged
Deloitte LLP to undertake a review of its
compliance framework. This review included
a review of its key policies with the aim of
implementing strengthened policies and
procedures. The policies within the scope
of the review were the following:
Code of Conduct
Modern Slavery
Conflicts of Interest
Avast Data Guide
Anti-corruption
Securities
Dealing Code
Related Party
Transactions
Speaking UP &
Working Together
Sanctions & Anti-
Money Laundering
Health &
Safety Policy
Group-Wide
Securities Dealing
Avast Global Travel
and Expense Policy
Inside Information
Disclosure
Enterprise Risk
Management Policy
Whistleblowing
The findings of the review were presented
to the Audit and Risk Committee. Where
revisions of policies were needed, or where
there was a gap in policy coverage, the
relevant business teams are in the process
of taking steps to update or write policies
as required. Avast has prioritised the
update of its 'Speaking Up Policy' in
light of the implementation of the new
EU Whistleblower Directive.
In addition, Avast has commenced and
rolled out a programme to integrate all
policies within the workforce and has
requested that employees accept Avast’s
current policies via Workday. In 2022, the
Company will progress to include targeted
training on certain policies and will have
engaged with a third party to assist in
the provision of such training.
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Social impact
and launching
the new Avast
Foundation’s
programmes
Long-standing commitment
to philanthropy
Avast’s commitment to giving back has long
been expressed through its philanthropic
endeavours. In 2020, Avast's leadership
decided to bring its charitable work closer to
the Company’s core business and mission.
The Avast Foundation was therefore
established at the end of 2020, and began
operations in 2021, with a donation from
Avast of $3.18 million to support its mission
to increase digital freedom and citizenship
by eliminating barriers to digital access and
inclusion worldwide.
A further $1.93 million was donated to
Abakus, a private foundation established
to continue supporting the impactful work
of the previous corporate foundation,
Nadacni Fond Avast, which had focused on
palliative care, early childhood education,
and supporting families of children with
disabilities in the Czech Republic. Through
2024, Avast will remain 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, while it plans
to grow its future philanthropic areas in
more brand and mission-aligned ways.
The Foundation was therefore formally
launched along with the new Avast brand
in September 2021, as a key avenue through
which we aim to demonstrate and enact
our commitment to building a better and
more inclusive digital future that works
for everyone.
Avast Foundation: laying the
groundwork for long-term impact
For the brand-new Avast Foundation,
2021 was pivotal in defining its scope and
areas of focus, as well as its approach
to 21st-century grantmaking. Taking a
long-term view in its approach to societal
change, the Foundation has contextualised
its work within the framework of the United
Nations Sustainable Development Goals
(SDGs), and has identified four priority
SDGs towards which its work aims.
These are:
SDG 10, Reduce inequality within and
among countries
SDG 13, Take urgent action to combat
climate change and its impacts
SDG 16, Promote peaceful and inclusive
societies for sustainable development,
provide access to justice for all and build
effective, accountable and inclusive
institutions at all levels
SDG 17, Strengthen the means of
implementation and revitalise the global
partnership for sustainable development
To progress towards these goals, the
Foundation established three interrelated
strands of work – Thought Leadership,
Programmes and Initiatives, and Employee
Engagement. Under the leadership of
Global Executive Director Shane Ryan,
who joined in February 2021, the
Foundation has significantly progressed
in all areas and laid the groundwork for
credible, meaningful, and ethical long-term
engagement with communities.
Thought Leadership
Thought Leadership will be an evolving
space for the Foundation, and there
are many complementarities between
Avast’s platform and the one the Foundation
will seek to develop across areas of digital
freedom, including privacy, digital rights,
and digital equity. In 2021, the Foundation’s
Troll Free Future campaign and multi-year
support for further research into trolling
and online hate with the Oxford Internet
Institute aims to enhance our collective
understanding of how to increase internet
civility and safety, especially for those
most vulnerable and likely to be targeted
online. This commitment to inclusivity
and diversity is also demonstrated by the
Foundation’s support for the UK’s National
Diversity Awards.
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Grantmaking for impact
The Foundation launched several
programmatic initiatives in 2021, identifying
via global assessment three broad
thematic areas that will guide its work:
Youth, Families and Marginalised
Communities, and Activating Digital
Citizenship. Work in the Youth theme has
already begun, and a flagship programme,
the Spark Fund, was established and
launched with Global Fund for Children
(GFC) in September 2021. This innovative,
inclusive participatory fund provides
youth-led and youth-focused groups with
financial support and capacity development,
enabling them to experiment, collaborate,
and learn using digital technologies. The
fund harnesses GFC’s experience in working
with youth and its expertise in capacity
building for grassroots organisations. Its
participatory nature enables youth in four
regions – Central Europe, Africa, Asia, and
Latin America – to make informed funding
decisions and support organisations that
they believe are most closely aligned with
their priorities and needs. In its first funding
round, 12 youth panellists in Central
Europe chose 12 organisations to receive
$10,000–$12,000 annual grants over two
years, to support work in areas ranging
from gender equity to climate resilience
to digital education.
The Avast Foundation Youth Leadership
Board was established in June 2021 in order
to help the organisation’s leadership to
guide its youth agenda worldwide. These
youth leaders have acted as advisers,
ambassadors, and advocates for the
Foundation’s work throughout their global
networks. They will continue to play an
important role in shaping the platform
and approach to working with and raising
awareness among youth regarding issues
of digital freedom and citizenship affecting
them today.
Within the Czech Republic, the Foundation
continued the Be Safe Online (BSO)
digital safety education programme,
which was started as a non-commercial
project by Avast. By the end of 2021, more
than 60,000 children across the Czech
Republic and Slovakia had been educated
through the programme’s online platform.
In cooperation with the Avast Public
Relations team, the BSO team also launched
a limited series podcast for parents, helping
to spotlight the real ways in which families
struggle with issues of digital safety and
security – and offering advice and insights
on how to navigate these challenges.
Avast’s CEO Ondrej Vlcek was featured
among the guests, as were relevant
educators, psychologists, and influencers.
In its Programmes and Initiatives, the
Foundation has also committed to setting
aside funding for responsive work, such
as deploying support in the face of natural
disasters, health emergencies, or other
humanitarian crises. This capacity was
tested in July 2021 following a devastating
tornado affecting the Moravia region of the
Czech Republic. Thanks to the engagement
of Avast staff and Executive leadership,
the wider Avast community collectively
donated over $220,000 to impacted
communities, based on a generous matching
scheme created by the Foundation to
encourage donations at a critical time.
Employee engagement
Avast’s employees have always been
generous with their time and resources,
and ensuring a close connection between
the newly established Foundation and
Avast employees was a priority for both the
Company and the Foundation. Working
closely with Executive leadership, the
Foundation has built a programme that
will enable engagement with organisations
and causes of employees' choosing, in
a variety of ways. The comprehensive
programme will launch in Q1 2022, with
opportunities for both field and expert
volunteering, year-round opportunities to
engage in donations and fundraising, and
curated thematic opportunities to engage
in matched funding for a variety of causes.
The entire programme was designed with
the input of Avast employees, based on
the Foundation’s commitment to inclusive
co-design. Several Avast employees will
volunteer their time as ambassadors to help
drive awareness and participation in the
Foundation’s programmes, many of which
are complementary to and align directly
with our efforts in staff learning and D&I.
In keeping with the principle of employee
involvement, the Foundation donated
$300,000 towards non-profit organisations
nominated by Avast employees and working
in a variety of fields around the world. Seven
of these organisations work directly in the
areas of digital freedom, privacy, online
safety, or digital education, and we are
proud that our employees have brought to
our collective attention such a wide variety
of impressive causes and organisations.
The Avast Foundation’s first annual report
will be released in June 2022.
$300,000
towards non-profit organisations
nominated by staff and working in a
variety of fields around the world
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Section 172 statement
Stakeholder engagement
Avast operates in a fast-moving and 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 pages 20 to 23, which it believes will
drive growth and profitability as Avast
adapts 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 its 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 open 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 net promoter
score (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 that counterparties
to commercial and corporate transactions
may pursue strategies and outcomes
which may conflict with the interests
of 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 continued its focus in this area
through the establishment of a Security
and Privacy Committee of the Board to
oversee the initiatives led by the Chief
Privacy Officer and Chief Information
Security Officer during the year 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. More detail on the Security
and Privacy Committee can be found on
page 102.
Customer experience has been a key
driver of product development in 2021.
Listening to the needs of our users,
the Board approved Avast One,
an award-winning, integrated service
that delivers personalised, comprehensive
cross-platform protection to increase
privacy, connect securely, speed up
devices, and stay safe from viruses.
For more information see page 5.
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Avastians
Section 172 statement continued
Shareholders
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 90,
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
The nature of the COVID-19 pandemic
has brought logistical challenges for
interacting with shareholders in person.
In line with government advice,
shareholders were not able to attend
the Annual General Meeting (AGM) in
person, but were encouraged to attend
the meeting by webinar and submit
questions to the Board in advance.
The CEO, CFO, and Senior Independent
Director met institutional investment
firms and proxy agencies to discuss
and get their feedback on the proposed
Merger with NortonLifeLock. At the
general meeting on 18 November 2021,
94% of shareholders voted in favour
of the recommended Merger with
NortonLifeLock.
In April 2021, the Company sold the
Family Safety mobile business to
Smith Micro Software Inc. The Board
determined that the disposal was in the
best interests of its shareholders, and that
the price paid for the business was fair and
the resulting capital could be allocated
more effectively.
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 62, 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.
Impact on Board decisions
The interests of Avastians were carefully
considered in relation to the proposed
Merger with NortonLifeLock, and the
Board understood that employees would
appreciate transparency in relation to
the process. The CEO hosted regular
‘All Hands’ with Avastians to discuss the
proposed transaction, which enabled the
Board to consider employee feedback
in the decision-making process. The
Board was satisfied through this process
that Avastians’ interests were taken into
consideration and adequately addressed.
The Board oversaw the implementation
of the Future of Work initiative, enabling
all our people to work in a more flexible
way and to receive the benefits of RSUs,
which were granted in January 2021,
making them investors in Avast and further
aligning their interests with those of
the Group’s shareholders.
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Suppliers
Communities
The performance of Avast’s suppliers is
integral to Avast’s success. From providers
of software and hardware, to landlords and
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 corruption, and anti-money
laundering. More details in relation to
these policies can be found on page 77.
Impact on Board decisions
Throughout 2021, the Board gave
feedback to management on the quality
of service being provided by suppliers
in order to improve the service provision
for shareholders.
Over the course of 2021, with the
enforcement of Strong Customer
Authentication (SCA) in Europe, the
Board, through Executive Management,
Avast engaged with the Group's payment
processors to mitigate the impact to the
Group's sales and to identify areas of
optimisation. This engagement continues
as SCA completes its rollout in the UK this
year and to identify new actions which can
be taken to ensure customers are able
to purchase our products.
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 73.
Impact on Board decisions
The Board approved the establishment of
the new Avast Foundation as a non-profit
entity incorporated in the Netherlands
in December 2020, which followed a
programme of work to examine the ways
in which Avast’s social purpose could
be more aligned to its core purpose and
more reflective of the Company’s global
footprint and scope. The new Avast
Foundation started operations in 2021.
Avast has also confirmed its intention
to a 1% model of charitable giving,
whereby 1% of profit (EBITDA), product,
and employee time will be donated
annually to social impact initiatives.
The Board approved the funding of
$5.0 million to the Avast Foundation
for the year ended 31 December 2021.
The Board approved 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.
More details relating to Avast’s corporate
social responsibilities are set out on page 77.
Section 172 statement continued
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83
Here is an example of
how the Board took
into consideration its
stakeholders’ interests
when making its
principal decisions.
COVID-19 response
In 2021, the COVID-19 pandemic continued
to present 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 continued to oversee
employees’ transition to working from home,
which involved providing employees with
suitable home office equipment, health
and safety assessments, and appropriate
support. Later in the year, the focus was on
ensuring offices were COVID-19 secure.
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. As a result, the Board approved a
new employee proposition which includes
the option to work from the office or from
anywhere, and so not return to the office
full-time post-COVID-19.
Suppliers: The Board, through the Executive
Management team, engaged with our
external customer service suppliers in
different countries to ensure continuity of a
good level of service. They rapidly adapted
their systems, procedures, and workforce
to adapt to new work from home demands
while maintaining information security and
acceptable service levels.
Community: Avast has continued to
participate in numerous initiatives in an
effort to support the global response to the
pandemic, including running a successful
educational campaign about COVID-19
vaccination scams.
Section 172 statement continued
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Avast plc annual report 2021
84
Non-financial information statement
Non-financial information statement
This section of the strategic report constitutes the Company’s non-financial
information statement.
Reporting
requirements
Policies and statements which
govern our approach
Details of policies, statements,
due diligence, and outcomes
Environmental
matters
Environmental disclosures
Environment, social,
and governance, page 70
Environmental disclosures,
page 73
Task Force on Climate-related
Financial Disclosure (TCFD),
page 71
Employees
Whole-life flexibility
Work from anywhere
Hybrid working
Growth mindset
Employee experience
Diversity policy
People and culture, page 62
People and culture, page 62
People and culture, page 64
People and culture, page 62
People and culture, page 63
People and culture, page 65
Social matters
Social responsibility and
sustainability
Ethical business, page 77
Respect for
human rights
Whistleblowing policy
Avast grievance procedure
Avast recruitment policy
Modern slavery policy
Transparency and anti-corruption,
page 77
Anti-corruption
and bribery
Suppliers’ guidelines
Sanctions, anti-money laundering,
and counter terrorist
Financing policy
Anti-corruption policy
Related party transactions policy
Conflict of interest policy
Transparency and anti-corruption,
page 77
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 provides 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 promoted
and unpromoted awareness.
3 Customer satisfaction
We measure customer satisfaction
via NPS 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 84 was
approved by the Board on 24 February
2022 and signed on its behalf by:
Ondrej Vlcek
Chief Executive Officer
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Board of Directors
86
Corporate governance statement
88
Audit and Risk Committee report
97
Nomination Committee report
104
Directors’ remuneration report
109
Directors’ report
131
Governance
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Board of Directors
1
8
5
4
9
3
6
7
2
NC
RC
SPC
ARC Audit and Risk Committee
Nomination Committee
Remuneration Committee
Security and Privacy Committee
Committee Chair
1 John Schwarz
Chair of the Board
NC RC
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 Chief Executive Officer 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 Digital Identity and Internet of Things 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, together with his
wife, is the Founder of the Vlcek Family Foundation focused
on paediatric palliative care. Mr Vlcek holds an MS in
Mathematics from the Czech Technical University in Prague.
3 Stuart Simpson
Interim Chief Financial Officer
Stuart Simpson was appointed Interim Chief Financial
Officer in September 2021. Prior to Avast, Mr Simpson
joined the Royal Mail Group in 2009 where he held multiple
leadership positions. He was appointed Chief Finance
Officer in July 2017, Chief Finance and Chief Operating
Officer in 2018 and Interim Chief Executive Officer in
May 2020. Prior to Royal Mail, Mr Simpson worked in the
automotive industry for 15 years, where he held senior roles
in both finance and strategy, primarily based outside of the
UK. Mr Simpson holds a degree in Accounting and Financial
Analysis from Newcastle University and is a qualified
chartered accountant.
4 Warren Finegold
Senior Independent
Non-Executive Director
NC SPC ARC
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.
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Board of Directors continued
5 Maggie Chan Jones
Independent Non-Executive Director
SPC NC ARC
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.
6 Tamara Minick-Scokalo
Independent Non-Executive Director ARC RC
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, computer vision
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, Procter & Gamble, E & J Gallo Winery Europe,
and Coca-Cola. Ms Minick-Scokalo holds a BS in
Chemical Engineering from Lehigh University in
Bethlehem, Pennsylvania.
7 Belinda Richards
Independent Non-Executive Director ARC SPC RC
Belinda Richards joined the Board of Directors in June
2018. Ms Richards’ background includes a 30-year career
in finance, strategy, and mergers and acquisitions (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, Schroder Japan Growth Fund Plc,
and is the Senior Independent Director and Chair of the
Nomination and Governance Committee for Olam Food
Ingredients Limited. 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.
8 Pavel Baudis
Non-Executive Director
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.
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.
Other Directors who served during FY 2021
At the conclusion of the Annual General Meeting (AGM)
on 6 May 2021, Ulf Claesson and Erwin Gunst retired
from the Board.
Philip Marshall stepped down from the Board and as
Chief Financial Officer on 21 September 2021.
The biographies for Ulf Claesson, Erwin Gunst and
Philip Marshall can be found in our FY 2020 Annual Report.
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Corporate governance
statement
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.
In light of the approval by the Company’s shareholders
of the offer by Nitro Bidco Limited, a wholly owned
subsidiary of NortonLifeLock, for the entire issued and
to be issued ordinary share capital of the Company
(as outlined further on page 7 above), the Board has put
on hold certain actions which are required by the Code.
Should the Merger with NortonLifeLock not complete as
anticipated, then the Company intends to proceed with
each of these actions in 2022.
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 2021, 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. Last year the Board
considered 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
retirement of Ulf Claesson and Erwin Gunst as Non-
Executive Directors. At the time, significant shareholders
and proxy agencies were given the opportunity to speak
with the Board’s Senior Independent Director regarding
their views on the matter. While an executive search firm was
engaged to support the search for a new Chair, in 2021 the
process was put on hold pending the outcome of the Merger.
The Code requires that there is a formal and rigorous
annual evaluation of the performance of the Board,
its Committees, the Chair and individual Directors
(Provision 21). Avast usually performs this exercise annually,
but this has been put on hold for 2021 pending the
outcome of the Merger. Should the Merger not complete
as anticipated then it is intended that an internal
evaluation of the Board will proceed during 2022.
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. The Company intended
to incorporate such guidelines into its new Remuneration
Policy scheduled to be approved by shareholders in 2022,
but the publication of the Remuneration Policy has been
put on hold pending the outcome of the Merger.
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 2021 included the following:
Discussed, reviewed, and approved the terms of the
Merger between the Company and Nitro Bidco Limited
Oversaw the launch of Avast One
Reviewed and monitored the Group’s long-term business
strategy and objectives
Considered and approved strategic acquisitions
Considered and reviewed transformation changes needed
to deliver the business strategy and objectives
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
Corporate governance statement
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Avast plc annual report 2021
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Considered and reviewed the Board’s composition,
diversity, and succession plans
Oversaw and supported Avast’s succession planning
for the Executive Management team
Reviewed the Company’s people strategy and provided
feedback to management
Received updates on brand strategy, transformation,
and progress
Considered updates provided in respect of investors
and ESG
Oversaw the development of the Group’s ESG programme
Reviewed and approved developments in Board
governance, including policies, practices, and procedures
Established a Security and Privacy Committee
Considered independent non-executive director
recruitment and chair succession matters
Continued to review and monitor the Company’s response
to COVID-19, including the impact on employees,
changes to work practices, and culture
Oversaw the creation of the new Avast Foundation and its
governance framework
Reviewed and approved the Company’s financial reports,
including the payment of interim and final dividends
Received reports for the Board’s Committees
The CFO’s report on pages 40 to 53 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 82 to 83.
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.
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 continuing COVID-19
pandemic, as detailed further on page 83.
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
The Merger with NortonLifeLock
Board composition and succession
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 and continued
development of the principal and emerging risks as detailed
on page 54.
The Board, through its Audit Committee, monitors the
Company’s risk management and internal control systems.
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 34 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.
Corporate governance statement continued
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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 (AGM)
to understand their views on the Group. Members of the
Investor Relations (IR) function attend 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 IR programme through
which the CEO, CFO, and the IR function 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.
Similar to last year, while it has not been possible to hold
physical conferences due to COVID-19 restrictions, the
Company has made a strong effort to ensure that these
continue in a virtual environment.
There has been increased shareholder engagement over
the past year by the CEO, CFO, the IR function and the
Company’s corporate brokers as the Company engaged
with shareholders and investors to understand their views
of the Merger and address any questions they may have.
The Company also appointed Georgeson, a global provider
of strategic shareholder engagement, proxy solicitation
and governance consulting services, who assisted with
shareholder engagement in relation to the Merger.
Georgeson has no other connections to Avast.
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. Information in relation to the
Merger can be found on the website at https://investors.
avast.com/investors/Merger-with-nortonlifelock-inc/.
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.
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. 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 and
Inclusion (D&I) Committee, which aims to create a culture
that attracts, grows, and empowers diverse talent.
Mr Baudis, the designated Non-Executive Director for
workforce engagement, engages with employees globally
to address their concerns through attendance at the
Change Engagement Group and as a result of his
membership of the D&I Committee. Further information
about the Change Engagement Group, D&I Committee,
workforce engagement, policies, and practices can be found
on pages 61 to 69.
Corporate governance statement continued
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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 2021, 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
that 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, ordinarily 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 2021 and the
date of this report, the following persons were Directors
of the Company:
Name
Title
Appointment date
John Schwarz
Independent Chair
9 May 2018
Ondrej VIcek
Chief Executive Officer
9 May 2018
Philip Marshall
Chief Financial Officer*
9 May 2018
Stuart Simpson
Interim Chief
Financial Officer
21 September
2021
Warren Finegold
Senior Independent
Non-Executive Director
9 May 2018
Pavel Baudis
Non-Executive Director
9 May 2018
Maggie
Chan Jones
Independent
Non-Executive Director
13 March 2019
Ulf Claesson
Independent
Non-Executive
Director**
9 May 2018
Erwin Gunst
Independent
Non-Executive
Director**
9 May 2018
Eduard Kucera
Non-Executive Director
9 May 2018
Tamara
Minick-Scokalo
Independent
Non-Executive Director
13 March 2019
Belinda Richards
Independent
Non-Executive Director
8 June 2018
*
Resigned on 21 September 2021.
**
Resigned on 6 May 2021.
Biographies of the Directors can be found on pages 86
to 87.
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
Belinda Richards (Chair),
Warren Finegold, Maggie Chan Jones,
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
Nomination
Warren Finegold (Chair), John Schwarz,
and Maggie Chan Jones
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
Remuneration
Tamara Minick-Scokalo (Chair),
Belinda Richards, and John Schwarz
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 AGM.
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
Security and Privacy
Maggie Chan Jones (Chair),
Belinda Richards, and Warren Finegold
The Security and Privacy Committee oversees the information security strategy, data security, data governance,
and privacy governance of the Group, recognising the interests of all stakeholders.
The terms of reference setting out the roles and responsibilities of the Security and Privacy Committee can be found at
https://investors.avast.com/media/1436/avast-plc-security-privacy-committee-terms-of-reference.pdf
Please refer to pages 97 to 103 for further details in relation to the Audit and Risk Committee, pages 104 to 108 for further details in relation to the Nomination Committee, pages 109 to 130
for further details in relation to the Remuneration Committee, and page 102 for further information in relation to the Security and Privacy 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 (when applicable). The Disclosure Committee met and considered matters when appropriate during 2021.
Corporate governance statement continued
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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 2021, the Board held 25 meetings. The Audit and Risk
Committee and Nomination Committee each held four
meetings, the Remuneration Committee held six meetings,
and the Security and Privacy Committee held two meetings.
Meetings are generally held in London, but due to the
restrictions imposed in response to the COVID-19 pandemic,
all meetings were held virtually. See page 88 for the key
activities undertaken by the Board during 2021. 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.
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.
Corporate governance statement continued
Board and Committee attendance table: 2021
Board
Audit and Risk
Committee
Nomination
Committee
Remuneration
Committee
Security
and Privacy
Committee1
Total number of meetings2
25
4
4
6
2
Members
Attended
Attended
Attended
Attended
Attended
John Schwarz
25/25
4/4
6/6
Warren Finegold3
25/25
2/2
4/4
3/3
2/2
Ondrej Vlcek
25/25
Stuart Simpson4
3/3
Maggie Chan Jones5
25/25
2/2
4/4
3/3
2/2
Belinda Richards6
23/25
4/4
3/3
2/2
Tamara Minick-Scokalo
24/25
4/4
6/6
Eduard Kucera
25/25
Pavel Baudis
25/25
Former Directors who served for part of the year
Philip Marshall7
21/22
Ulf Claesson8
8/9
2/2
3/3
Erwin Gunst9
8/9
2/2
2/2
1
The Security and Privacy Committee was established in July 2021.
2
Includes scheduled and ad hoc meetings. Outside of the scheduled meetings of the Board and the Committees, numerous ad hoc meetings took place to consider more urgent matters
including, 16 Board meetings and two Remuneration Committee meetings.
3
Warren Finegold resigned as a member of the Remuneration Committee and was appointed as a member of the Audit and Risk Committee on 6 May 2021.
4
Stuart Simpson was appointed Interim Chief Financial Officer and Executive Director of Avast plc on 21 September 2021.
5
Maggie Chan Jones resigned as member of the Remuneration Committee and was appointed as a member of the Audit and Risk Committee on 6 May 2021.
6
Belinda Richards was appointed as a member of the Remuneration Committee on 6 May 2021.
7
Philip Marshall retired as Chief Financial Officer and Executive Director of Avast plc on 21 September 2021.
8
Ulf Claesson retired as Director of Avast plc at the conclusion of the AGM on 6 May 2021.
9
Erwin Gunst retired as Director of Avast plc at the conclusion of the AGM on 6 May 2021.
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Corporate governance statement continued
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 105.
Evaluation
Annual Board evaluation
The Board ordinarily undertakes an evaluation of its
performance and effectiveness annually, in accordance
with best practice and the requirements of the Code.
Towards the end of 2020, Avast engaged Lintstock,
an independent external advisory firm, to assist with
the FY 2020 Board evaluation; therefore, the Board is
not due to have an externally facilitated evaluation until
2023. In light of the proposed Merger, the Board has
decided that it is appropriate to put on hold its annual
internal evaluation. Should the Merger not complete as
anticipated, then the Company intends to proceed with
an internal evaluation in 2022.
External Board evaluation
Towards the end of 2020, the Board engaged Lintstock
to externally facilitate an interview-driven review of the
performance of the Board and each of its Committees.
Lintstock has no other connection to Avast.
The conclusions and recommendations were presented
to the Board in early March 2021 and an action plan was
developed and worked on throughout the year.
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Corporate governance statement continued
Annual Board evaluation findings
Board actions for 2021
What we have done in 2021
Board composition
Appropriateness of the current
Board composition
Chair succession
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.
Russell Reynolds undertook a Board skills assessment as part of Non-Executive Director recruitment
process. The size and composition of the Board was reviewed as part of that exercise. Egon Zehnder was
also appointed to support the search for a new Chair but that process, along with Non-Executive Director
recruitment, was put on hold pending the outcome of the Merger.
Board dynamics
Increase in Board involvement in
key initiatives
Develop closer relationships with the
Executive Management team
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.
A new General Counsel and Company Secretary was appointed who developed the link between the Board
and the Executive Management team as well as the governance framework supporting the Board and its
Committees. A mentoring programme was implemented such that certain Board members were allocated
as mentors for members of 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
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.
A matters arising schedule was operationalised across the Board and all Committees to ensure that matters
raised by the Board and the Committees were being tracked and actioned.
Presentations to the Board from the IR function and the Corporate Development function placed an emphasis
on 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.
An increased number of Board meetings were scheduled over the course of the year and ad hoc meetings
were held when needed. An 18-month forward-looking Board and Committee agenda was developed, which
ensures that key business topics and priorities are dealt with in a planned manner over the course of the year.
In addition, a new format of Board Paper was introduced which enables material to be presented to the Board
in a consistent manner by different presenters, and clearly summarises the matter, the decision needed by the
Board, and any next steps.
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 that 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.
A new Risk and Compliance Director role was created to lead on the identification, assessment, and
management of risks facing the Group with a dotted line report to the Audit and Risk Committee and
Security and Privacy Committee.
The Board also constituted a separate Security and Privacy Committee with the delegated responsibility
of overseeing information security strategy, data security, data governance and privacy governance of the
Company and its subsidiaries.
The Risk and Compliance Director has presented at both the Audit and Risk Committee and the Security and
Privacy Committee.
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.
In May 2021, the Nomination Committee was presented with an update on the succession status and planning
for the Executive Management team and provided with succession plans for each function. In addition, the
Committee was notified of the proposed approach for the development of successor candidates to the
Executive Management team and the wider senior leader cohort.
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Corporate governance statement continued
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 103. In response to the focus Avast places on robust
cybersecurity, a new committee was established in 2021,
the Security and Privacy Committee, to oversee information
security strategy, data security, data governance, and
privacy governance. This has the effect of reducing the
workload of the Audit and Risk Committee with regards to
cybersecurity, and allows for increased time to be allocated
to security and privacy matters.
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 AGM.
The Directors’ remuneration report, on pages 109 to 130,
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 supported by remuneration
consultant Deloitte LLP. For further detail, please refer to
the Remuneration Committee overview on pages 129-130.
The Remuneration Committee is comprised of three
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 112 to 115. This states how our Remuneration Policy
has been applied and sets out details of any adjustments
made or discretions exercised.
Annual General Meeting
If the Merger with NortonLifeLock is delayed or does not
proceed, the Company intends to hold an AGM on or around
30 June 2022. Further details of the 2022 AGM will be
provided in due course (if scheduled).
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 24 February 2022 and signed by order
of the Board.
By order of the Board
Trudy Cooke
General Counsel and Company Secretary
24 February 2022
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Audit and Risk
Committee report
Introduction
Dear Shareholder
I am pleased to present to you the Audit and Risk Committee
report for the financial year ended 31 December 2021.
In this report, we provide you with an overview of the
activities undertaken or overseen by the Committee during
the year, in addition to details regarding the audit and risk
management policies approved by the Committee for
implementation throughout the Group.
In 2021, the Committee continued to fulfil its important
oversight role, monitoring the integrity of the Group’s
financial reporting and reviewing the Group’s annual and
half-year financial statements, accounting policies, and
significant reporting judgements.
The Committee continued to focus on its responsibility
for monitoring and oversight of the Group’s internal
controls risk management framework. The Committee
recognises that good risk management is dynamic and
requires ongoing development, so mid-way through the year
it approved the appointment of a new Risk and Compliance
Director. He was tasked to evaluate and develop the existing
risk, compliance, and control framework in order to build
a more mature three lines of defence model. More detail
on this is set out on the principal risks and uncertainties
section on page 54. The Committee was also briefed on the
impending transition from the Financial Reporting Council
(FRC) to the Audit, Reporting and Governance Authority
(ARGA) and considered how these proposals should be
considered as part of the evolution of the Company’s risk
management framework.
Another key responsibility during the year included
oversight and monitoring of the Internal Audit function.
More information of the Committee's role here is described
on page 55.
Finally, the Committee reviewed the effectiveness of the
external audit process and monitored the independence and
objectivity of the external auditor. The auditor continued to
provide robust challenges both to management and to the
Committee and met privately with the Committee several
times during the year.
The composition of the Committee was strengthened
during the year by the appointment of Maggie Chan Jones
and Warren Finegold. Stuart Simpson joined as Interim
Chief Financial Officer during the year and has kept the
Committee updated on the initiatives he has led on, which
include a focus on maturing the controls culture and
capability of the Finance function.
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.
Full biographies of the Committee’s members can be found
on pages 86 to 87, 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, the Risk and Compliance Director, Director
of Internal Audit, Chief Security Information Officer,
and General Counsel and Company Secretary.
The Committee held four meetings in 2021 and the
Committee members’ attendance is set out in the
table below.
Committee member
Date of
appointment
No. of meetings
attended
(No. of meetings
convened
while a member)
Belinda Richards (Chair)
7 June 2018
4(4)
Tamara Minick-Scokalo
22 May 2019
4(4)
Maggie Chan Jones
6 May 2021
2(2)
Warren Finegold
6 May 2021
2(2)
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.
During 2021, 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 the exercise to
build a mature three lines of defence model
Assessing the Company’s principal and emerging risks
Reviewing the operation of the Group’s Whistleblowing
Policy and overseeing the response to matters raised
Reviewing the 2020 audit report and 2021 audit plan,
together with the Group’s external auditor
Reviewing the 2020 full-year and 2021 half-year financial
results of the Group, focusing on the integrity of the
financial reporting process, compliance with relevant
legal and financial reporting standards and application
of accounting policies and judgements
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
Implementing and overseeing developments in the data
governance environment and ESG
Reviewing significant accounting judgements
Reviewing the Company’s dividend policy and proposed
dividend distribution
Assessing the going concern, and viability of the Group
and the preparation of the viability statement which is
set out on page 60
Significant matters impacting the
financial statements
The Committee considered the following matters in
relation to the financial statements, in each case reviewing
management’s decisions and discussing the approach
with both management and the external auditors
before concluding.
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
2021. No new significant accounting judgements relating
to revenue recognition were made in 2021. The Committee
continued to oversee the application of the existing revenue
recognition policies, as described in Note 2. Consistent with
2020, the external auditors focused in 2021 on the fraud
risks associated with recognition of licence revenue and
the risk of management override on all revenue streams.
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 $141.7 million
as at 31 December 2021 (Note 13), primarily as a result of
transfers of intellectual property (IP) within the Group in
2018 and unused tax losses in the US.
Audit and Risk Committee report continued
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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 2021 is $106.7 million,
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 $36.9 million
as at 31 December 2021, 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 reviewed the appropriateness of significant
decisions made by the Group regarding the recognition
and measurement of the deferred tax asset. In considering
the recovery period, the Committee reviewed the current
profitability of the Group’s US entities together with future
projections, noting that losses have a lifetime use in the
US. The Committee also considered any potential impact of
the proposed Merger with NortonLifeLock. The Committee
concluded that the accounting for the US deferred tax
asset was appropriate.
Disposal of Family Safety mobile business
(Location Labs LLC)
In April 2021, the Group sold a portfolio of mobile parental
controls services to Smith Micro Software Inc. ('Smith
Micro'). The transaction consisted of the sale of 100% of
the shares in Location Labs LLC, sale of IP owned by Avast
Software s.r.o. and sale of other assets of Avast Software
Inc, Avast Slovakia, s.r.o., and Privax d.o.o.
In order to account for the disposal, judgement was
required in calculating the goodwill allocated to the
disposed business and therefore the gain/loss on disposal.
The Committee reviewed management’s methodology
and calculation for determining the amount of goodwill
de-recognised and concluded it was appropriate.
Refer to Note 16 for further information.
Acquisition of Evernym Inc
In December 2021, Avast Software Inc acquired Evernym
for a consideration of $49.7 million, paid in cash.
In accounting for a business combination, the Group is
required to assess the fair value of assets and liabilities
acquired, and, if the consideration is in excess of the fair
value, to recognise goodwill. Judgement is exercised in
both valuation and classification.
The Committee reviewed management’s methodology
and provisional calculation and was satisfied that the
acquisition was accounted for appropriately.
Refer to Note 15 for further information.
Term loan
In March 2021, the Group undertook a refinancing,
entering into a new term loan and revolving credit facilities.
The Committee reviewed the treatment of the refinancing
with management and the external auditor, concluding that
the new facility was appropriately considered as a new loan
and not the renegotiation of an existing loan. The previous
loan was therefore de-recognised.
Refer to Note 27 for further information.
Provisions
The Committee receives regular updates from
management as to the status of contractual claims and
regulatory matters. Having discussed with management
the facts and circumstances surrounding various claims
and contingencies, the Committee is satisfied with the
provisions recorded in the financial statements.
Refer to Note 25 for further information.
Task Force on Climate-related
Financial Disclosures (TCFD)
The Audit and Risk Committee makes recommendations to
the Board on the principal risks of relevance to the business;
climate-related issues are considered in terms of potential
for contribution to these principal risks. Management has
formed a TCFD working committee which reports through
to the Audit and Risk Committee.
Please refer to the TCFD disclosure for further information.
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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 60. As part of this process, the Committee reviewed
the detailed going concern review and analysis which
was undertaken by management. 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. Following this review, the
Committee recommended to the Board that the Company
continues to adopt the going concern basis in preparing the
annual financial statements.
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 2021.
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 2021.
Fair, balanced and understandable
To support the Board’s confirmation that the annual report
and accounts, taken as a whole, are considered to be fair,
balanced and understandable, and provide the information
necessary for shareholders to assess the Group’s position,
performance, business model, and strategy, the Committee
oversaw the process by which the annual report and
accounts were prepared.
The Committee received a summary of the approach taken
by management in the preparation of the annual report
and accounts, and considered in particular the accuracy,
integrity, and consistency of the messages conveyed in the
annual report; the appropriateness of the level of detail in
the narrative reporting; and that a balance had been sought
between describing potential challenges and opportunities.
The Committee therefore recommended to the Board
(which the Board subsequently approved) that, taken
as a whole, the 2021 annual report and accounts is fair,
balanced, and understandable, and provides the necessary
information for shareholders to assess the Company’s
position, performance, business model, and strategy.
Financial reporting – internal controls and
risk management
Internal controls relating to financial reporting form an
integral part of the Group’s corporate governance and
enterprise risk management policy. The Group’s internal
controls over financial reporting are in line with the COSO
framework for internal controls. The internal controls
processes of the Group are based on the following five key
principles: control environment, risk assessment, control
activities, information and communication, and monitoring,
each of which is explained in more detail below. It is a
process designed to provide reasonable assurance regarding
the achievement of objectives relating to operations,
reporting, and compliance. The Group's risk management
and internal controls framework, which accords with FRC
guidance on risk management, internal control and related
financial and business reporting, has been in place for the
year ended 31 December 2021 up until the date of approval
of the annual report and accounts and is regularly reviewed
by the Committee and by the Board.
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 54 to 55
of this report, are:
A clear schedule of matters which require approval at
Board level
A policy in relation to delegation of authority and the
limitations which apply
Comprehensive annual budgets prepared for the Group
and individual business units
Ongoing monitoring of the performance of the Group
and individual business units, against budgets with
reports given to the Board on a regular basis
Internal Audit assessments, both with respect to
financial matters and business matters, discussed
with management and the Committee, together with
corrective actions agreed and monitored
A centralised financial reporting system and close
process, with controls and reconciliation procedures
designed to facilitate the production of the
consolidated accounts
Assessment of accounting standard changes with both
the external auditor and the Committee
Documented policies made widely available to employees
in relation to anti-bribery and corruption, anti-money
laundering, export controls, and whistleblowing
An ongoing review of the principal risks that 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
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COSO framework
Control environment
The Group’s control environment serves as a foundation for
its internal control process. Management at all levels are
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 56 to 59.
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 2021, the Committee oversaw an external review
of the Group’s control activities, and management is
taking forward certain recommendations coming out of
the external review.
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 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.
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.
Assessment of effectiveness of
internal control and risk management
The Committee is committed to ongoing assessment of
the internal control and risk management framework and
has overseen the implementation of a number of initiatives
in 2021, led by the Risk and Compliance Director and
supported by Deloitte LLP, to develop the maturity level
of controls assessed against the COSO framework,
as outlined above.
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. In fulfilling this responsibility,
the Committee considered a number of factors, including:
Management’s self-certification of the Group’s internal
controls and risk management systems, including
against the 2013 COSO framework, as monitored by
the Committee
Approved internal audit plan for the year ended
31 December 2021 relating to financial, control,
business, and operational audits
Work carried out by the internal and external audit
functions during the year ended 31 December 2021,
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 external auditors
Updates from the Internal Audit Director on areas where it
had carried out key control reviews, including the Group’s
data governance, software asset management, and
customer personally identifiable information protection
Business updates provided by management in relation
to work carried out by external advisers with respect to
security and regulatory matters
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The development of a new Risk Management Policy and
Risk Appetite Statement as part of the two- to three-year
roadmap to develop a more mature three lines of
defence model
Measures the Group has in place to mitigate the principal
risks it faces (more details of which can be found on
pages 56 to 59)
The Committee received regular reports from the Risk and
Compliance Director and Internal Audit Director on details
of any key failings/weaknesses identified and to ensure that
outstanding areas of improvement were both identified and
remediated. Reports to the Committee referred to the need
to sustain the embedding of controls where remediation
progress has been made in 2021 and the need to continue
to make further improvement in other areas, such as
ongoing data governance, software asset management,
procurement, KPI data quality, and some specific financial
controls. Notwithstanding these areas of ongoing
improvements, overall the Committee is satisfied that
there are no significant weaknesses in the risk management
systems and that overall the Group’s key internal controls
are largely effective.
Security and Privacy Committee
In recognition of the increasing Group focus on the digital,
data, and cyber control environment, and to oversee the
initiatives being led by the Chief Information Security
Officer and Chief Privacy Officer, the Board established the
Security and Privacy Committee in the second half of 2021.
The Security and Privacy Committee has been delegated
responsibility for overseeing information security strategy,
data security, data governance and privacy governance,
and reports its outcomes to the Audit and Risk Committee.
For more information see the principal risks and
uncertainties section on page 54.
The Security and Privacy Committee comprises three
independent Non-Executive Directors: Maggie Chan Jones
(Chair), Warren Finegold, and Belinda Richards.
The Security and Privacy Committee met twice in 2021
to consider the Avast Security and Privacy Strategy and
Internal Audits on data governance and other security
and privacy matters.
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. During the year, ethical questions
or concerns raised by employees have been investigated
and all findings and corresponding remedial actions are
reported in detail in periodic reports prepared for and
reviewed by the Committee.
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 reviewed and approved the 2021 internal
audit plan, which was created using a risk-based approach,
and monitored progress against the plan. In 2021, Internal
Audit focused on validating the effectiveness of the internal
control framework, monitoring activities within the Group,
including the account reconciliation process, treasury,
purchase-to-pay, and data governance. In Q4 2021, the
Committee approved the 2022 internal audit plan, which
set out an intention to focus on assuring the IT, digital and
cyber control environment. The pace of delivery of the 2022
internal audit plan and the development of the internal
control framework has been slower than the Committee
would ideally have liked, due to the natural impact that the
Merger has had on resources and management time.
The Committee received quarterly control reports from
the Internal Audit function and challenged management
on the actions being taken to improve the effectiveness of
the internal control and risk management framework of the
organisation. The quarterly Internal Audit reports contained
metrics including: the status of Internal Audit opinions that
are rated as partially effective or ineffective; key issues
identified; and the status of management actions to resolve
issues identified.
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 July 2021,
the Committee approved the appointment of a new Interim
Head of Internal Audit. 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.
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External auditor
The Committee makes recommendations to the Board on
the appointment, remuneration, and removal of the Group’s
external auditor. The current lead external audit partner
is Marcus Butler and 2021 was the fourth 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 6 May 2021 for the year ended
31 December 2021, following its reappointment at the
Company’s 2021 Annual General Meeting (AGM). Prior
to the IPO, 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 auditor's
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.
Details of the fees paid to Ernst & Young LLP for the year
ended 31 December 2021 can be found in Note 7 on
page 174.
The ratio of fees for audit:non-audit services provided
during 2021 was 20:1. 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 Committee confirms that non-audit work performance
by Ernst & Young LLP during the year was authorised in
accordance with the Group’s policy.
Effectiveness of external auditors
The Committee reviewed the effectiveness of the external
auditor for the financial year ended 31 December 2021.
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
Its meetings and discussions with the external auditor,
including in relation to the auditor’s findings and reports
on the annual audit and interim review, and the quality of
the auditor’s work in relation to financial judgements made
The tenure of the external auditor, and whether it
would be appropriate to put the audit services contract
out to tender
The transparency reports of the external auditor for 2021
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
In 2021 the Committee made good progress implementing
the recommendations of the FY 2020 external Board
evaluation, which included overseeing the work of the
newly appointed Risk and Compliance Director and
the implementation of the 3 Lines of Defence Model.
More detail is set out on page 54.
By order of the Board
Belinda Richards
Chair of the Audit and Risk Committee
24 February 2022
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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 2021. 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.
There have been a number of changes
to the Board over the course of 2021.
At the Annual General Meeting (AGM)
in May 2021, Ulf Claesson and Erwin
Gunst retired from the Board having
been Directors since 2012. In September
2021, Philip Marshall stepped down from
the Board and the role of CFO and was
succeeded by Stuart Simpson.
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
Nomination Committee report
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Avast plc annual report 2021
105
Committee membership
The Committee held four meetings in 2021 and the Committee members’ attendance is set
out in the table below.
Committee member
Date of
appointment
1 March
5 May
9 August 1 December
No. of meetings
attended (No. of
meetings convened
while a member)
Warren Finegold
(Chair)
10 May 2018
x
x
x
x
4(4)
John Schwarz
10 May 2018
x
x
x
x
4(4)
Maggie Chan Jones
22 May 2019
x
x
x
x
4(4)
Erwin Gunst*
10 May 2018
x
x
2(2)
*
Retired on 6 May 2021.
Committee composition
The Committee is chaired by Warren
Finegold, the Senior Independent
Non-Executive Director of the Company,
and comprises two other Non-Executive
Directors. Full biographies of the
Committee’s members can be found
on pages 86 to 87.
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, CFO, 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 2021 using 360-degree
feedback, psychometric testing, and
in-depth interviewing with an executive
search consultant.
This has allowed us to determine the
readiness of 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.
Appointment of senior executives
The Company welcomed a number of senior
executives in various roles throughout 2021,
and the beginning of 2022.
In March 2021, we welcomed Trudy Cooke,
who joined as Group General Counsel
and Company Secretary. Trudy Cooke
is responsible for leading the legal and
company secretarial functions within the
Group. Trudy 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 June 2021, Paul Carter joined as
Vice President and Global Head of
Corporate Development, reporting to the
Chief Financial Officer. Paul brings over
two decades of experience building and
leading corporate development teams at
FTSE 100 and Fortune 500 companies in
the financial services, data, technology,
and business services sectors. His key
focus will be to develop and execute
Avast’s long-term identity strategy.
In July 2021, Charles Walton joined the
business as Senior Vice President and
General Manager of the emergent identity
business. He comes to Avast most recently
having led the development of the identity
strategy for a leading global payments
company. He has extensive expertise
in the field and has had a career in corporate
life and as a startup entrepreneur.
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In August 2021, Daria Loi joined the
Company as Vice President of Innovation,
reporting to the Chief Technology Officer.
Daria Loi has extensive experience spanning
over two decades in UX research and
design, product design and strategy, and
innovation processes. Before joining Avast,
Daria Loi worked at a global computer
component manufacturer, where she led UX
innovation and drove product vision agenda
into the company’s client computing, AI,
and smart spaces programmes for over
12 years. She also worked as Head of
Product Design for Emerging Technologies
and Head of Design & People Experiences
at a global software company for almost two
years. She is a well-known keynote speaker
and was recognised as one of Italy's 50 most
inspiring women in tech.
In August, Eric Matteson joined the
Company as Vice President of Engineering,
reporting to the Chief Product Officer.
Eric is an extremely accomplished technical
leader with substantial international
experience; he joined us from a highly
successful gaming company and had
previously worked in senior engineering
and technology roles for a leading internet
retail company and computer company.
In September 2021, Stuart Simpson took up
the post of Interim CFO. He comes to Avast
most recently following a successful period
as Group Chief Financial Officer and latterly
Interim Chief Executive Officer of a leading
postal services company. He previously held
a range of Chief Financial Officer roles both
in the UK and internationally in logistics
and manufacturing.
In addition, in June 2021 Sam Honey moved
from a consultancy to a permanent contract
with the Company as Vice President of
Customer Retention and Loyalty, reporting
to the Chief Commercial Officer.
Rebecca Grattan took on the role of
Chief People and Transformation Officer
from October 2021 in order to lead the
integration with NortonLifeLock.
Finally, we saw the departure of Philip
Marshall, who stepped down from the
Board and the role of CFO in September
2021, and Julio Bezerra who left the
Company in December 2021.
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.
Four out of eight Directors (excluding the
Chair) are independent. Further details on
the classification of Directors are included
in the Corporate Governance statement on
page 88.
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.
As part of our ongoing succession planning
for executive roles, Rebecca Grattan
working with the Nomination Committee
engaged Heidrick & Struggles to undertake
a market mapping exercise for executive
roles where the incumbent was designated
a potential flight risk. The CFO role was
included in this exercise.
When it became clear that Philip Marshall
would be stepping down and the Merger
was moving to signing, Heidrick & Struggles
revisited their market map and extended
it in order to consider candidates with
immediate availability and those who
would be considered an interim option.
Stuart Simpson was selected as Interim
CFO as a result of this exercise. Heidrick &
Struggles have no other connection with
the Company.
John Schwarz’s tenure as Chair
As of December 2021, 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.
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Last year, the Board considered
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
retirement of Mr Claesson and Mr Gunst
as Non-Executive Directors. At the time,
significant shareholders and proxy agencies
were given the opportunity to speak with
the Board’s Senior Independent Director
regarding their views on the matter. In 2021,
the executive search firm Egon Zehnder
was appointed to support in the search for
a new Chair. The process was put on hold
pending the outcome of the Merger and
will be restarted should the Merger not
complete as anticipated.
Changes to the Board
There have been a number of changes to
the Board over the course of 2021. At the
AGM in May 2021, Ulf Claesson and Erwin
Gunst retired from the Board having been
Directors since 2012. In September, Philip
Marshall stepped down from the Board and
the role of CFO, and was succeeded by
Stuart Simpson.
It is intended that, on completion of
the Merger, all of the Directors, except
Pavel Baudis and Ondrej Vlcek, will resign
from the Board.
Changes to the Committees
There were a number of changes to
the composition of the Remuneration
Committee, Nomination Committee, and
Audit and Risk Committee, following the
retirement of Ulf Claesson and Erwin Gunst
at the AGM in May 2021. Warren Finegold
stepped down from the Remuneration
Committee and was appointed as a
member of the Audit and Risk Committee;
Maggie Chan Jones stepped down from
the Remuneration Committee and was
appointed as a member of the Audit and
Risk Committee; and Belinda Richards
was appointed as a member of the
Remuneration Committee.
Tamara Minick-Scokalo was appointed
Chair of the Remuneration Committee
following the retirement of Ulf Claesson.
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.
In July 2021, the Board established a new
Security and Privacy Committee, which
oversees the information security strategy,
data security, data governance, and privacy
governance of the Group, recognising the
interests of all stakeholders. The Security
and Privacy Committee is chaired by
Maggie Chan Jones and includes Warren
Finegold and Belinda Richards.
Evaluation of the Board’s
structure, size, performance,
and composition
The Board ordinarily undertakes an
evaluation of its performance and
effectiveness annually, in accordance
with best practice and the requirements
of the Code. Towards the end of 2020,
Avast engaged Lintstock, an independent
external advisory firm, to assist with the
FY 2020 Board evaluation; therefore,
the Board is not due to have an externally
facilitated evaluation until 2023. In light
of the proposed Merger, the Board has
decided that it is appropriate to put on hold
its annual internal evaluation. Should the
Merger not complete as anticipated, then
the Company intends to proceed with an
internal evaluation in 2022.
While 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, and that increased attention
needed to be given to succession planning
going forward. The Nomination Committee
addressed these points throughout 2021.
In early 2021, Russell Reynolds undertook
a Board skills assessment as part of the
Non-Executive Director recruitment
process. Russell Reynolds has no other
connections with Avast. The size and
composition of the Board was reviewed
as part of that exercise, with the views
of all Directors being taken into account.
Egon Zehnder was also appointed to
support the search for a new Chair,
but that process, along with Non-Executive
Director recruitment, was put on hold
pending the outcome of the Merger.
In addition to supporting the search for a
new Chair, Egon Zehnder also provided
recruitment services and leadership
consultancy services.
In May 2021, the Nomination Committee
was presented with an update on the
succession status and planning for the
Executive Management team and provided
with succession plans for each function.
In addition, it was notified of the proposed
approach for the development of successor
candidates to the Executive Management
team and the wider senior leader cohort.
Nomination Committee report continued
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Avast plc annual report 2021
108
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, requires 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 33.33%.
The Board is aware that this target has
been met as a result of a reduction in the
size of the Board and remains mindful of
the recommendations set out in the
Hampton-Alexander Review and
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 2021, the representation of women on
the Executive Management team and
their direct reports was increased from
27% to 36%. The Board is committed to
increasing the representation of women
in the Executive Management team and
improving diversity. Further information
about the Group’s Diversity Policy is set
out on page 65. I am pleased to report that
female representation in our Executive
Management team of 36.4% exceeded the
target of 33.0%. Work continues in 2022
to rebalance the overall representation
of females within the Company, currently
running at 29.1% against a target of 30.9%.
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 2021, Avastians have continued
to demonstrate 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,
has continued to evolve in 2021 as the
Company navigated the challenging and
constantly developing conditions of the
global pandemic. Ongoing engagement
with employees, and an understanding that
the post-COVID reality requires radically
different ways of working, prompted
us to launch Avast’s new Whole Life
Flexibility concept in 2020 and implement
it throughout 2021. 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
contributes to a company’s level of integrity,
reputation, profitability, and shareholder
value. Further details about the importance
of culture are set out on page 62.
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. Avast Change
Engagement Group (CEG) (see page 62
for further details), which enables two-way
communication and serves as a forum
where colleagues can talk with members
of the Executive Management team and
the Board, continued to provide a voice
for employees and was instrumental in
providing a forum to discuss the Merger
and the potential impact on employees.
The CEG is led by Ondrej Vlcek, Rebecca
Grattan, Chief People and Culture Officer
(CPCO) and the Designated Non-Executive
Director for Employee Engagement,
Pavel Baudis. 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
24 February 2022
Nomination Committee report continued
Strategic report
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Financial statements
Avast plc annual report 2021
109
Directors’
remuneration report
Structure
Chair’s letter
109
Annual Remuneration Report for 2021
111
– Directors’ remuneration for 2021
118
– Directors’ shareholdings
122
– Remuneration in 2022
127
– Remuneration Committee overview
129
Remuneration Committee Chair’s letter
Dear shareholder
I am pleased to present to you our Directors’ Remuneration
Report for the year ended 31 December 2021.
Having succeeded Ulf Claesson on 6 May 2021, this is
my first report as Chair of the Remuneration Committee,
following my appointment to the Board in March 2019.
Review of Remuneration Policy and key changes
for 2022
The 2019 Directors’ Remuneration Policy was supported
by 94.7% of our shareholders at our first Annual General
Meeting (AGM) on 23 May 2019 and is due for renewal
at the AGM in 2022.
Given the Merger of Avast with NortonLifeLock Inc. which
was announced in 2021 and is expected to complete in
the first half of 2022, this report does not include a new
Directors’ Remuneration Policy for shareholder approval
in 2022 since it is expected that Avast will delist prior to
the next AGM. The Committee considers the existing
remuneration framework remained fit for purpose
and supportive of Avast’s strategy to deliver value for
shareholders up until completion of the Merger.
In the event that the Merger does not complete as expected,
the Committee will ensure that a Remuneration Policy vote
is held within the timelines set out under the remuneration
reporting regulations. In such circumstances, our approach
will be to roll over the existing policy with minimal changes
and put this to a new binding shareholder vote at the 2022
AGM. We would then undertake a more comprehensive
review, including a shareholder consultation, in advance
of the 2023 AGM. If at that point we conclude that more
substantial changes are required, we may put forward a
new policy to our shareholders in 2023, rather than at the
end of the next three-year cycle.
Board changes
During the year, it was announced that Philip Marshall
stepped down from the Board with effect from
21 September 2021. While he will remain with the
business to assist in an orderly handover and as an adviser
until 31 March 2022, he was succeeded by Stuart Simpson
who was appointed to the Board as Interim Chief Financial
Officer on 21 September 2021. Stuart’s remuneration
arrangements are set out in the below section entitled
‘Remuneration arrangements for the new Interim CFO’
and also on page 128.
Philip Marshall’s remuneration arrangements on departure
were in line with the 2019 Directors’ Remuneration Policy
and full details, including where Remuneration Committee
discretion was applied, are set out on page 124.
Implementation of remuneration arrangements
for the CEO in 2022
The Committee will administer executive remuneration
in accordance with the existing Remuneration Policy until
completion of the NortonLifeLock Merger. In the event that
the Merger does not complete as expected, the existing
Remuneration Policy will continue in effect until the 2022
AGM, as discussed above.
The CEO is the only Director to participate in the annual
bonus and long-term incentive plan (LTIP). His maximum
opportunity under the annual bonus and the LTIP
continues to be 200% and 500% of base salary respectively.
As in previous years, he intends to waive his annual bonus
for 2022.
2021 was a strong year of high
calibre talent attraction and
retention at Avast, despite
being a period of great
change and some uncertainty.
This is a testament to our
remuneration approach
supporting a strong
talent agenda
Tamara Minick-Scokalo
Chair of the Remuneration Committee
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Avast plc annual report 2021
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Directors’ remuneration report continued
The Committee reviewed the measures under the annual
bonus that will apply for the period up to completion of the
Merger to ensure they continued to be aligned with our
strategy, and determined that performance KPIs should
continue to be based on organic billings, adjusted EBITDA,
relationship Net Promoter Score and the achievement of
strategic measures, consistent with the approach taken in
2021. If the Merger does not complete, the Committee will
administer the annual bonus in accordance with the existing
Remuneration Policy and disclose details of how the policy was
implemented in the 2022 Directors’ Remuneration Report.
Depending on the Merger completion date, the Committee
may make a 2022 LTIP award to Ondrej Vlcek, in line with
the terms of the Remuneration Policy. In this event, details
of the awards including the performance targets would be
disclosed to shareholders via the Company’s website.
As set out in previous remuneration reports, 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 continued to receive his Board Directors’
fee ($100,000 per annum) which he donated to charity.
Mr Vlcek received a nominal annual salary of $1 in addition
to his Board fee.
Remuneration arrangements for the
new Interim CFO
Stuart Simpson succeeded Philip Marshall as Interim CFO
and was appointed to the Board on 21 September 2021.
Given that he was appointed after the indicative timings
for the NortonLifeLock Merger were known, and given the
likely short-term nature of the role, he was appointed on a
fixed-term contract to 31 December 2022. His remuneration
arrangements are all in line with the shareholder-approved
Policy. Under the terms of his service agreement,
Mr Simpson will receive a fixed monthly salary payment
of $100,000 reflecting his experience and the expertise
he brings to the role.
In lieu of an annual bonus and LTIP award, the Committee
used its discretion to determine that Mr Simpson would
instead receive a one-time performance award at the end
of his employment term, with a maximum opportunity
of $500,000. Given the specific circumstances of his
recruitment in the context of the Merger, and Avast’s
particular business objectives for the period up to
the completion date, this award will be subject to the
achievement of individual and Company targets which
will be measured over the full term of his employment,
for the period from 21 September 2021 to 31 December
2022, as set out on page 128.
Mr Simpson will not participate in any share incentive
plans, but will be entitled to receive Company benefits
such as life insurance cover and medical insurance in line
with the Remuneration Policy, as well as the local pension
scheme available to all employees of Avast Plc in the UK. His
employer pension contribution is 5% of salary, which is in line
with contributions that the wider UK workforce may receive.
In developing Mr Simpson’s remuneration arrangements
as part of his recruitment, the Committee was mindful of
the need to both fairly reward and sufficiently motivate him
during a period of significant change, while recognising
the specific circumstances faced in the context of the
NortonLifeLock Merger and the challenging timelines to
deliver his objectives.
Incentive outcomes for 2021
2021 was another successful year for Avast, as we continued
to execute on our growth strategy, delivering organic
revenue and adjusted net income growth in a challenging
pandemic environment.
The Merger with NortonLifeLock will create a combined
Company with over 500 million users globally and
approximately $3.5 billion in revenue, generating
significant long-term shareholder value.
Annual bonus
The annual bonus for 2021 was based on performance
against organic billings, adjusted EBITDA, relationship
Net Promoter Score (NPS) targets, and performance against
strategic KPIs. Organic billings of $972.0m (adjusted for FX)
were delivered, resulting in a payout outcome of 37.1% of
maximum, while adjusted EBITDA was $517.8m (adjusted for
FX), representing a payout outcome of 48.1% of maximum.
The Company continued to make good progress in the
year on improving the customer experience. Based on the
performance delivered, the payout outcome for the NPS
element was 51.3% of maximum.
The Committee reviewed individual performance carefully
against the strategic KPIs set, and assessed for Ondrej Vlcek
as meriting 50% achievement with respect to maximum. In
light of the performance delivered in 2021, the Committee
determined that a notional bonus of 45.0% of maximum
should be paid to Ondrej Vlcek (although as noted above,
he elected to waive his annual bonus).
As noted above, Philip Marshall stepped down from the
Board on 21 September 2021, but will remain with the
business to assist in an orderly handover and as an adviser
until completion of the Merger. As part of his departure
terms, the Committee exercised its discretion within the
policy to determine that his 2021 bonus would be based
in equal proportion on Company (financial) measures and
personal measures (which also includes personal financial
performance). The Company element continued to be
measured on organic billings and adjusted EBITDA and the
outcome was as described above. The personal element
was measured on performance against strategic KPIs, with
a portion of this element tied to financial performance,
such that 70% of the overall bonus was based on financial
performance, consistent with the policy. Under his departure
terms, Philip Marshall was awarded 50% of maximum for
the strategic KPI measures as CFO, resulting in an overall
bonus of 46.3% of maximum.
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A description of performance against the targets is set out
on pages 119 to 120.
2019 LTIP
In 2019, LTIP awards were made to Ondrej Vlcek and
Philip Marshall worth 350% of their base salaries at the
time. An additional award was also granted under the
2019 LTIP to both Mr Vlcek and Mr Marshall, to reflect the
increase in their salaries and LTIP award levels following
Mr Vlcek’s promotion to CEO and the expansion in
the scope and responsibilities of Mr Marshall’s role.
The additional awards were granted such that Mr Vlcek’s
aggregate award was worth 500% of his increased salary,
and Mr Marshall’s aggregate award was worth 450% of his
increased salary.
These awards were assessed 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 2021 was 10.6% (CAGR) and adjusted
organic revenue growth over this period was 6.4% (CAGR).
As a result, 62.93% of the award will vest. Further details of
the calculation are provided on page 120.
Review of formulaic outturns
The Committee considered the formulaic outturns under
the 2021 annual bonus and 2019 LTIP awards and is satisfied
that they are a fair reflection of individual and Company
performance as well as the wider stakeholder experience,
particularly given the significant shareholder value
generated as a result of the Merger with NortonLifeLock,
and therefore has not exercised discretion in relation to
incentive outcomes during the year.
Early vesting of inflight LTIP awards
In anticipation of the Merger between Avast and
NortonLifeLock in early 2022, in 2021 the Committee
considered the implications for the inflight 2019, 2020,
and 2021 LTIP awards. After careful consideration, the
Committee used its discretion to determine that vesting
would be accelerated for a time pro-rated portion of the
unvested awards, based on the portion of the vesting period
that had elapsed at the Court Sanction Date, and that the
remainder of the awards would be rolled over into new
awards of NortonLifeLock shares. This treatment was set
out in the Co-Operation Agreement between Avast and
NortonLifeLock. Due to his departure prior to the Merger
completion, the Committee used its discretion to determine
an alternative treatment for Philip Marshall’s awards as part
of his departure terms, which is described on page 124.
The portion of the 2020 and 2021 LTIP awards that will
vest early will be subject to the Committee’s assessment
of performance for the period up until the Court Sanction
Date, in accordance with the plan rules. The performance
period for the 2019 LTIP awards is complete and the
performance outcome is described above. In line with the
LTIP rules, the two-year holding period for all LTIP awards
will expire at the Court Sanction Date.
Conclusion
I would like to thank shareholders for their continued
feedback and support over the course of the year.
Ms Tamara Minick-Scokalo
Chair of the Remuneration Committee
Annual Remuneration Report 2021
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
Schedule 8 of the Large and Medium-sized Companies
and Groups (Accounts and Reports) Regulations 2008
(as amended) and the Companies Act 2006.
2019 Directors’ Remuneration Policy
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 2022, up until the
completion of the Merger.
Given the timing of the transaction, no changes to the Policy
are being proposed at this point. For full details of the Policy
approved by shareholders, please refer to the 2018 Annual
Report and Accounts which can be found on our website
under the investor section (investors.avast.com/investors/
results-reports-and-presentations/).
The Group’s overall philosophy on remuneration is based
on the approach that remuneration should be simple, while
being clearly linked to the performance and behaviour of
the individual, business results, and shareholder outcomes.
This approach to remuneration, which cascades down
through the organisation, is designed to:
Reward achievement of short- and long-term financial
objectives and support delivery of the business strategy
and sustainable long-term returns to shareholders;
Provide competitive, transparent and fair rewards; and
Align the interests of employees and shareholders through
appropriate levels of employee share ownership
Directors’ remuneration report continued
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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 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.
When determining performance measures for annual bonus
and Long Term Incentive Plan awards, the Committee
seeks to ensure they are aligned to the Company’s strategic
objectives and long-term shareholder interests. The annual
bonus measures are selected to reflect the Company’s
short-term financial and non-financial priorities. The
measures used in the Long Term Incentive Plan are selected
to reflect Avast’s strategy and to reinforce the key drivers
of value creation and growth highlighted elsewhere in this
annual report, which included earnings per share and organic
revenue growth for the 2021 financial year.
Furthermore, our Remuneration Policy and the long-term
nature of our incentive plans promote sustainable financial
performance and ensure appropriate safeguards are in
place to avoid rewarding failure (such as malus and clawback
provisions, shareholding guidelines, and holding periods).
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.
The table below summarises the approved Remuneration
Policy and reflects the arrangements agreed for the Interim
CFO. The table on page 118 provides a summary of the
implementation of the policy in 2021, including the amounts
received by the Executive Directors under each element.
Directors’ remuneration report continued
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
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
BASE SALARY
BENEFITS
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Purpose and link to strategy: To provide an appropriate
allowance for retirement planning.
Overview
The CEO does not currently participate in pension
arrangements, in line with practice for other
Czech employees.
The Interim CFO receives a contribution of 5% of salary, in
line with the contribution available to other UK employees.
Maximum opportunity
n/a
Performance measures
n/a
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
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).
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 was based on the following
performance measures:
Billings (as defined on page 110)
Adjusted EBITDA (as defined on page 110)
Relationship NPS (as defined on page 110)
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.
For 2022, Ondrej Vlcek will continue to waive his bonus and
Stuart Simpson will not participate in the annual bonus.
Directors’ remuneration report continued
PENSION
ANNUAL BONUS
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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 an 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 awards were subject to the following
performance measures:
50% based on diluted adjusted EPS growth.
50% on adjusted revenue growth.
The Committee may not grant a 2022 LTIP award to
Ondrej Vlcek due to the expected completion of the Merger.
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 which are not in the long-term
interests of the Group.
Directors’ remuneration report continued
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.
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.
Performance measures
n/a
LTIP
SHARE MATCHING PLAN (SMP)
Strategic report
Governance
Financial statements
Avast plc annual report 2021
115
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.
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
2021 and resolved that this would be included in the next
Remuneration Policy put to a shareholder vote. Due to the
Merger, a new policy has not been published at this time.
Performance measures
n/a
Directors’ remuneration report continued
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.
Stakeholder engagement
The Committee took into account the Company’s approach
to remuneration and related policies for the wider workforce
when determining the Policy for Executive Directors.
The 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. In 2021, we continued our enhanced employee
consultation programme and Pavel Baudis, our ‘designated’
Non-Executive Director for the purpose of employee
engagement, has regularly attended our employee
Change Engagement Group, where a number of issues
were discussed, including pay and benefits. Although the
Committee did not engage with the wider workforce on how
executive remuneration aligns with our wider pay policies,
it reviewed the regular employee reward programmes, such
as the annual salary review, the annual employee Restricted
Stock Unit (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.
Prior to the announcement of the Merger, in mid-2021 the
Committee began to consider possible amendments to
the Remuneration Policy and reviewed feedback received
from shareholders on the design. As stated above, due to
the timing of the transaction, no changes to the policy were
proposed and a shareholder consultation did not take place
in late 2021 as it ordinarily would have.
SHAREHOLDING GUIDELINES
Strategic report
Governance
Financial statements
Avast plc annual report 2021
116
Summary of how our policy was implemented in 2021
The Committee considers that the Remuneration Policy operated as it was intended in terms of Company performance and pay quantum during 2021.
Summary
Implementation in 2021
CEO: Ondrej Vlcek
Previous CFO: Philip Marshall
New Interim CFO: Stuart Simpson
BASE SALARY
No salary increases awarded in the year.
Ondrej Vlcek 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 (which is
inclusive of his $100,000 Board fee)
$600,000
(this includes his Board fee
of $100,000 per annum)
$100,000 per month
(combined salary and Board fee)
BENEFITS
Benefits included private health cover (for the individual and family
members), life insurance, flexible benefit scheme, and car allowance.
(The CEO does not receive private health cover or a car allowance).
$14,881
$49,785
$0
PENSION
Executive Directors do not receive a pension contribution, except
where covered by local employee pension plan policy.
n/a
n/a
$5,000
(Participates in the pension
on the same basis as
other UK employees)
ANNUAL BONUS
Maximum opportunity of 200% of salary in 2021.
Performance measures for the 2021 annual bonus were as follows:
35% on Organic Billings
35% on Adjusted EBITDA
15% on customer satisfaction
15% on strategic KPIs
Philip Marshall’s bonus was based on Organic Billings, Adjusted
EBITDA, and personal measures as described on page 120.
The CEO has waived his annual bonus
Outturn as a percentage
of maximum: 46.3%
$555,600
The Interim CFO did
not participate in the
2021 annual bonus plan
Directors’ remuneration report continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
117
Summary
Implementation in 2021
CEO: Ondrej Vlcek
Previous CFO: Philip Marshall
New Interim CFO: Stuart Simpson
LTIP
In 2019, Ondrej Vlcek and Philip Marshall were granted an award
of 500% and 450% of salary based on their respective salaries at
the time.
Performance was measured over three years to 31 December 2021.
Performance measures for the 2019 award were as follows:
50% based on diluted adjusted EPS growth
50% on adjusted (organic) revenue growth
Percentage of
award vesting: 62.93%
$4,276,204
Percentage of
award vesting: 62.93%
$3,377,533
The Interim CFO does not
participate in any LTIP awards
SHARE MATCHING PLAN (SMP)
All employees, including the Executive Directors and members of the
Executive Management team, are eligible to participate in the SMP.
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.
The CEO did not participate
in the SMP in 2021
The CFO participated in
the Share Matching Plan in
2021, and purchased
2,481 shares under the plan
eligible for matching and received
1,349 of matched shares
n/a
SHAREHOLDING GUIDELINES
200% of annual base salary
27,654% of (‘headline’) salary
Shareholding as at 31 December 2021
based on the share price at that date
425% of salary
Shareholding as at 21 September
2021 (date of stepping
down) based on the
share price at that date
n/a
See CFO’s report on pages 40 to 53 for further details on financial measures and definitions
Directors’ remuneration report continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
118
Remuneration received by Directors for the year ended 31 December 2021 (audited)
Directors’ remuneration for the years ended 31 December 2021 and 2020 was as follows:
Director
Salary & Fees1
Benefits2
Pensions3
Total Fixed
Annual Bonus
Long-term
Incentives
Other4
Total Variable
Total
Ondrej Vlcek5
2021
$100,001
$14,881
n/a
$114,882
$0 $4,276,20410
n/a
$4,276,204
$4,391,086
2020
$100,001
$8,732
n/a
$108,733
$0
$3,103,57511
n/a
$3,103,575
$3,212,308
Philip Marshall6
2021
$433,334
$49,785
n/a
$483,119
$400,3367 $3,377,53310
$ 10,481
$3,788,350
$4,271,469
2020
$600,000
$61,412
n/a
$661,412
$575,023
$3,617,78111
$0
$4,192,804
$4,854,216
Stuart Simpson8
2021
$335,385
$0
$5,000
$340,385
$09
$0
n/a
$0
$340,385
John Schwarz
2021
$350,000
$0
n/a
$350,000
n/a
n/a
n/a
n/a
$350,000
2020
$350,000
$5,000
n/a
$355,000
n/a
n/a
n/a
n/a
$355,000
Pavel Baudis12
2021
$99,384
$23,284
n/a
$122,668
n/a
n/a
n/a
n/a
$122,668
2020
$97,086
$21,846
n/a
$118,932
n/a
n/a
n/a
n/a
$118,932
Maggie Chan Jones
2021
$122,174
$0
n/a
$122,174
n/a
n/a
n/a
n/a
$122,174
2020
$115,000
$5,000
n/a
$120,000
n/a
n/a
n/a
n/a
$120,000
Ulf Claesson13
2021
$42,740
$0
n/a
$42,740
n/a
n/a
n/a
n/a
$42,740
2020
$122,500
$0
n/a
$122,500
n/a
n/a
n/a
n/a
$122,500
Warren Finegold
2021
$141,087
$0
n/a
$141,087
n/a
n/a
n/a
n/a
$141,087
2020
$137,500
$0
n/a
$137,500
n/a
n/a
n/a
n/a
$137,500
Erwin Gunst13
2021
$40,124
$0
n/a
$40,124
n/a
n/a
n/a
n/a
$40,124
2020
$115,000
$0
n/a
$115,000
n/a
n/a
n/a
n/a
$115,000
Eduard Kucera12
2021
$99,383
$23,293
n/a
$122,676
n/a
n/a
n/a
n/a
$122,676
2020
$97,080
$21,846
n/a
$118,926
n/a
n/a
n/a
n/a
$118,926
Tamara Minick-Scokalo
2021
$119,904
$0
n/a
$119,904
n/a
n/a
n/a
n/a
$119,904
2020
$111,435
$0
n/a
$111,435
n/a
n/a
n/a
n/a
$111,435
Belinda Richards
2021
$123,491
$0
n/a
$123,491
n/a
n/a
n/a
n/a
$123,491
2020
$115,000
$0
n/a
$115,000
n/a
n/a
n/a
n/a
$115,000
Lorne Somerville
2021
$0
$0
n/a
$0
n/a
n/a
n/a
n/a
$0
2020
$39,011
$0
n/a
$39,011
n/a
n/a
n/a
n/a
$39,011
Total
2021
$2,007,006
$111,243
$5,000
$2,123,249
$400,336
$7,653,737
$10,481 $8,064,554 $10,187,803
2020
$1,999,612
$123,836
n/a
$2,123,448
$575,023
$6,721,356
$0
$7,296,379
$9,419,827
Directors’ remuneration report continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
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 except where covered by local
employee pension plan policy.
4
Refers to amounts received under the Share Matching Plan (see page 117).
5
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.
6
Mr Philip Marshall stepped down from the Board on 21 September 2021 and remuneration
shown is pro-rated to reflect his time in role to this date. Further details of remuneration paid
to Mr Philip Marshall are provided on page 124.
7
Mr Philip Marshall met his shareholding guideline and therefore the annual bonus for the year
ending 31 December 2021 has been paid in cash.
8
Mr Stuart Simpson joined the Board on 21 September 2021 and remuneration shown is
from this date.
9
Mr Stuart Simpson participates in a one-off performance bonus which operates for the
duration of his appointment, with performance assessed in 2022.
10 LTIP awards granted in March and July 2019 will vest based on performance to 31 December
2021. 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 2021 of £5.859. This
amount includes the value of additional shares awarded in respect of dividend equivalents.
Between grant and the share price used to value the March 2019 award for single figure
purposes, the share price had increased from £2.959 at the date of grant to £5.859 (3-month
average to 31 December 2021) which equated to an increase in value of each vesting
share equivalent to £2.900. Between grant and the share price used to value the July 2019
award for single figure purposes, the share price had increased from £3.136 at the date of
grant to £5.859 (3-month average to 31 December 2021) which equated to an increase in
value of each vesting share equivalent to £2.723. The value disclosed in the single figure
attributable to share price growth is $1,925,998 for Mr Ondrej Vlcek and $1,536,667 for
Mr Philip Marshall. The Remuneration Committee did not exercise discretion in respect of
the share price appreciation. Based on the performance achieved, these awards will vest at
62.93% of the maximum opportunity. The total number of shares that would have vested
to Mr Ondrej Vlcek is 541,583 shares (inclusive of dividend equivalent shares accrued to
the date of this report); in accordance with the Merger arrangements a portion of shares
will be rolled over into NortonLifeLock shares. The full value of the shares (including the
rolled over awards) is disclosed in the table. Mr Philip Marshall will receive 427,766 shares
(inclusive of dividend equivalent shares accrued to the date of this report) upon the vesting.
These numbers of shares that will vest do not include any dividend equivalents relating to the
proposed payment of a dividend on 3 March 2022. As explained on page 120, it is expected
that Mr Philip Marshall would receive a top-up cash payment of $87,534 (an estimation using
the MCO value of Avast share of $8.45, calculated based on NortonLifeLock share value
of $27.97 from 18 February 2022 and the formula outlined in the Scheme Document) in
respect of the 2019, if the Merger completes prior to 31 December 2022, which has not been
included in the single figure as it is conditional on completion. The 3-month average exchange
rate of $1.35/£1 was used to convert the LTIP value from GBP to USD.
11
LTIP values for 2020 for Mr Ondrej Vlcek and Mr Philip Marshall have been restated using
the share price on the vesting date of 11 August 2021, being £5.86. 381,901 shares vested to
Mr Ondrej Vlcek and 445,175 shares vested to Mr Philip Marshall. The exchange rate on the
date of the vesting ($1.3868/£1) was used to convert the LTIP value from GBP to USD.
12 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 $50,000 annually for each) would be converted
to CZK at the exchange rate of CZK 21.319/1$ and paid in arrears in monthly payments of
CZK 88,830 (gross). The amounts reported in the single figure table are based on actual
exchange rates for the year.
13 Mr Ulf Claesson and Mr Erwin Gunst stepped down at the AGM on 6 May 2021.
14 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.
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 elected to waive his salary (not including his Board fee) and annual bonus. Mr Ondrej Vlcek continued 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, in addition to his Board fee.
Mr Philip Marshall’s salary was $600,000 for the year, inclusive of his Board Director's fee ($100,000).
Mr Stuart Simpson’s salary was $100,000 per month.
Annual bonus for the year ended 31 December 2021 for Ondrej Vlcek (audited)
The annual bonus for the year under review was based on organic billings, adjusted EBITDA, customer satisfaction
(Relationship NPS) and individual strategic KPIs. Performance against financial targets is set out in the table below:
Weighting
Threshold
Target
Maximum
Performance
achieved
Performance at
budget FX rate1
% of maximum
12.5% payout
50% payout
100% payout
Organic Billings
35%
$906.1m
$1,006.7m
$1,208.1m
$946.1m
$972.0m
37.1%
Adjusted EBITDA
35%
$468.4m
$520.4m
$624.5m
$517.6m
$517.8m
48.1%
Notes
1
Actuals at target FX rates exclude currency impact calculated by restating 2021 actuals to 2021 planning rates, and are used for bonus payout calculation purposes.
2
Stuart Simpson did not participate in the 2021 annual bonus award.
In assessing the 15% bonus element associated with our customer satisfaction performance, the Committee considered
the improvement in the relationship NPS for Avast paid products and the sustained strong performance for Avast free,
AVG paid, and AVG free products. NPS performance for all four products was within or above the target range. Based on the
performance delivered, the Committee judged that the Company met its objectives with respect to customer satisfaction in
2021 and that 51.3% of maximum for the customer satisfaction element of the bonus should be paid.
The Company continues to grow and met its commitments to the shareholders, and the Board continues to have full
confidence in the leadership to execute on our plans.
The performance of the CEO in 2021 against the Strategic KPIs, agreed at the start of the year and weighted at 15% with
respect to the 2021 annual bonus, has been assessed and is described below.
Executive Performance achieved
Committee’s
assessment
of pay out
Ondrej
Vlcek
Successfully led negotiations and preparations for the Merger with NortonLifeLock, including effective
management of the investor base
Launched a new product solution (Avast One) and established a process for ongoing development
and monetisation
Developed and implemented the strategy and the build-out plan for Identity, including the acquisition
of Evernym
Delivered succession planning and organisation development programmes
50% of
maximum1
1
No bonus will be paid to Mr Ondrej Vlcek following his decision to waive his annual bonus since appointment as CEO.
Directors’ remuneration report continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
120
The above performance resulted in the following payment:
Executive
2021 bonus
payment
% of maximum
Ondrej Vlcek
$01
n/a
1
No bonus will be paid to Mr Ondrej Vlcek following his decision to waive his annual
bonus since appointment as CEO.
Annual bonus for the year ended 31 December
2021 for Philip Marshall (audited)
As noted earlier in this report, Philip Marshall stepped
down from the Board on 21 September 2021, but will remain
with the business to assist in an orderly handover and as an
adviser until 31 March 2022. As part of his departure terms,
the Committee exercised its discretion within the policy
to determine that his 2021 bonus would be based
on an equal weighting of Company (financial) measures
and personal measures (which also include personal
financial performance).
The Company element was measured on organic billings
and adjusted EBITDA and the outcome was as described
above for Ondrej Vlcek. The personal element was based
on performance against personal/strategic KPIs, which
included an element of personal financial performance of
20%. In line with the agreed terms, the outcome under the
personal element was 50% of maximum which, together
with the outcome for organic billings and adjusted EBITDA,
resulted in an overall bonus of 46.3% of maximum. When
reviewing personal performance, the Committee took
into account Philip Marshall’s achievements, including
in relation to the financial aspects of negotiations with
NortonLifeLock, the management of divestments and
business re-financing.
Executive
2021 bonus
payment
% of maximum
Philip Marshall
$555,600
46.3%
The Committee considered the formulaic outturns under the
2021 annual bonus awards and was satisfied that they were
a fair reflection of individual and Company performance as
well as the wider stakeholder experience, and therefore did not exercise discretion in relation to formulaic outcomes during
the year.
LTIP vesting for the year ended 31 December 2021 (audited)
On 14 March 2019, Mr 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 401,602 Performance Share Units (PSUs) at maximum vesting level. The Market Value at
Grant was £2.959 per share. As previously noted in the 2019 Directors’ remuneration report, an additional conditional share award
was made to reflect Mr Ondrej Vlcek’s increased salary of $700,000 and increased LTIP opportunity of 500% of base salary.
This additional grant was made on 3 July 2019 and was equivalent to 406,309 Performance Share Units (PSUs) at maximum vesting
level. The Market Value at Grant was £3.136 per share.
On 14 March 2019, the CFO, Mr Philip Marshall, was granted a conditional share award of 350% of salary (his salary at the date of grant
was $525,000). This grant was equivalent to 468,535 Performance Share Units (PSUs) at maximum vesting level. The Market Value at
Grant was £2.959 per share. As noted in the 2019 Directors’ remuneration report, an additional conditional share award was made to
reflect Mr Philip Marshall’s increased salary of $600,000 and increased LTIP opportunity of 450% of base salary. This additional grant
was made on 3 July 2019 and was equivalent to 182,048 Performance Share Units (PSUs) at maximum vesting level. The Market Value
at Grant was £3.136 per share.
2019 PSU awards were subject to diluted adjusted EPS growth over the three financial years ending 31 December 2021 and adjusted
organic revenue growth over the same period. Diluted adjusted EPS growth over the period was 10.6% (CAGR) and adjusted organic
revenue growth over the period was 6.4% (CAGR). Therefore, the awards will vest at 62.93% of maximum opportunity.
Weighting
Threshold
Target
Maximum
Performance
achieved
% of maximum
14% payout
55% payout
100% payout
Diluted adjusted
EPS growth
50%
5% CAGR
8% CAGR
12% CAGR
10.6%
83.69%
Adjusted (organic)
revenue growth1
50%
5% CAGR
7% CAGR
12% CAGR
6.4%
42.18%
1
Adjusted to exclude impact of discontinued businesses and Jumpshot.
These 2019 awards will vest on the third anniversary of grant or, if earlier, completion of the NortonLifeLock Merger. The awards made
on 14 March 2019 will vest on their normal vesting date of 14 March 2022. Regarding the awards made in July 2019, for Mr Ondrej
Vlcek, a portion of this award will be pro-rated to reflect the portion of the vesting period elapsed, with the remainder rolled over into
NortonLifeLock shares in line with the agreed Merger arrangements. For Mr Philip Marshall, a portion of this award will be pro-rated
to reflect the portion of the vesting period elapsed to his exit date (31 March 2022) and another portion subject to cash settlement,
estimated to be $87,534 (based on NortonLifeLock share value of $27.97 from 18 February 2022 and the MCO formula outlined in
the Scheme Document), if the Merger completes prior to 31 December 2022, as outlined on page 121.
As a result, Mr Ondrej Vlcek will receive 541,583 shares (including dividend equivalent shares) and Mr Philip Marshall will receive
427,766 shares (including dividend equivalent shares) upon vesting. Further dividend equivalents will accrue for these awards as at the
date of this report it was announced that the March 2022 dividend would be paid on 3 March 2022. The shares from the vested awards
will be subject to the two-year post-vesting holding requirement.
Directors’ remuneration report continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
121
When determining the LTIP outcome, the Committee 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 was
an appropriate reflection of progress delivered over the period
since grant and has therefore determined that a discretionary
adjustment was not required.
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, then they will receive one
matching share for every three shares purchased.
Two tranches of matching shares vested to Mr Philip Marshall in
the year, following completion of their two-year holding periods.
Mr Philip Marshall purchased 2,175 shares in the H2 2018
Accumulation Period, which were allotted to him on 17 January
2019 and earned him 725 matching shares, which vested on
14 January 2021. The share price on 14 January 2021 was £5.30,
resulting in a value on the vesting date of £3,843.
He purchased 1,874 shares in the H1 2019 Accumulation Period,
which were allotted to him on 16 July 2019 and earned him 624
matching shares, which vested on 27 August 2021. The share
price on 27 August 2021 was £6.014, resulting in a value on the
vesting date of £3,753.
Details of the treatment of Mr Philip Marshall’s awards on
completion of the Merger are described on page 124.
Total pension entitlements (audited)
During the year under review, Stuart Simpson received pension
contributions of 5% of salary which is in line with the wider
Directors’ remuneration report continued
workforce rate for UK employees. Ondrej Vlcek and Philip Marshall did not receive any pension contribution or pension allowance,
in line with practice for all Czech employees.
LTIP awards made during the year (audited)
On 22 March 2021, the following awards were granted to Mr Ondrej Vlcek and Mr Philip Marshall:
Executive
Type of award
Details of award granted
Vesting determined by
performance over
Basis of award granted
(maximum)
Share price
(£)1
Number of
shares
granted
Face value
of award
(£000)
Face value
of award
($000)2
% of face
value that
would vest
at threshold
performance
Ondrej Vlcek
Conditional
share
500% of salary of
$700,000
£4.834 544,788 £2,633.5 $3,500.0
14% Three financial years to
31 December 2023
Philip
Marshall
Conditional
share
450% of salary of
$600,000
£4.834 420,265 £2,031.6 $2,700.0
14% Three financial years to
31 December 2023
Notes
1
The share price used to determine the number of shares awarded was £4.834 based on the closing share price on 22 March 2021.
2
Exchange rate used to present the face value of the award in USD is the rate on the date of grant of £/$ 1.3290.
The performance condition for these awards is set out below:
Threshold 14% vesting
Target 55% vesting
Maximum 100% vesting
Diluted adjusted EPS growth (50% weighting)
5% CAGR
7% CAGR
12% CAGR
Adjusted revenue growth (50% weighting)
5% CAGR
7% CAGR
12% CAGR
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.
Treatment of inflight LTIP awards on completion of the NortonLifeLock Merger
In anticipation of the Merger between Avast and NortonLifeLock in early 2022, in 2021 the Committee considered the
implications for the inflight LTIP awards. After careful consideration, the Committee used its discretion to determine that
vesting would be accelerated for a time pro-rated portion of the awards, based on the portion of the vesting period that had
elapsed at the completion date, and that for Ondrej Vlcek the remainder of the awards would be rolled over into new awards
over NortonLifeLock shares. This treatment was set out in the Co-Operation Agreement between Avast and NortonLifeLock.
Given his departure, Philip Marshall’s shares will not be rolled over and will vest on completion, in line with the approach
described in the payments for loss of office section on page 124. The portion of the 2020 and 2021 LTIP awards that will vest
early will be subject to the Committee’s assessment of performance for the period up until completion, in accordance with the
plan rules. The performance period for the 2019 awards is complete and the outcome is as described on page 117.
Under the LTIP rules, awards that have vested but are subject to a holding period are released on a change of control.
Strategic report
Governance
Financial statements
Avast plc annual report 2021
122
Directors’ remuneration report continued
Directors’ shareholdings 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 2021 for both Ondrej Vlcek and Philip Marshall. Stuart Simpson joined the Company on 21 September 2021.
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 2021 (or if earlier,
their date of departure).
Beneficially
owned shares at
31/12/20201
Beneficially
owned shares at
31/12/20211
Shareholding
guideline
achieved3 Award Description
Option
price
(GBP)
Number of
unvested
options/
awards at
31/12/2020
Number
of vested
options/
awards at
31/12/2020
Granted5 Exercised
Transferred5
Lapsed
Number of
unvested
options/
awards at
31/12/2021
Number of
vested
options/
awards at
31/12/2021
Ondrej Vlcek
23,715,184
24,097,085
Yes Performance Stock Units 2018
n/a
538,707
0
19,562
0
381,901
176,368
0
0
Performance Stock Units 20196
n/a
807,911
0
0
0
0
0
807,911
0
Performance Stock Units 202012,13
n/a
669,365
0
0
0
0
0
669,365
0
Performance Stock Units 202112,13
n/a
0
0
544,788
0
0
0
544,788
0
2,015,983
0
564,350
0
381,901
176,368
2,022,064
0
Philip
Marshall2,7,8,9,10,11
322,760
326,590
Yes Time Based Options Feb 20184
£2.13
971,163
485,581
0
0
0
0
485,582
971,162
Time Based Options Mar 20184
£2.37
582,735
582,736
0
0
0
0
291,368
874,103
Performance Stock Units 2018
n/a
627,960
0
0
0
0 205,588
0
445,175
Performance Stock Units 20196
n/a
650,583
0
0
0
0
0
650,583
0
Performance Stock Units 20208,12,13
n/a
516,367
0
0
0
0
0
516,367
0
Performance Stock Units 20218,12,13
n/a
0
0
420,265
0
0
0
420,265
0
3,348,808 1,068,317
420,265
0
0 205,588
2,364,165 2,290,440
Total
24,037,944 24,423,675
5,364,791 1,068,317
984,615
0
381,901
381,956
4,386,229 2,290,440
Notes
1
Includes shares owned by connected parties.
2
Mr Philip Marshall stepped down from the Board and as CFO on 21 September 2021.
His shareholding and the number of vested and unvested options are shown as at
that date.
3
Calculated based on the share price on 31 December 2021 of £6.0720.
4
On IPO, share options were rolled over to equivalent share options of Avast Plc and
have been included in share holdings and share interests.
5
The 2018 LTIPs vested on 11 August 2021. The information included under the column
granted relates to the dividend equivalent shares received by Mr Ondrej Vlcek and the
transferred column is reflective of the total shares (including dividend equivalents)
that were allotted to him as a result on 24 September 2021.
6
Based on the performance achieved, the awards will vest at 62.93% of the maximum
opportunity and Mr Ondrej Vlcek will receive 541,583 shares (inclusive of dividend
equivalent shares) and Mr Philip Marshall will receive 427,766 shares (inclusive of
dividend equivalent shares) upon vesting. For Mr Ondrej Vlcek, the March 2019 award
will vest on its normal vesting date of 14 March 2022 and a portion of his July 2019
award is expected vest early upon the Court Sanction Date and the remainder of the
awards would be rolled over into new awards over NortonLifeLock shares as described
on page 121. For Mr Philip Marshall, the March 2019 award will vest on its normal
vesting date of 14 March 2022 and a portion of his July 2019 award will vest on a pro
rata basis on the earlier of the Court Sanction Date and its original vesting date as
described on page 124.
7
Includes total of 9,877 shares purchased by Mr Philip Marshall under the Company
Share Matching Plan, subject to matching after a two-year holding period. Between
21 September and 31 December, Mr Philip Marshall did not purchase any shares under
the Company Share Matching Plan and did not receive any matched shares under
the Company Share Matching Plan. Between 31 December 2021 and the date of this
report, 1,503 shares were allotted to Mr Philip Marshall on 14 January 2022 under
the Share Matching Plan, against the 4,511 SMP shares purchased by him after the
H2 2019 Accumulation Period, as per the Plan rules. The remaining 1,356 matched
shares will be allotted to him on 31 March 2022.
8
On 24 September 2021, Mr Philip Marshall was allotted 445,175 shares (including
dividend equivalent shares) as a result of his 2018 LTIP vesting on 11 August 2021.
9
On 13 December 2021, Mr Philip Marshall exercised 1,845,265 stock options.
On 13 December 2021, 677,050 shares were sold to cover the stock option strike price
and on 14 December 2021 a further 268,690 shares were sold to cover the tax liability.
Effectively, Mr Philip Marshall acquired 899,525 shares on net tax basis.
10 Additionally, Mr Philip Marshall sold 102,390 shares on 28 January 2022.
11
485,582 Time Based Options vested to Philip Marshall on their normal vesting date
of 1 February 2022. On 4 February 2022, Mr Philip Marshall exercised 485,582 stock
options. On 4 February 2022, 167,580 shares were sold to cover stock option strike
price and on 8 February 2022, 73,140 shares were sold to cover tax liability. Effectively,
Mr Philip Marshall acquired 244,862 shares on net tax basis. The outstanding 291,368
Time Based Options from the March 2018 award will vest on their normal vesting date
of 30 March 2022.
12 Details regarding treatment of outstanding awards upon completion of the
NortonLifeLock Merger are described earlier in this report in the page 121.
13 All awards over Avast plc shares will vest or lapse on completion of the NortonLifeLock
Merger. A portion of awards held by Mr Ondrej Vlcek will be rolled over into new awards
over NortonLifeLock shares as described earlier in this report.
14 There were no other changes in share interests between 31 December 2021 and the
date of this report.
Strategic report
Governance
Financial statements
Avast plc annual report 2021
123
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 2021.
Beneficially
owned shares at
31/12/20201
Beneficially
owned shares at
31/12/20211
Shareholding
guideline
achieved
Award description
Option price
(GBP)
Number of
unvested
options/
awards at
31/12/2020
Number
of vested
options/
awards at
31/12/2020
Granted
Exercised
Lapsed
Number of
unvested
options/
awards at
31/12/2020
Number
of vested
options/
awards at
31/12/2020
John Schwarz
0
0
n/a
n/a
0
0
0
0
0
0
0
Pavel Baudis
257,182,165
257,182,165
n/a
n/a
0
0
0
0
0
0
0
Maggie Chan Jones
0
0
n/a
n/a
0
0
0
0
0
0
0
Ulf Claesson2
1,245,324
1,245,324
n/a
n/a
0
0
0
0
0
0
0
Warren Finegold
108,132
40,000
n/a
n/a
0
0
0
0
0
0
0
Erwin Gunst2
0
0
n/a
n/a
0
0
0
0
0
0
0
Eduard Kucera
99,793,912
99,793,912
n/a
n/a
0
0
0
0
0
0
0
Tamara
Minick-Scokalo
0
0
n/a
n/a
0
0
0
0
0
0
0
Belinda Richards
0
0
n/a
n/a
0
0
0
0
0
0
0
Total3,4
358,329,533
358,261,401
0
0
0
0
0
0
0
Notes
1
Includes shares owned by connected persons.
2
Shareholdings for Erwin Gunst and Ulf Claesson are as at the date they stepped down from the Board, being 6 May 2021. During 2021, after stepping down from the Board, Mr Ulf Claesson sold 50,000 shares on 11 June 2021, purchased 18,811 shares on 21 June 2021,
sold 50,000 shares on 18 June 2021, sold 50,000 shares on 24 June 2021, sold 36,851 shares on 5 July 2021, sold 50,000 shares on 15 July 2021, sold 28,284 on 16 July 2021 and purchased 6,253 shares on 18 October 2021.
3
The interests in shares are a result of the vested options owned by the Non-Executive Directors.
4
There were no changes in share interests between 31 December 2021 and the date of this report.
The Company’s policy is that Non-Executive Directors will not be granted share options in the future.
Directors’ remuneration report continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
124
Payments for loss of office (audited)
As announced by the Company last year, Philip Marshall
stepped down from the Board with effect from 21
September 2021 and will remain employed for a limited
period to allow for a smooth transition, after which point
he will leave the Company. His termination date will be
31 March 2022. Details of his pro rata remuneration until
stepping down from the Board are included in the single
figure table on page 118.
Following his resignation from the Board, Mr Marshall
continues to be eligible for his salary (including his Board
fee). For the period between 21 September 2021 and
31 December 2021, Mr Marshall was paid $ 138,889
in lieu of salary and $27,777 in Board fees.
Mr Marshall remained entitled to receive an annual bonus
for the full FY 2021 and details of his pro rata bonus until
stepping down from the Board are included in the single
figure table. In addition, he will be paid a pro-rated 2021
annual bonus for the period between 21 September 2021
and 31 December 2021 in a value of $155,264.
Mr Marshall also received benefits and a payment in lieu of
accrued unused holiday up to 31 March 2022.
For the period between 21 September 2021 and
31 December 2021, he was paid $11,539 in lieu of life and
health insurance and $6,332 in lieu of other benefits.
The Committee decided that no bonus would be paid
to Mr Marshall in relation to 2022.
In accordance with his contractual entitlement and as set
out in the Policy, Mr Marshall will also receive a non-compete
payment equivalent to six months’ salary and Board fees
totalling $300,000 upon termination of his employment.
The Committee has determined, in its discretion, that
based on Mr Marshall’s contribution to Avast’s financial
performance and success as CFO, he will be considered
a good leaver for the purposes of outstanding incentive
awards. As such, the treatment of outstanding awards will be
applied in line with the respective plan rules for good leavers
as follows:
Avast Employee Share Plan: All awards will have vested
according to their usual timeframes by 30 March 2022.
Mr Marshall shall be entitled to exercise his vested options
for a limited period following departure on 31 March 2022.
LTIP awards will be retained and vest according to their
usual timeframes, scaled back for performance and
pro-rated to 31 March 2022, unless vesting is accelerated
due to the NortonLifeLock Merger.
– For awards granted in 2019, the performance
assessment has already been carried out and is
described on page 117.
– For awards granted in 2020, the maximum number of
awards that may vest is capped at 197,897.
– For awards granted in 2021, the maximum number of
awards that may vest is capped at 78,948.
The Remuneration Committee used its discretion to assess
the performance of the inflight 2020 and 2021 LTIPs based
50% on the diluted adjusted EPS growth and 50% on the
Group organic revenue growth to 31 December 2021, and
determined that 54.86% of the 2020 LTIPs and 45.95%
of the 2021 LTIPs for Mr Marshall will vest, in the event of
Merger completion. These vested shares accrue dividend
equivalents and will be pro-rated for time served to 31 March
2022 (and the number of shares that will vest are subject to
a cap, as described above). However, if completion of the
Merger occurs between 31 March 2022 and 31 December
2022, Mr Marshall shall be entitled to a cash payment
to compensate him for awards forfeited due to the time
pro-rating and the above vesting caps, to better align with
the experience of other LTIP participants whose unvested
awards were not forfeited on the Merger but instead rolled
over into NortonLifeLock shares. Dividend equivalents will
be payable when any awards that vest. The holding period
will continue to apply for all awards, though any holding
period still applicable at the time the Merger completes
will expire early at that time, in line with the plan rules.
Avast Share Matching Plan: Any purchased shares Mr
Marshall holds on the exit date will be released (5,366
shares). He will also receive a pro rata portion of the
associated matched shares based on the period of time
for which he was engaged during the holding period
(1,356 shares).
Mr Marshall will be paid up to a maximum of $2,500 for any
reasonable costs incurred for the repatriation of his personal
effects from the Czech Republic. He will also be paid up to
$20,000 for any reasonable costs incurred for assistance
with his tax affairs up to the end of the 2022 tax year, up to
£16,367 (plus VAT) for legal costs and $500 in respect of
certain confidentiality undertakings. He is also entitled to
receive life and health insurance benefits until December
2022 and retained his Company laptop and mobile phone
(cleaned by the Company).
Payments to past Directors (audited)
Mr Vincent Steckler stepped down from the Board and
as CEO on 30 June 2019. In line with his employment
agreement, Mr Steckler was entitled to receive 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 $36,461. No health benefits have been claimed
for the rest of 2021.
No further payments were made to former Directors that
have not been previously reported elsewhere.
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.
Directors’ remuneration report continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
125
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 2021. 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.
Total shareholder return of Avast plc compared to the FTSE 100 index
0
50
100
150
200
250
300
10 May 2018
31 December 2018
31 December 2019
31 December 2021
31 December 2020
Avast
FTSE 100
Source: Datastream.
The total remuneration for the Chief Executive to 2021 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
2021
CEO total remuneration
VS – $7,500,395
VS – $411,285
OV – $6,465,539
OV – $3,212,308
OV – $4,391,086
Annual bonus (% of maximum)2
61.8%
n/a
n/a
n/a
Share award (% of maximum)
n/a3
n/a3
67.26%4
62.93%5
Directors’ remuneration report continued
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 every year since 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 2018 and
2019, see Note 9 to the single figure table on page 119 of the 2020 annual report.
4
2018 PSU awards were subject to diluted adjusted EPS growth over the three financial
years ending 31 December 2020 and adjusted organic revenue growth over the same
period. Diluted adjusted EPS growth over the period was 10.0% (CAGR) and adjusted
organic revenue growth over the period was 7.5% (CAGR). Therefore, the awards
vested at 67.26% of maximum opportunity.
5
2019 PSU awards were subject to diluted adjusted EPS growth over the three
financial years ending 31 December 2021 and organic revenue growth over the
same period. Diluted adjusted EPS growth over the period was 10.6% (CAGR) and
organic revenue growth over the period was 6.4%. Therefore, the awards vested at
62.93% of maximum opportunity.
Strategic report
Governance
Financial statements
Avast plc annual report 2021
126
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 ending 31 December 2021.
Year
Method
25th
percentile
pay ratio
Median pay
ratio
75th
percentile
pay ratio
2021
Option A
120 : 1
81 : 1
53 : 1
2020
Option A
78 : 1
53 : 1
30 : 1
The ratios have been calculated using Option A
methodology, 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 the majority of our employees are outside of 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 2021, and
restricted stock grants vested during 2021. For simplicity,
employee benefits have been omitted, as the benefit plans
were not changed in 2021.
The employees at the 25th, 50th and 75th percentiles have
been determined on the snapshot date of 31 December
2021, 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.
Each employee was a full-time employee during the year.
Year
Supporting
information
25th
percentile pay
Median pay
75th
percentile pay
2021
Salary
$29,194
$45,815
$54,836
Total pay
$36,463
$54,180
$83,093
2020
Salary
$30,780
$44,939
$78,810
Total pay
$33,667
$49,430
$86,066
The pay ratio has increased from 2020 to 2021 from 53:1
to 81:1, which is attributed to changes to the CEO’s single
figure. The CEO waives his annual bonus and as such, the
only part of his remuneration package which is variable is the
LTIP. His LTIP opportunity increased from 350% of salary in
2018 to 500% of salary in 2019, while the vesting outcome
in percentage of maximum terms was very similar for both
awards. The increased pay ratio is therefore attributable to
the increased LTIP value reported in the single figure table.
The Committee considers that the pay ratios are
appropriately representative of pay policies at Avast, where
the proportion of the package that is taken as variable pay
increases with seniority, reflecting the increased ability
of senior individuals to influence Company performance
and their increased responsibility levels. For the Executive
Directors, a large part of the package is focused on share-
based reward in the form of performance shares, ensuring
strong alignment with the interests of shareholders, with
higher opportunity levels to reflect that pay is at greater
risk. As such, the Committee considers that the pay levels
received by the Executive Directors are appropriate, and
that pay cascades suitably through the organisation, so as
to be relevant for each level and to provide packages which
attract and reward employees at all levels in the Company.
Directors’ remuneration report continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
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 to the average percentage change in remuneration for employees of
Avast plc.
Total employee remuneration1 in the Group (including Executive Directors) increased by 10.6% in 2021 (from $209.4 million to $231.5 million).2
Ondrej
Vlcek
Philip
Marshall3
Stuart
Simpson4
John
Schwarz
Pavel
Baudis
Maggie
Chan Jones5
Ulf
Claesson6
Warren
Finegold6
Erwin
Gunst
Eduard
Kucera
Tamara
Minick-
Scokalo7
Belinda
Richards
Lorne
Somerville8
Employees
Group A
Employees
Group B
Percentage change
from FY 2020
to FY 2021
Salary/fees
0.00%
-27.78%
n/a
0.00%
2.37%
6.24%
-65.11%
2.61%
-65.11%
2.37%
7.60%
7.38% -100.00%
7.86%
0.17%
Benefits
70.42%
-18.93%
n/a -100.00%
6.58% -100.00%
n/a
n/a
n/a
6.63%
n/a
n/a
n/a
n/a
0.00%
Bonus
0.00% -32.35%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
12.56%
9.58%
Percentage change
from FY 2019 to
FY 2020
Salary/fees
-63.60%
6.70%
n/a
0.00%
-3.00%
28.60%
0.00%
0.00%
-2.50%
-3.00%
31.30%
0.0.%
-63.90%
4.80%
6.50%
Benefits
-36.30%
-1.00%
n/a
-75.00%
69.00%
-75.00%
n/a
n/a
n/a
68.00%
n/a
n/a
n/a
0%
0%
Bonus
-100.00% -10.40%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
16.60%
10.00%
1
Employees of Avast globally (‘Group A’) and Employees of Avast Plc in the UK (‘Group B’) who were employed throughout 2021.
2
Personnel expenses as described on page 175.
3
Philip Marshall stepped down from the Board on 21 September 2021. His amounts reflect those shown in the single-figure table on page 117.
4
Stuart Simpson joined the Board on 21 September 2021.
5
Ms Maggie Chan Jones was appointed to the Board on 13 March 2019 and remuneration shown is from this date.
6
Ulf Claesson and Erwin Gunst stepped down from the Board on 6 May 2021.
7
Ms Tamara Minick-Scokalo was appointed to the Board on 13 March 2019 and remuneration shown is from this date.
8
Mr Lorne Somerville stepped down from the Board on 21 May 2020 and remuneration is shown up to this date.
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 2021 compared to 2020.
2020
2021
Change
Total spend on pay
$209.4m
$231.5m1
10.6%
Distributions to shareholders by way of dividend and share buyback
$154.7m
$165.0m
6.7%
1
Personnel expenses as described on page 175.
Statement of implementation of the Remuneration Policy in 2022
A summary of how we will operate the Policy in 2022 is set out below. The Policy will operate from 1 January 2022 and will cease to take effect upon completion of the NortonLifeLock
Merger. If the Merger does not complete, the Committee will operate executive remuneration in accordance with the existing Remuneration Policy and disclose details of how the policy was
implemented in the 2022 Directors’ Remuneration Report.
Directors’ remuneration report continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
128
Base salary
Mr Ondrej Vlcek’s salary and Board fee were reviewed
at the beginning of 2021 and it was determined that no
changes would be made. His Board fee therefore remains at
$100,000 per annum, which Mr Ondrej Vlcek will continue
to donate to charity. He also receives a nominal annual salary
of $1 in addition to his Board fee. His notional salary for
determining LTIP awards was not increased and therefore
will continue at $700,000 (inclusive of the $100,000
Board Director’s fee element).
Mr Stuart Simpson’s salary was set at recruitment and will
continue at $100,000 per month for the duration of his
employment term.
Benefits
Mr Ondrej Vlcek does not receive private health cover
or a car allowance.
Mr Stuart Simpson will receive Company benefits such as
life insurance cover and medical insurance in line with the
Remuneration Policy.
Pension
In line with all Czech employees, Mr Ondrej Vlcek does not
receive any pension contribution or allowance.
Mr Stuart Simpson receives a pension contribution of 5% of
salary in line with the rest of the UK workforce.
Annual bonus
The annual bonus measures and weightings will be
unchanged from 2021. The specific targets for the 2022
performance year are considered commercially sensitive
and are not disclosed at this time.
The CEO’s maximum annual bonus opportunity for the 2022
performance year remains unchanged at 200% of salary.
However, as noted above, Mr Ondrej Vlcek has waived his
participation in the annual bonus plan.
As agreed at the time of his recruitment, Mr Stuart Simpson
will not participate in the annual bonus plan.
Performance bonus for the Interim CFO
As noted previously, Mr Stuart Simpson will not participate
in the annual bonus plan; however, he is entitled to receive a
performance bonus at the end of his employment term with
a maximum opportunity of $500,000 in cash. This is subject
to the achievement of individual and Company targets
which will be measured over the full term of his employment,
starting 21 September 2021 and ending 31 December
2022 as set out below. The Committee considered that
this arrangement was appropriate given the unusual
circumstances of the upcoming Merger, to incentivise
Mr Stuart Simpson to deliver key objectives linked to
successful delivery of the transaction. He is the only
participant in the scheme. Due to the fact that they are
considered commercially sensitive, specific targets are
not disclosed at this time.
Objective
Weight
Strategic operational objectives linked
to successful delivery of the
NortonLifeLock Merger
25%
Strategic financial objectives,
including budgeting, cost management,
and financial controls
25%
M&A projects
10%
Other strategic and operational objectives
35%
People and culture
5%
The scheme is not pensionable.
Long Term Incentive Plan (LTIP)
The Committee may grant 2022 LTIP awards in line with
the Policy, depending on the timing of the NortonLifeLock
Merger. In this event, details of the awards including the
performance targets would be disclosed to shareholders
via the Company’s website.
The treatment of inflight LTIP awards in connection with the
Merger is described on page 121.
Under the terms of his recruitment, Mr Stuart Simpson will
not participate in any LTIPs.
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 Director
or Chair’s fees for 2022.
Chair fee
$350,000
(inclusive of
Committee fees)
Non-Executive Director base fee
$100,000
Additional fees:
Senior Independent Director
$15,000
Audit and Risk Committee Chair
$15,000
Audit and Risk Committee member
$7,500
Remuneration Committee Chair
$15,000
Remuneration Committee member
$7,500
Nomination Committee Chair
$15,000
Nomination Committee member
$7,500
Directors’ remuneration report continued
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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.
Executive Directors’ service agreements
Each of the Executive Directors has a service contract,
which is available for inspection on request. Details of the
notice periods currently included in service contracts of the
Executive Directors serving in the year are summarised in
the table below:
Date of contract
Notice period
Ondrej Vlcek
9 May 2018
6 months
Philip Marshall
9 May 2018
6 months
Stuart Simpson
21 Sep 2021
Fixed term –
to end no later
than 31 Dec 2022
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/
resultsreports-and-presentations/).
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.
Membership of the Remuneration Committee
The composition of the Remuneration Committee changed
during the year. Tamara Minick-Scokalo succeeded Ulf
Claesson as Chair with effect from the 2021 AGM and there
were also other changes to the membership. The table
below lists the Directors who served on the Remuneration
Committee at any point in the year, and their attendance at
meetings they were eligible to attend.
Attendance from meeting
eligible to attend
Members at 31 December 2021
Tamara Minick-Scokalo (Chair)1
6/6
John Schwarz
6/6
Belinda Richards2
3/3
Former members
Ulf Claesson (Former Chair)1
3/3
Maggie Chan Jones3
3/3
Warren Finegold3
3/3
1
Tamara Minick-Scokalo succeeded Ulf Claesson as Chair on 6 May 2021.
2
Belinda Richards joined the Committee on 6 May 2021.
3
Warren Finegold and Maggie Chan Jones stepped down from the Committee on
6 May 2021.
The Committee’s principal role is to determine
Remuneration Policy for Executive Directors and to set
remuneration for the Chair, Non-Executive Directors and
other senior executives. In determining Remuneration
Policy, the Committee takes into account pay and reward
for the wider workforce, to ensure policy is appropriate in
the context of this and our culture.
In 2021, the meetings of the Committee covered the
following key areas:
Finalising our Directors’ Remuneration Report for
shareholder approval at the 2020 AGM
Review of final remuneration outcomes for 2020 and
provisional outcomes for 2021
Review of the Remuneration Policy ahead of the
2022 AGM
Consideration of remuneration arrangements for 2022
Review of corporate governance developments and
shareholder guidance
Consideration of the impact of the NortonLifeLock
Merger on remuneration outcomes
Remuneration arrangements for the Interim CFO
Payments for loss of office for the outgoing CFO
Alignment of employee benefits programmes to the needs
of our people and longer-term business objectives
The Committee also reviewed regular employee reward
programmes, such as the annual salary review and the
annual employee RSU awards for high-potential and
high-performing employees, as well as the Share Matching
Plan to ensure 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
As explained on page 88, the 2021 Remuneration
Committee evaluation was put on hold in light of the
proposed Merger.
Directors’ remuneration report continued
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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 were £102,175. 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 objective, 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 their 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 & 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.
Directors’ remuneration report continued
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 AGM on 6 May 2021. Details of voting are shown below.
For
Against
Withheld
Number of votes
% Number of votes
% Number of votes
Approval of the Directors’ remuneration report – 2021 AGM 812,969,923
98.42% 13,049,954
1.58%
13,397
Approval of the Directors’ Remuneration Policy – 2019 AGM
787,114,401
94.66% 44,405,150
5.34%
0
Approval
This Directors’ Remuneration Report has been approved by the Board of Directors.
Signed on behalf of the Board of Directors.
Tamara Minick-Scokalo
Chair of the Remuneration Committee
Date: 24 February 2022
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Directors’ report
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 2021 and the
date of this report, the following persons were Directors
of the Company:
Name
Role
Appointment date
John Schwarz
Non-Executive
Director and Chair
9 May 2018
Ondrej VIcek
Chief Executive Officer
9 May 2018
Philip Marshall
Chief Financial Officer
9 May 2018*
Stuart Simpson
Interim Chief
Financial Officer
21 September
2021
Warren
Finegold
Non-Executive
Director and Senior
Independent Director
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
9 May 2018**
Erwin Gunst
Non-Executive Director
9 May 2018**
Eduard Kucera
Non-Executive Director
9 May 2018
Tamara
Minick-Scokalo
Non-Executive Director
13 March 2019
Belinda Richards Non-Executive Director
8 June 2018
Notes
*
Resigned on 21 September 2021.
**
Resigned on 6 May 2021.
The Directors and the General Counsel and Company
Secretary (certain of whom 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 34 of the financial statements.
Details of Directors’ interests in shares, options, and LTIPs,
together with any changes in these interests up to the date
of approval of the annual report are set out on pages 122 to
123 of the Directors’ remuneration report.
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.
To date, the Directors have aimed to pay a dividend of
approximately 40% of the Company's levered free cash
flow for each financial year, with approximately one-third
of this amount being paid as an interim dividend. On 10
August 2021, the Board declared an interim dividend in the
amount of 4.8 cents per share. The dividend was paid to
shareholders on 15 October 2021.
Pursuant to the terms of the Scheme, Avast is permitted to
declare and pay an interim dividend of up to 11.2 cents per
Avast share for the year ending 31 December 2021, if the
Merger has not become effective before 1 March 2022.
Any such dividend will not result in a commensurate
downward adjustment to the value of NortonLifeLock's
offer. The Directors declared an interim dividend of
11.2 cents per Avast share on 7 February 2022 conditional
on the Merger not becoming effective before 1 March 2022.
On 18 February 2022, NortonLifeLock announced an
updated Merger timetable, which included an expected
Scheme effective date of 4 April 2022. Following this
announcement, the Board confirmed on 18 February 2022
that the interim dividend would be paid on 3 March 2022
to shareholders on the register as of 18 February 2022,
with an ex-dividend date of 24 February 2022.
Combined with the interim dividend of 4.8 cents per share
paid in October 2021 (total payment of $49.6 million),
this represents a total dividend for the financial year of
16.0 cents (total payment of $165.0 million), which, if paid,
represents 37% of the Group’s levered free cash flow for
the period.
Further information regarding the Company's ability to
make future interim and final dividends is set out in the
Scheme Document.
4 Political donations
The Group did not make any political donations, or incur any
political expenditure, in the year ended 31 December 2021.
5 Research and development
Avast places a substantial focus on the continuous
development and improvement of technology, with 43%
of its employees working in research and development
(R&D) and an annual spend of $79.8 million. 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.
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Directors’ report continued
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
On 22 March 2021, Avast Software B.V. and certain
other members of the Avast Group entered into a credit
agreement ('the Credit Agreement') with Credit Suisse
(Deutschland) Aktiengesellschaft as administrative agent
and Credit Suisse International as collateral agent. The
Credit Agreement facilities consist of an initial $480 million
initial term loan facility, a €300 million initial term loan
facility and a $40 million revolving credit facility. Certain
pledge agreements were also entered into. The facilities
provided under the Credit Agreement were originally used
to consummate the refinancing of Avast Software s.r.o.’s
existing credit facilities, and in the case of the revolving
credit facility, continue to be used to provide the Group
(with the exception of designated unrestricted subsidiaries)
with financing to cover their general corporate and working
capital needs. While there is a change of control provision in
the Credit Agreement, this is not triggered by the Merger.
Google Promotion and Distribution Agreement
Promotion and Distribution Agreement dated 1 July 2012,
entered into between Avast Software s.r.o. and Google
Ireland Limited (as amended and restated from time to time).
Under this agreement, Avast Software s.r.o. agrees to
promote, bundle, and distribute certain Google products.
Avast Software s.r.o. agrees to bundle the Google Chrome
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.
A takeover of the Company may trigger a change of control
under the Google Promotion and 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 2021.
7 Share capital
Share capital structure
As at 31 December 2021, the entire issued share capital
of the Company comprised 1,037,355,885 ordinary shares
of £0.10 each.
Significant holdings
As at 31 December 2021, the following persons held
interests in shares carrying 3% or more in voting rights:
Name
% of total
voting rights
PaBa Software s.r.o.
24.79%
Pratincole Investments Limited
9.62%
The shareholdings of PaBa Software s.r.o. and Practincole
Investments Limited have not changed since 31 December
2021; however, their % of total voting rights has changed
as a result of increases in the issued share capital of the
Company. As of the date of this report, PaBa Software
s.r.o. and Practincole Investments Limited hold 24.73%
and 9.60% respectively.
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
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
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 (b) 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 their 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 their 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 and amended by special
resolution on 18 November 2021.
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.
Directors’ report continued
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Employee Benefit Trust
The Group has an employee benefit trust (the 'EBT'). As at
31 December 2021, 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 6 May 2021,
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 102,904,691 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 2022 AGM and 5 August 2022.
The Company did not repurchase any of its shares during
the 2021 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 6 May 2021, the Company was granted
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 £34,301,563
(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 £34, 301,563); and
(ii) Comprising equity securities (as defined in section
560 of the Companies Act 2006) up to an aggregate
nominal amount of £68,603,127 (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 2022 AGM and 5 August 2022. 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
The Directors have considered that the recommended
merger with NortonLifeLock Inc. (‘NortonLifeLock’)
represents the most significant event impacting the
Company in the period to 30 June 2023 (‘the going concern
period’). In forming their view on the going concern of
the Group, the Directors have considered two scenarios,
being where the merger does not proceed and the Group
continues to operate as in prior years (‘Standalone Scenario’)
and the scenario where the recommended merger proceeds
as expected (‘Combined Company Scenario’).
Standalone Scenario
The Directors have reviewed management’s detailed going
concern review and analysis of the accounts, and consider
that the Group has adequate resources to continue business
during the going concern period.
Group’s financial covenants
The Group’s Term Loan Credit Agreement includes a
single financial covenant that is triggered at any time
$35m or more is outstanding under the revolving credit
agreement as at 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 which 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) less than 6.5x when $35m or more is
outstanding. This covenant is tested quarterly at such time
as it is in effect. In line with our budget, the Total Net First
Lien Leverage Ratio remains materially lower than 6.5x
during the period under review. The ratio was 0.7x at
31 December 2021 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 2021, the $40m committed under
the revolving credit facility was undrawn (see Note 27).
Directors’ report continued
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Reverse stress testing
In undertaking the going concern assessment, Directors
have reviewed the latest budget and forecast of the Group
through 30 June 2023, including projected billings and cash
flows. Cash flow projections have been subject to reverse
stress testing, which assessed the potential impact of an
extreme scenario whereby billings from the Consumer
Direct desktop business contracted drastically without any
mitigating action by management. The covenant would be
breached only if Consumer Direct desktop billings declined
more than 70% YoY in the period through 30 June 2023.
Our business remains resilient because:
Cash collection is strong and bad debt risk is limited as
clients typically pay for services up front
Flexible cost base – a significant portion of the Group’s
costs are discretionary in nature
The deferred revenue balance is growing (deferred
revenue up +1.4% vs YE 2020), supporting attractive
future revenue growth and good future revenue visibility.
The deferred revenue balance as of 31 December 2021
of $503.6 million includes $468.6 million to be released
into revenue in the following 12 months
We continuously monitor and invest into market needs.
In FY 2021, Avast continued its strong investment in
technology capability and innovation demonstrated by
the launch its new innovative integrated solution Avast
One to support mid-term growth
The Directors continue to carefully monitor the impact of the
COVID-19 pandemic and its impact on the macroeconomic
environment and 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.
In preparing the Consolidated Financial Statements,
management has considered the impact of climate change,
particularly in the context of the financial statements as a
whole, in addition to disclosures included in the Strategic
Report this year. These considerations did not have a
material impact on the financial reporting judgements and
estimates, consistent with the assessment that climate
change is not expected to have a significant impact on
the Group’s going concern assessment to June 2023,
nor the viability of the Group over the next three years.
Combined Company Scenario
The Directors have specifically considered the impact of
the proposed Merger on their going concern conclusion.
The Directors were engaged with NortonLifeLock through
the process of recommending the Merger and agree there
is a sound strategic rationale for the Merger to proceed.
In assessing whether the Group will continue to be a going
concern in this scenario, the Directors have specifically
considered the following key factors:
The Merger is expected to be complementary to both
parties, with Avast benefiting from NortonLifeLock’s
scale, strength in identity, and broad-based adoption of
its Norton 360 platform. In addition, the Directors noted
that the Combined Company expects to have a dual
headquarters with one in Prague, Czech Republic.
The Directors have made inquiries of NortonLifeLock to
understand their intentions for the Combined Company
and whether there were any risks which were significant
enough to impact going concern.
The Quantified Financial Benefits Statement and opinions
received from various advisers during the Merger, and
have an expectation for the Merger to be accretive to
standalone Avast’s planned performance.
The Directors are satisfied that Avast’s Term Loan does
not have a change of control clause which would be
triggered in the event of the Merger completing.
The Merger is expected to be primarily debt financed,
with the Combined Company having over $8 billion of
debt, disclosed publicly and secured with lenders.
The Directors are satisfied that the majority of this debt
is long term with most repayments due in 2027 and
subsequent years. The Directors also note that as at
31 December 2021, NortonLifeLock had a cash balance
of $1.8 billion and there is a $1.5 billion undrawn revolving
credit facility (‘RCF’) available to the Combined Company,
in the event of a liquidity shortfall.
The covenant identified in relation to the Term Loans.
The Directors and management have made reasonable
inquiries of NortonLifeLock to understand whether there
are risks in relation to available covenant headroom.
The Directors have reviewed public filings made by
NortonLifeLock, including results for the quarter ended
31 December 2021, and are satisfied that the covenant
risk is sufficiently low.
The Directors have considered the risk of a delay in
synergies materialising and noted these to not impact
their conclusion of going concern.
On the basis of the above considerations in both Standalone
and Combined Company scenarios, the Directors have a
reasonable expectation that the Group will have adequate
resources to continue in business for the period to 30 June
2023, and therefore continue to adopt the going concern
basis in preparing the financial statements.
Impact of COVID-19 on financial statements at
31 December 2021
In light of the impact of COVID-19, management has
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 2021.
Directors’ report continued
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On 31 December 2021, 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.
Impact of proposed Merger with NortonLifeLock
On 10 August 2021, the Boards of NortonLifeLock Inc.
('NortonLifeLock') and Avast announced that they have
reached agreement on the terms of a recommended
Merger of Avast with NortonLifeLock, in the form of a
recommended offer by Nitro Bidco Limited ('Bidco'),
a wholly owned subsidiary of NortonLifeLock, for the
entire issued and to be issued ordinary share capital of the
Company (the 'Merger'). As set out in the announcement
pursuant to Rule 2.7 of the City Code on Takeovers and
Mergers ('Code'), the Boards of NortonLifeLock and
Avast believe the Merger has compelling strategic logic
and represents an attractive opportunity to create a
new, industry leading consumer cybersafety business,
leveraging the established brands, technical expertise, and
innovation of both groups to deliver substantial benefits to
consumers, shareholders, and other stakeholders.
The Combined Company is expected to unlock significant
value creation through cost synergies, providing additional
upside potential from new reinvestment capacity for
innovation and growth following completion of the Merger,
a substantial portion of which would come from headcount
reductions, in addition to other initiatives in systems
and infrastructure, and contracts and shared services.
NortonLifeLock intends to fully observe the existing
contractual and statutory employment rights of all Avast
management and employees, and does not intend to make
any material changes to the conditions of employment
of the employees or management of the Avast Group.
NortonLifeLock also values the investment that Avast has
made in its technology and the infrastructure and expertise
in place within the Avast Group to create, maintain,
and enhance existing product offerings and intends to
retain Avast’s R&D capabilities in the Czech Republic.
The Combined Company expects to maintain a significant
presence in the Czech Republic, including across R&D,
commercial, and general and administrative functions,
the level of which will be reviewed in the first year following
completion of the Merger, taking into account Avast’s
current management plans.
The acceleration of the vesting (and any incremental
increase in the fair value of the awards) has been recognised
prospectively from the date of modification to the expected
completion date of the Merger. In total, these modifications
increased the share-based payment charge for the year
by $2.2m in relation to Performance Stock Units (PSUs)
and $4.0m in relation to Restricted Stock Units (RSUs)
(see Note 33 for scheme details).
No other modifications or adjustments to accounting
judgements and estimates have been made to reflect the
proposed Merger.
11 Financial risk management
Details of financial risk management and financial
instruments are disclosed in Note 29 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 84 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
Page(s)
Greenhouse gas emissions, energy
consumption, and energy efficiency
73 to 76
Stakeholder and employee
engagement disclosures
61 to 69 and
80 to 83
Information required by the Financial Conduct Authority’s
Listing Rules can be located as follows:
Listing Rule
Section
Page(s)
LR 9.8.4(2)
Publication of
unaudited financial
information
40 to 53
LR 9.8.4(5) and (6)
Details of waived
Director emoluments
109 to 130
LR 9.8.4R(10)
and (11)
Related party contracts
200 to 201
LR 9.8.4(14)
Independence of
controlling shareholders
132
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.
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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 UK-adopted international accounting
standards (IFRSs) and in accordance with applicable law,
and have elected to prepare the Parent Company financial
statements in accordance with UK Generally Accepted
Accounting Practice (UK Accounting Standards and
applicable law), including Financial Reporting Standard
102 (FRS 102).
In preparing these financial statements, the Directors are
required to:
Select suitable accounting policies and then apply
them consistently
Make judgements and estimates that are reasonable
and prudent
Present information, including accounting policies,
in a manner that provides relevant, reliable, comparable,
and understandable information
In respect of the Group financial statements, state
whether UK-adopted international accounting
standards (IFRSs) 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
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 UK-adopted international accounting standards
(IFRSs) 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
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 131 to 137 was
approved by the Board on 24 February 2022 and signed
by order of the Board.
By order of the Board
Trudy Cooke
General Counsel and Company Secretary
24 February 2022
Directors’ report continued
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Independent Auditor’s report
139
Consolidated financial statements
151
Notes to the consolidated financial statements
158
Company financial statements
204
Notes to the Company financial statements
206
Glossary
210
Financial statements
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Independent Auditor’s Report to the members of Avast plc
Opinion
In our opinion:
Avast Plc’s Group financial statements and Parent
Company financial statements (the 'financial statements')
give a true and fair view of the state of the Group's and
of the Parent Company's affairs as at 31 December 2021
and of the Group's profit for the year then ended;
the Group financial statements have been properly
prepared in accordance with UK adopted international
accounting standards;
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.
We have audited the financial statements of Avast Plc
(the 'Parent Company') and its subsidiaries (the 'Group')
for the year ended 31 December 2021 which comprise:
Group
Parent Company
Consolidated statement of financial
position as at 31 December 2021
Company statement
of financial position
as at 31 December
2021
Consolidated statement of profit and
loss for the year then ended
Company statement
of changes in equity
for the year then
ended
Consolidated statement of
comprehensive income for the
year then ended
Related Notes
1 to 12 to the
financial statements
including a summary
of significant
accounting policies
Consolidated statement of changes
in shareholders’ equity for the year
then ended
Consolidated statement of cash flows
for the year then ended
Related Notes 1 to 37 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 UK adopted international accounting
standards. 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 believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We are independent of the Group and parent in accordance
with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial
Reporting Council's (FRC's) Ethical Standard as applied to
listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
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.
Independent Auditor’s Report
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Independent Auditor’s Report continued
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 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, including
the controls over the review and approval of the budget.
We tested the mathematical integrity of management’s
going concern model, including ensuring arithmetic
accuracy and agreeing the prospective financial
information to that used in other areas of the business.
We searched for sources of contradictory evidence in
our assessment of management’s forecasting, including
assessing historical budgeting accuracy, comparing the
forecast with analyst expectations and our understanding
of competitor performance.
We obtained management’s going concern assessment,
including the cash flow forecasts and covenant calculation
for the going concern period which covers the period
to 30 June 2023. 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 climate change
on the Group, which management have assessed as having
a minimal financial impact, and therefore limited impact
on the going concern period. Management considered
the effects of potential energy price rises during the going
concern period would not have a significant drain on the
liquidity headroom originally forecast. We also noted there
was no refinancing due in the Going Concern period and
the term loan has no environmental, social and governance
(ESG) related covenants.
We assessed the factors and assumptions included in each
modelled scenario for the cash flow forecasts and covenant
calculation with reference to our understanding of the
business, principal risks and uncertainties and historical
performance. We considered the appropriateness of the
methods used to calculate the cash flow forecasts and
covenant calculations and determined through inspection
and testing of the methodology and calculations that the
methods utilised were sufficiently sophisticated to be able
to make an assessment for the entity.
We considered the mitigating factors included in the
cash flow 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.
Performing and reviewing the results of reverse stress testing
to identify the extent of decline in the business which would
be needed to breach a covenant or erode liquidity.
Assessing the appropriateness of the duration of the
going concern assessment period to 30 June 2023 and
considering the existence of any significant events or
conditions beyond this period based on our procedures on
the Group’s business plan, cash flow forecasts and from
knowledge arising from other areas of the audit.
We concluded that the disclosure in Note 1 and the
Directors’ report appropriately sets out the risks and
considerations used to form the Directors' going concern
conclusion in both the standalone entity scenario and the
combined Company scenario.
Avast Plc’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 assessment period, Avast is forecast to increase
its available liquidity and improve its covenant headroom,
both of which are significant.
Specifically, to address the impact of the expected
merger of Avast Plc with NortonLifeLock Inc. (to form
the ‘Combined Company’) we performed procedures
to understand changes in facts and circumstances which
may indicate significant doubt over Avast Plc’s ability to
continue as a going concern. Specifically, we:
Understood the strategic rationale for the deal and
noted there is no intention to remove assets or brands
of Avast Plc. We noted, per NortonLifeLock Inc. public
statements, there is an intention to maintain dual
headquarters for the Combined Company, including
in Prague, Czech Republic.
Have considered the responses to inquiries made by
Avast plc to NortonLifeLock to understand their basis
for going concern under the Combined Company.
Made inquiry of the Avast CEO and NortonLifeLock Inc.
personnel to understand intentions for Avast subsequent
to the acquisition, noting these to not be to the detriment
of Avast Plc’s operations.
Obtained and reviewed the historic proforma financial
information of the combined Group, quantified financial
benefit statements of the merger and analyst consensus
of the expected performance.
Understood the debt financing arrangements in place
(as publicly disclosed). We understood the debt covenants
in place for the Combined Company.
Obtained analyst consensus forecasts for the combined
operations in order to assess the headroom in the liquidity
and covenant headroom in the Combined Company.
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Our key observations:
The Directors' assessment is that Avast Plc, on a
standalone basis, has sufficient liquidity and headroom
in covenants throughout the going concern period to
30 June 2023. Management’s reverse stress testing
demonstrated a 70% reduction in desktop billings
would be required to breach the covenant, which is
more than the impact of all of management’s downside
scenarios combined.
The Combined Company is forecast by analysts to
generate significant unlevered free cash flow during
the going concern period. Based on publicly available
documents and mandatory filings by NortonLifeLock Inc.,
the Combined Company will have over $9.0 billion of
debt, of which $1.0 billion is repayable in the going
concern period, with the majority repayable after 2027.
We noted the Combined Company will have access to a
$1.5 billion revolving credit facility in the period to 2027.
We have not identified any material climate-related risks
that should be incorporated into Avast Plc’s forecasts to
30 June 2023.
Going concern has also been determined to be a
key audit matter.
Independent Auditor’s Report continued
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 ability to continue as a
going concern for the period to 30 June 2023.
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.
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 five components.
The components where we performed full or specific audit procedures accounted for 106% of
Profit before tax (PBT), 97% of Revenue and 98% 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.
Risk of irrecoverable Deferred Tax Asset: The Group operates in multiple tax jurisdictions and has
one-off transactions with corresponding tax implications during the year. The Key Audit Matter in
2021 is the deferred tax asset recoverability in the USA. The risk in the current year has increased due
to the one-off transaction in relation to the disposal of the Family Safety Mobile business (Location
Labs) which was part of US Tax Fiscal Unity.
Risk of incomplete or inaccurate Provisions and Contingencies: There are ongoing litigation, claims
and regulatory investigations in relation to Avast’s business with significant uncertainty and a wide
range of potential outcomes.
Going Concern: Due to the expected acquisition (‘merger’) by Nitro Bidco Limited, a wholly owned
subsidiary of NortonLifeLock Inc., there is reduced visibility during the going concern period adopted
by management.
Materiality
Overall Group materiality of $20.9m which represents 5% of the Profit before tax (PBT) adjusted for
exceptional items, the unrealised foreign exchange gain (on the Term Loan) and accelerated share-
based payments expense (SBP).
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Independent Auditor’s Report continued
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 33 reporting components of the Group,
we selected seven components covering entities within
the Czech Republic, the Netherlands, the United States
of America and the United Kingdom, which represent the
principal business units within the Group.
Of the seven components selected, we performed an
audit of the complete financial information of two
components ('full scope components') which were s
elected based on their size or risk characteristics. For the
remaining five 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 106% (2020: 99%) of the Group’s
Profit Before Tax, 97% (2020: 97%) of the Group’s Revenue
and 98% (2020: 96%) of the Group’s Total assets. For the
current year, the full scope components contributed
108% (2020: 108%) of the Group’s Profit Before Tax,
91% (2020: 88%) of the Group’s Revenue and 84%
(2020: 88%) of the Group’s Total assets. The specific scope
components contributed -2% (2020: -9%) of the Group’s
Profit Before Tax, 6% (2020: 9%) of the Group’s Revenue
and 14% (2020: 8%) 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 26 components that together represent
-6% of the Group’s Profit Before Tax, none are individually
greater than 2% of the Group’s Profit Before Tax. For these
components, we performed other procedures, including
analytical review, testing of consolidation journals,
intercompany eliminations and foreign currency translation
recalculations to respond to any potential risks of material
misstatement to the Group financial statements.
The charts below illustrate the coverage obtained from
the work performed by our audit teams.
108% Full scope components
-2% Specific scope components
-6% Other procedures
Group’s Profit Before Tax
91% Full scope components
6% Specific scope components
3% Other procedures
Total Revenue
84% Full scope components
14% Specific scope components
2% Other procedures
Total Assets
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Independent Auditor’s Report continued
Changes from the prior year
The Group has been undergoing a group simplification
exercise, including merging and liquidating entities and
transfers of trade to centralised entities. While our total
full scope locations are consistent with the prior year, our
total number of specific scope components reduced from
six in the prior year to five 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
All audit work performed for the purposes of the audit
was undertaken by the integrated audit team. 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 specialists in the Netherlands
and the USA. 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
2021 annual report and accounts was undertaken by the
integrated audit team.
Impact of travel restrictions as a result
of COVID-19:
The audit was planned with the expectation that travel
restrictions may be in place.
The members of the Group audit team in both jurisdictions
work together as an integrated team throughout the audit
process, facilitated by EY Technology 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,
focusing his time on the significant risks and judgemental
areas of the audit. There has been a high level of continuity
in the 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 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 CFO and CEO. The senior statutory auditor attended
all five Audit and Risk Committee meetings throughout the
year, all of which were hosted virtually.
Based upon the above approach we are satisfied that the
senior statutory auditor has been able to direct, supervise
and review the audit. The travel restrictions across the
UK and Czech Republic have not prevented the integrated
audit team from performing its intended procedures.
Climate change
There has been increasing interest from stakeholders as to
how climate change will impact companies. The Group has
determined that the most significant future impacts from
climate change on its operations will be from global warming
and the increasing potential for extreme weather events.
These are explained on pages 71 to 72 in the required
Task Force for Climate-related Financial Disclosures and
on pages 56 to 59 in the principal risks and uncertainties,
which form part of the 'other information', rather than the
audited financial statements. Our procedures on these
disclosures therefore consisted solely of considering
whether they are materially inconsistent with the financial
statements or our knowledge obtained in the course of the
audit, or otherwise appear to be materially misstated.
Our audit effort in considering climate change was focused
on ensuring that the effects of material climate risks have
been appropriately reflected in asset values and associated
disclosures where values are determined through modelling
future cash flows, being Deferred Tax Asset recoverability
and Goodwill and Indefinite Life Intangible Assets. We also
challenged the Directors’ considerations of climate change
in their assessment of going concern and viability and
associated disclosures.
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Independent Auditor’s Report continued
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
Our response to the risk
Key observations
communicated
to the Audit Committee
Risk of inappropriate
revenue recognition
2021: $941.1m (2020: $892.9m)
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
(through billings) 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 to the prior year.
Refer to the Audit and Risk Committee report
(page 97); Accounting policies (page 158); and Note 5
of the Consolidated Financial Statements (page 171).
We have understood and walked through the process for the recognition of revenue across the Group.
We have identified and walked through IT and financial controls over revenue pertaining to significant classes 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 statistical sample of transactions and:
Performing testing to validate delivery of individual licence keys and correct cut-off through application of the correct
licence term
Obtaining evidence that the licence has been delivered to customers prior to revenue recognition commencing
Reviewing standard End User Licence Agreements (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
We reconciled the billings raised in the year to cash collected and traced a random sample of billings to actual cash received.
We selected a risk-based statistical sample of revenue transactions and assessed the appropriateness of the transaction by
checking to supporting evidence and ensuring compliance with IFRS 15 and the Group’s revenue recognition policy.
In order to gain assurance over Information Prepared by the Entity (IPE) from the licence server, we have tested a control
reconciling licences reported by third parties to licences recorded by Avast. In addition, we tested delivery of licences as part
of our substantive testing below.
We performed an overall recalculation of deferred revenue with specific focus on the split of sales in a one-, two- and three-year
period for appropriateness based upon contract terms, where three years was previously 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.
We substantively audited manual adjustments made to align revenue recognition with Group accounting policy and IFRS 15.
We performed full and specific scope audit procedures over this risk area in seven locations, which covered 97% of the risk amount.
For the remaining items we performed other analytical procedures.
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 2021,
are materially correct
and appropriately
disclosed in the annual
report and accounts.
Strategic report
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Avast plc annual report 2021
145
Risk
Our response to the risk
Key observations
communicated
to the Audit Committee
Risk of irrecoverable
Deferred Tax Asset
Deferred Tax Asset (DTA):
$141.7m, (2020: $174.6m)
The Group operates in multiple tax jurisdictions and
has one-off transactions with corresponding tax
implications during the year. The Key Audit Matter
in 2021 is the deferred tax asset recoverability in the
USA. The risk in the current year has increased due
to the one-off transaction in relation to the disposal
of the Family Safety mobile business (Location Labs)
which was part of US Tax Fiscal Unity. Management
exercises significant judgement to determine the
recoverability of deferred tax assets and have
recovery periods of 30 years.
Refer to the Audit and Risk Committee report
(page 97); Accounting policies (page 158); and Note 13
of the Consolidated Financial Statements (page 176).
In order to respond to our risk, we:
Engaged tax specialists in the USA as part of our procedures to conclude on the impact of the disposal of the Family Safety
mobile business (Location Labs US) on the overall Deferred Tax Asset
Engaged EY US tax specialists who agreed with the principle of indefinite recovery period on tax losses
Obtained and audited management's prospective financial information (PFI) to support the recoverability of the US deferred
tax asset. We challenged the underlying assumptions including a 30+ year recoverability period by comparison to historic
performance, period of availability to utilise losses and other market practices
Obtained and reviewed the transfer pricing agreement in place impacting the US fiscal unity
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
– assessment against the Group’s historic forecasting accuracy
– appropriateness of recoverability period by comparison to historic performance, Group and industry-wide performance
Obtained and reviewed management’s assessment on the impact of climate change risk on the financial statements and
agreed with their conclusion that the impact on DTA recoverability is immaterial
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
We highlight that
the recoverability of
deferred tax assets
for a period in excess
of 30 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
2021 and for the
year then ended is
materially correct.
Independent Auditor’s Report continued
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146
Risk
Our response to the risk
Key observations
communicated
to the Audit Committee
Risk of incomplete or inaccurate
Provisions and Contingencies:
Provisions: $27.8m (2020: $28.3m)
Refer to Note 25 of the Consolidated
Financial Statements ‘Provisions and
Contingent Liabilities’
There are ongoing litigation, claims and regulatory
investigations in relation to Avast’s business with
significant uncertainty and a wide range of potential
outcomes. The most notable being the regulatory
inquiries related to Jumpshot which have progressed
during the current year.
Judgements are involved in determining the likelihood
of a probable outflow occurring from legal cases,
together with the estimate of the likely financial cost.
Given this judgement, there is a risk that legal
provisions are misstated or that contingent liabilities
are inadequately disclosed.
Specifically, our audit risk relates to regulatory matters
for which the economic outflow to the business could
be materially different to what is provided, as well as,
any cases which could indicate non-compliance with
the legal and regulatory frameworks with which the
Group is required to comply.
This is a new Key Audit Matter in the current year.
Refer to the Audit and Risk Committee report (page
97); Accounting policies (page 158); and Note 25 of
the Consolidated Financial Statements (page 189).
We performed inquiries of Executive Management including General Counsel to understand new matters in the current year
as well as changes in existing matters in the current year, and management’s expectation of future developments.
We assessed individual judgements regarding the recognition criteria as set out in IAS 37 in our independent determination of
whether these matters rise to the level of a provision or a contingent liability.
We discussed with General Counsel all relevant correspondence with counterparties, to assess the appropriateness of
management's conclusion.
We obtained and reviewed external legal advice obtained by Avast to understand the range of potential outcomes.
We have used in-country EY cybersecurity legal specialists to help evaluate the extent of matters identified including the
appropriateness of legal precedents used by management in determining the potential range of economic outflows.
We have obtained the analysis performed by the Chief Privacy Officer which includes the basis of the weighted probability
calculations deriving the valuation of the provision. We have corroborated the assumptions applied based on our understanding
of the inquiry documentation received by the Company from the regulators and the known range of maximum fine limits.
We obtained and reviewed minutes of the Board of Director meetings, performed external legal confirmations and performed
an external search for matters occurring and evaluated whether there were any new claims or developments.
We assessed whether the Group’s disclosures detailing contingent liabilities and financial commitments adequately disclose
relevant facts and circumstances and potential liabilities of the Group.
We evaluated whether any of the ongoing litigation cases gave rise to evidence that there had been instances of
non-compliance with the relevant laws and regulations
Having performed our
audit procedures, we
consider that where
an economic outflow is
probable, management
have booked an
appropriate provision.
For those cases which
we consider meet the
criteria of a contingent
liability we concluded
that sufficient
disclosure exists in the
annual report to allow
users to understand
the full range of
exposures facing the
Company, where that
is possible.
There are no Key Audit Matters which were present in the prior year, which are not included in the current year.
Independent Auditor’s Report continued
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147
Our application of materiality
We apply the concept of materiality in planning and
performing the audit, in evaluating the effect of identified
misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that,
individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users
of the financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the Group to be
$20.9 million (2020: $17.4 million), which is 5% (2020: 5%)
of Profit before tax (PBT) adjusted for exceptional items,
the unrealised foreign exchange (FX) gain on the Term Loan
and accelerated share-based payments expense (‘SBP’).
We believe that PBT adjusted for exceptional items, the
unrealised FX gain on the Term Loan and accelerated SBPs
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. The rise in the current year is in line with
the increased profitability in the year.
We determined materiality for the Parent Company to
be $34.4 million (2020: $32.0 million), which is 1.0%
(2020: 1.0%) 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 as part of our routine procedures and noted
it to be lower than communicated at planning ($23.2m)
due to the timing of expenses in the current year.
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
50% (2020: 50%) of our planning materiality, namely
$10.5m (2020: $8.7m). We have set performance materiality
at this percentage to ensure that the total uncorrected and
undetected audit differences in all accounts did not exceed
our materiality.
Audit work at component locations for the purpose of
obtaining audit coverage over significant financial statement
accounts is undertaken based on a percentage of total
performance materiality. The performance materiality set
for each component is based on the relative scale and risk of
the component to the Group as a whole and our assessment
of the risk of misstatement at that component. In the current
year, the range of performance materiality allocated to
components was $2.1m to $9.4m (2020: $1.7m to $7.8m).
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 $1.0m
(2020: $0.9m), which is set at 5% of planning materiality,
as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both
the quantitative measures of materiality discussed above
and in light of other relevant qualitative considerations in
forming our opinion.
Other information
The other information comprises the information included
in the annual report set out on pages 1 to 137, including the
strategic report and governance report set out on pages
1 and 85 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 of
assurance conclusion thereon.
Independent Auditor’s Report continued
Starting basis
Adjustments
Materiality
Profit before tax: $450.3m
Less: $15.3m (Net Exceptional
Gain – Note 6)
Less: $23.3m (The unrealised
FX gain on new Term Loan –
Note 27)
Add: $6.2m (Acceleration of
share-based payments expense
– Note 33)
Totals $417.9m of PBT adjusted
for exceptional items, the
unrealised FX on term loan
and accelerated SBPs
Materiality of $20.9m
(5% of materiality basis)
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148
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 this gives rise
to 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 Guidance 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
The information about the Company 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
A corporate governance statement has not been prepared
by the Company
Corporate governance statement
We have reviewed 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 by
the Listing Rules.
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 134
Directors’ explanation as to its assessment of the
Company's prospects, the period this assessment covers
and why the period is appropriate set out on page 60
Directors’ statement on whether it has a reasonable
expectation that the Group will be able to continue in
operation and meets its liabilities set out on page 135
Directors’ statement on fair, balanced and understandable
set out on page 137
Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out
on page 55
The section of the annual report that describes the review
of effectiveness of risk management and internal control
systems set out on page 101
The section describing the work of the Audit and
Risk Committee set out on page 97
Independent Auditor’s Report continued
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149
Responsibilities of Directors
As explained more fully in the Directors' responsibilities
statement set out on page 137, 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
(UK-adopted International Accounting Standards,
FRS 102 ‘The Financial Reporting Standard applicable
in the UK and Republic of Ireland’, the Companies
Act 2006, the UK Corporate Governance Code 2018,
the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority and the Listing Rules of the
Financial Conduct Authority)
– The UK and EU General Data Protection Regulations
(GDPR) and other data protection regulations
– Relevant consumer rights and tax compliance regulations
in the jurisdictions in which the Group operates
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 being:
– The Listing Rules of the FCA Listing Authority
– 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 inquiries of the General Counsel
and Company Secretary, management, internal audit and
those responsible for legal and compliance procedures.
We corroborated our inquiries 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.
Independent Auditor’s Report continued
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Financial statements
Avast plc annual report 2021
150
Based on this understanding we designed our audit
procedures to identify non-compliance with such laws
and regulations. Our procedures involved General
Counsel and Management inquiries, circulation of
legal confirmations, 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.
Other matters we are required to address
Following the recommendation from the Audit and Risk
Committee we were appointed by the Company on 6 May
2021 to audit the financial statements for the year ending
31 December 2021 and subsequent financial periods.
The period of total uninterrupted engagement including
previous renewals and reappointments is four years,
covering the years ending 31 December 2018 to
31 December 2021.
The audit opinion is consistent with the additional report
to the Audit and Risk 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
24 February 2022
Independent Auditor’s Report continued
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Avast plc annual report 2021
151
Consolidated statement of profit and loss
For the year-ended 31 December 2021
Note
Year-ended
31 December 2021
$m
Year-ended
31 December 2020
$m
REVENUE
5
941.1
892.9
Cost of revenues
8
(149.5)
(196.0)
GROSS PROFIT
791.6
696.9
Sales and marketing
(179.8)
(134.7)
Research and development
(79.8)
(86.1)
General and administrative
(137.4)
(140.7)
Total operating costs
9
(397.0)
(361.5)
OPERATING PROFIT
394.6
335.4
Net gain on disposal of a business operation
16
47.0
–
Interest income
11
0.2
0.4
Interest expense
11
(26.8)
(35.5)
Other finance income and expense (net)
11
35.3
(64.0)
PROFIT BEFORE TAX
450.3
236.3
Income tax
13
(101.9)
(66.7)
PROFIT FOR THE FINANCIAL YEAR
348.4
169.6
Earnings per share (EPS; in $ per share):
Basic EPS
14
0.34
0.17
Diluted EPS
14
0.34
0.16
The accompanying notes form an integral part of these financial statements.
Consolidated financial statements
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Avast plc annual report 2021
152
Consolidated statement of comprehensive income
For the year-ended 31 December 2021
Year-ended
31 December 2021
$m
Year-ended
31 December 2020
$m
Profit for the financial year
348.4
169.6
Other comprehensive (losses)/gains:
Items that will not be reclassified subsequently to profit or loss:
Changes in the fair value of equity instruments at fair value through other comprehensive income (net of tax)
(1.0)
–
Remeasurement gain on defined benefit plan (net of tax)
0.5
–
Items that may be reclassified subsequently to profit or loss:
Translation differences
(1.1)
1.9
Total other comprehensive (losses)/gains
(1.6)
1.9
Comprehensive income for the year
346.8
171.5
The accompanying notes form an integral part of these financial statements.
Consolidated financial statements continued
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153
Consolidated statement of financial position
As at 31 December 2021
Company registered number: 07118170
Note
31 December 2021
$m
31 December 2020
$m
ASSETS
Current assets
Cash and cash equivalents
17
429.0
175.4
Trade and other receivables
18
53.4
63.0
Capitalised contract costs
19
34.2
35.0
Prepaid expenses
9.9
10.3
Tax receivables
13
5.3
5.2
Other financial assets
28
5.7
0.3
537.5
289.2
Non-current assets
Property, plant and equipment
20
32.4
41.2
Right-of-use assets
21
48.0
56.4
Intangible assets
22
122.0
127.7
Deferred tax assets
13
141.7
174.6
Other financial assets
28
8.0
0.8
Capitalised contract costs
19
2.4
2.8
Prepaid expenses
0.4
0.5
Goodwill
23
2,003.6
1,991.3
2,358.5
2,395.3
TOTAL ASSETS
2,896.0
2,684.5
Consolidated financial statements continued
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Avast plc annual report 2021
154
Consolidated statement of financial position continued
As at 31 December 2021
Company registered number: 07118170
Note
31 December 2021
$m
31 December 2020
$m
SHAREHOLDERS’ EQUITY AND LIABILITIES
Current liabilities
Trade and other payables
24
79.8
63.2
Lease liabilities
21
7.0
7.0
Provisions
25
26.4
27.7
Income tax liability
13
11.8
1.3
Deferred revenue
26
468.6
458.8
Term loan
27
41.0
64.6
Other financial liabilities
28
–
0.4
634.6
623.0
Non-current liabilities
Lease liabilities
21
45.5
57.5
Provisions
25
1.4
0.6
Deferred revenues
26
35.0
37.7
Term loan
27
744.9
769.4
Other non-current liabilities
–
0.7
Deferred tax liability
13
0.3
0.3
827.1
866.2
Shareholders’ equity
Share capital
30
139.8
138.6
Share premium, statutory and other reserves
30, 31
416.9
374.8
Translation differences
2.1
3.2
Retained earnings
875.5
678.7
Equity attributable to equity holders of the parent
1,434.3
1,195.3
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES
2,896.0
2,684.5
As described in Note 13, deferred tax liability of $21.7m (2020: $22.5m) is offset against
deferred tax asset in the Consolidated Statement of Financial Position. Comparative
information for the year ended 31 December 2020 was adjusted accordingly.
The accompanying notes form an integral part of these financial statements.
Stuart Simpson
Interim Chief Financial Officer
Consolidated financial statements continued
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Consolidated statement of changes in shareholders’ equity
For the year-ended 31 December 2021
Note
Share capital
$m
Share premium,
statutory and
other reserves
$m
Translation
differences
$m
Retained
earnings
$m
Equity
attributable to
equity holders
of the parent
$m
Non-controlling
interests
$m
Total equity
$m
At 31 December 2019
136.0
280.7
1.3
698.9
1,116.9
7.5
1,124.4
Result of the year
–
–
–
169.6
169.6
–
169.6
Other comprehensive income
–
–
1.9
–
1.9
–
1.9
Comprehensive income for the year
–
–
1.9
169.6
171.5
–
171.5
Other movements
–
–
–
0.9
0.9
–
0.9
Transactions with NCI – Purchase of interest
–
–
–
(57.3)
(57.3)
(7.5)
(64.8)
Transactions with NCI – De-recognition of put liability
–
55.7
–
0.6
56.3
–
56.3
Transfer of share-based payments to retained earnings
31
–
(15.4)
–
15.4
–
–
–
Share-based payments
33
–
21.8
–
–
21.8
–
21.8
Issuance of shares under share-based payments plans
30
2.6
32.0
–
(0.6)
34.0
–
34.0
Share-based payments tax
–
–
–
5.9
5.9
–
5.9
Cash dividend
32
–
–
–
(154.7)
(154.7)
–
(154.7)
At 31 December 2020
138.6
374.8
3.2
678.7
1,195.3
–
1,195.3
Result of the year
–
–
–
348.4
348.4
–
348.4
Other comprehensive income
–
–
(1.1)
(0.5)
(1.6)
–
(1.6)
Comprehensive income for the year
–
–
(1.1)
347.9
346.8
–
346.8
Other movements
–
–
–
(0.4)
(0.4)
–
(0.4)
Transfer of share-based payments to retained earnings
31
–
(14.1)
–
14.1
–
–
–
Share-based payments
33
–
46.0
–
-
46.0
–
46.0
Issuance of shares under share-based payments plans
30
1.2
10.2
–
(0.7)
10.7
–
10.7
Share-based payments tax
–
–
–
0.9
0.9
–
0.9
Cash dividend
32
–
–
–
(165.0)
(165.0)
–
(165.0)
At 31 December 2021
139.8
416.9
2.1
875.5
1,434.3
–
1,434.3
The accompanying notes form an integral part of these financial statements.
Consolidated financial statements continued
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Consolidated statement of cash flows
For the year-ended 31 December 2021
Note
Year-ended
31 December 2021
$m
Year-ended
31 December 2020
$m
Cash flows from operating activities
Profit for the financial year
348.4
169.6
Non-cash adjustments to reconcile profit to net cash flows:
Income tax
13
101.9
66.7
Depreciation
12
19.0
19.7
Amortisation
12
25.2
67.9
Impairment
5.6
2.8
Gain on disposal of a business operation
16
(47.0)
–
Movement of provisions and allowances
(1.1)
14.5
Interest income
11
(0.2)
(0.4)
Interest expense, changes of fair values of derivatives and other non-cash financial expense
11
26.8
29.7
Shares granted to employees
33
46.0
21.9
Effect of exchange rate changes on cash and cash equivalents held in foreign currencies
10.4
(3.0)
Unrealised foreign exchange gains and losses and other non-cash transactions
11
(38.7)
72.0
Working capital adjustments:
(Increase)/decrease in trade and other receivables
7.6
14.7
(Increase)/decrease in inventories
0.1
0.8
Increase/(decrease) in trade and other payables
19.9
2.4
Increase in deferred revenues
26
7.3
29.2
Income tax paid
(61.8)
(52.0)
Net cash flows from operating activities
469.4
456.5
Consolidated financial statements continued
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Consolidated statement of cash flows continued
For the year-ended 31 December 2021
Note
Year-ended
31 December 2021
$m
Year-ended
31 December 2020
$m
Cash flows from investing activities
Acquisition of property and equipment
20
(9.0)
(12.4)
Acquisition of intangible assets
22
(4.3)
(2.7)
Investment in subsidiary, net of cash acquired
15
(49.5)
–
Settlement of contingent consideration
(0.7)
(4.7)
Proceeds from sale of a business operation, net of cash disposed
16
62.4
3.0
Interest received
0.2
0.4
Net cash used in investing activities
(0.9)
(16.4)
Cash flows from financing activities
Transaction with NCI, net of fees
–
(64.8)
Exercise of options
30
10.7
34.0
Dividend paid
32
(165.0)
(154.7)
Repayment of borrowings
27
(31.3)
(261.9)
Proceeds from borrowings
27
6.6
–
Transaction costs related to borrowings
27
(2.7)
–
Interest paid
27
(14.3)
(27.5)
Lease payments interest
21
(1.8)
(2.1)
Lease payments principal
21
(6.8)
(7.2)
Net cash used in financing activities
(204.6)
(484.2)
Net increase/(decrease) in cash and cash equivalents
264.0
(44.2)
Effect of exchange rate changes on cash and cash equivalents held in foreign currencies
(10.4)
3.0
Cash and cash equivalents at beginning of period
17
175.4
216.6
Cash and cash equivalents at end of period
429.0
175.4
The accompanying notes form an integral part of these financial statements.
Consolidated financial statements continued
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Notes to the consolidated financial statements
1 General information
Avast plc, together with its subsidiaries (collectively,
‘Avast’, ‘the Group’ or ‘the Company’), is a leading global
cybersecurity provider. Avast plc is a public limited company
incorporated and domiciled in the UK, and registered
under the laws of England & 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 for the year ended 31 December 2021 have been
prepared in accordance with UK-adopted international
accounting standards.
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.
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
The Directors have considered that the recommended
Merger with NortonLifeLock Inc. (‘NortonLifeLock’)
represents the most significant event impacting the
Company in the period to 30 June 2023 (‘the going concern
period’). In forming their view on the going concern of
the Group, the Directors have considered two scenarios,
being where the Merger does not proceed and the Group
continues to operate as in prior years (‘Standalone Scenario’)
and the scenario where the recommended Merger proceeds
as expected (‘Combined Company Scenario’).
Standalone Scenario
The Directors have reviewed management’s detailed going
concern review and analysis of the accounts and considers
that the Group has adequate resources to continue business
during the going concern period.
Group’s financial covenants
The Group’s Term Loan Credit Agreement includes a single
financial covenant that is triggered at any time $35m or
more is outstanding under the revolving credit agreement
as at 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 which 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) less than 6.5x when $35m or more is
outstanding. This covenant is tested quarterly at such time
as it is in effect. In line with our budget, the Total Net First
Lien Leverage Ratio remains materially lower than 6.5x
during the period under review. The ratio was 0.7x at
31 December 2021 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 2021, the $40m committed under
the revolving credit facility was undrawn (see Note 27).
Reverse stress testing
In undertaking the going concern assessment, Directors
have reviewed the latest budget and forecast of the Group
through 30 June 2023, including projected billings and cash
flows. Cash flow projections have been subject to reverse
stress testing, which assessed the potential impact of an
extreme scenario whereby billings from the Consumer
Direct desktop business contracted drastically without any
mitigating action by management. The covenant would be
breached only if Consumer Direct desktop billings declined
more than 70% YoY in the period through 30 June 2023.
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2 Significant accounting policies continued
Our business remains resilient because:
Cash collection is strong and bad debt risk is limited as
clients typically pay for services upfront
Flexible cost base – a significant portion of the Group’s
costs are discretionary in nature
The deferred revenue balance is growing (deferred
revenue up +1.4% vs YE 2020) supporting attractive
future revenue growth and good future revenue visibility.
The deferred revenue balance as of 31 December 2021 of
$503.6m includes $468.6m to be released into revenue
in the following 12 months
We continuously monitor and invest into market needs.
In FY 2021, Avast continued its strong investment in
technology capability and innovation demonstrated by
the launch its new innovative integrated solution Avast
One to support mid-term growth
The Directors continue to carefully monitor the impact of the
COVID-19 pandemic and its impact on the macroeconomic
environment 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.
In preparing the Consolidated Financial Statements,
management has considered the impact of climate change,
particularly in the context of the financial statements as a
whole, in addition to disclosures included in the strategic
report this year. These considerations did not have a material
impact on the financial reporting judgements and estimates,
consistent with the assessment that climate change is not
expected to have a significant impact on the Group’s going
concern assessment to June 2023 nor the viability of the
Group over the next three years.
Combined Company Scenario
The Directors have specifically considered the impact of
the proposed Merger on their going concern conclusion.
The Directors were engaged with NortonLifeLock through
the process of recommending the Merger and agree there
is a sound strategic rationale for the Merger to proceed.
In assessing whether the Group will continue to be a going
concern in this scenario, the Directors have specifically
considered the following key factors:
The Merger is expected to be complementary to both
parties, with Avast benefiting from NortonLifeLock’s
scale, strength in identity, and broad-based adoption
of its Norton 360 platform. In addition, the Directors
noted that the Combined Company expects to have
dual headquarters, with one in Prague, Czech Republic.
The Directors have made inquiries of NortonLifeLock to
understand their intentions for the Combined Company
and whether there were any risks which were significant
enough to impact going concern.
The Quantified Financial Benefits Statement and opinions
received from various advisers during the Merger, and
have an expectation for the Merger to be accretive to
standalone Avast’s planned performance.
The Directors are satisfied that Avast’s Term Loan does
not have a change of control clause which would be
triggered in the event of the Merger completing.
The Merger is expected to be primarily debt financed,
with the Combined Company having over $8 billion of
debt, disclosed publicly and secured with lenders.
The Directors are satisfied that the majority of this debt
is long term with most repayments due in 2027 and
subsequent years. The Directors also note that as at
31 December 2021 NortonLifeLock had a cash balance
of $1.8 billion and there is a $1.5 billion undrawn revolving
credit facility (RCF) available to the Combined Company
in the event of a liquidity shortfall.
The covenant identified in relation to the Term Loans.
The Directors and management have made reasonable
inquiries of NortonLifeLock to understand whether there
are risks in relation to available covenant headroom.
The Directors have reviewed public filings made by
NortonLifeLock, including results for the quarter ended
31 December 2021, and are satisfied that the covenant
risk is sufficiently low.
The Directors have considered the risk of a delay in
synergies materialising and noted these to not impact
their conclusion of going concern.
On the basis of the above considerations in both Standalone
and Combined Company scenarios, the Directors have a
reasonable expectation that the Group will have adequate
resources to continue in business for the period to 30 June
2023 and therefore continue to adopt the going concern
basis in preparing the financial statements.
Impact of COVID-19 on financial statements
at 31 December 2021
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 2021.
On 31 December 2021, 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.
Notes to the consolidated financial statements continued
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2 Significant accounting policies continued
Impact of proposed Merger with
NortonLifeLock Inc.
On 10 August 2021 the boards of NortonLifeLock Inc.
('NortonLifeLock') and Avast announced that they have
reached agreement on the terms of a recommended
Merger of Avast with NortonLifeLock, in the form of a
recommended offer by Nitro Bidco Limited ('Bidco'),
a wholly owned subsidiary of NortonLifeLock, for the
entire issued and to be issued ordinary share capital of the
Company (the 'Merger'). As set out in the announcement
pursuant to Rule 2.7 of the City Code on Takeovers and
Mergers ('Code'), the boards of NortonLifeLock and
Avast believe the Merger has compelling strategic logic
and represents an attractive opportunity to create a new,
industry-leading consumer cybersafety business, leveraging
the established brands, technical expertise and innovation
of both groups to deliver substantial benefits to consumers,
shareholders and other stakeholders.
The Combined Company is expected to unlock significant
value creation through cost synergies, providing additional
upside potential from new reinvestment capacity for
innovation and growth following completion of the Merger,
a substantial portion of which would come from headcount
reductions, in addition to other initiatives in systems
and infrastructure, and contracts and shared services.
NortonLifeLock intends to fully observe the existing
contractual and statutory employment rights of all Avast
management and employees and does not intend to make
any material changes to the conditions of employment of
the employees or management of the Avast Group.
NortonLifeLock also values the investment that Avast has
made in its technology and the infrastructure and expertise in
place within the Avast Group to create, maintain and enhance
existing product offerings and intends to retain Avast’s research
and development (R&D) capabilities in the Czech Republic.
The Combined Company expects to maintain a significant
presence in the Czech Republic, including across R&D,
commercial and general and administrative functions,
the level of which will be reviewed in the first year following
completion of the Merger, taking into account Avast’s
current management plans.
The acceleration of the vesting (and any incremental
increase in the fair value of the awards) has been recognised
prospectively from the date of modification to the expected
completion date of the Merger. In total, these modifications
increased the share-based payment charge for the year
by $2.2m in relation to Performance Stock Units (PSUs)
and $4.0m in relation to Restricted Stock Units (RSUs)
(see Note 33 for scheme details).
No other modifications or adjustments to accounting
judgements and estimates have been made to reflect the
proposed Merger.
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 one, 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) 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.
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.
Notes to the consolidated financial statements continued
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2 Significant accounting policies continued
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.
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.
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 user. The most significant sources of
revenues are:
Google – The Group has a distribution arrangement 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. 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.
Location Labs, LLC (‘Location Labs’) provided mobile
security solutions that partner with Mobile Network
Operators (MNOs) providing locator, phone controls and
drive safe products to their customers. Once the product
was developed by Avast based on the MNO’s requirements,
the product was then sold to the end customer via the
MNO’s subscription plans. The revenues generated by these
arrangements were based on revenue share percentages as
stated in the MNO agreements. Revenue was 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 had no control of the product and
no discretion to set the final prices. On 16 April 2021,
the Group sold this portfolio of mobile parental controls
services (‘Family Safety mobile business’).
Small and Medium Business (SMB)
SMB includes subscription revenue targeted at small and
medium-sized businesses. Revenue is generated from the
sale of security software and other IT managed solutions
through online channels, resellers and distributors partners.
Revenues from sales 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 (see Note 8).
Capitalised contract costs
The Group pays commissions, third-party licence costs
and payment fees to resellers and payment providers for
selling the subscription software licences to end customers.
Capitalised contract costs are amortised over the licence
period and recognised in the cost of revenues. Capitalised
contract costs are subject to an impairment assessment
at the end of each reporting period. Impairment losses are
recognised in profit or loss.
Taxes
Current income tax assets and liabilities recognised are
the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or
substantively enacted at the reporting date in the country
where the Group operates and generates taxable income.
Notes to the consolidated financial statements continued
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2 Significant accounting policies continued
Deferred tax is recognised for all temporary
differences, except:
Where the deferred tax arises from the initial recognition
of goodwill (taxable temporary differences only) 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
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 outside of profit and
loss in the same way as the related underlying transaction,
either in other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset
if a legally enforceable right exists to set off current tax
assets against current income tax liabilities and the
deferred taxes relate to the same taxable entity and the
same taxation authority.
Foreign currency translation
The Group’s historical financial information is presented
in US dollars (USD or $). The functional currencies of all
Group entities are presented in the table below. 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
Functional
currency
Avast plc
USD
Avast Holding B.V.
USD
Avast Software B.V.
USD
Avast Software s.r.o.
USD
Avast Software, Inc.
USD
Avast Deutschland GmbH
EUR
AVG Technologies UK Limited
GBP
AVG Technologies USA, LLC
USD
FileHippo s.r.o.
CZK
INLOOPX s.r.o.
EUR
Piriform Group Limited
GBP
Piriform Limited
GBP
Piriform Software Limited
GBP
Piriform, Inc.
USD
Privax Limited
USD
TrackOFF, Inc.
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 Consolidated 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.
Notes to the consolidated financial statements continued
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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 reassesses whether it has correctly identified all of
the assets acquired and all of the liabilities assumed and
reviews the procedures used to measure the amounts to be
recognised at the acquisition date. During the measurement
period, which may be up to one year from the acquisition
date, the Group may record adjustments to the assets
acquired and liabilities assumed with the corresponding
offset to goodwill. Upon the conclusion of the measurement
period or final determination of the values of assets acquired
or liabilities assumed, whichever comes first, any subsequent
adjustments are recorded to the Consolidated Statement of
Profit and Loss.
After initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose
of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to each
of the Group’s cash-generating units that are expected to
benefit from the combination, irrespective of whether
other assets or liabilities of the acquiree are assigned to
those units.
Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired
in a business combination is their fair value as at the date
of acquisition.
Intangible assets are carried at cost less accumulated
amortisation and accumulated impairment losses.
Intangible assets with finite lives are amortised over their
useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be
impaired. The amortisation period for an intangible asset
with a finite useful life is reviewed at least at the end of each
reporting period. The amortisation expense on intangible
assets with finite lives is recognised in the Consolidated
Statement of Profit and Loss in the expense category
consistent with the function of the intangible assets.
Indefinite lived intangibles are not amortised but are tested
for impairment annually and for impairment indicators on a
quarterly basis. The assessment of indefinite life is reviewed
annually to determine whether the indefinite life assumption
continues to be appropriate.
The useful economic lives of intangible assets are as follows:
Years
Developed technology
4–5
Avast Trademark
Indefinite
Piriform Trademark
10
AVG Trademark
6
Customer relationships and user base
4
Other licensed intangible assets
3–5
Research and development costs
Research costs are expensed when incurred when the
criteria for capitalisation are not met. Development
expenditures are recognised as an intangible asset when the
Group can demonstrate:
The technical feasibility of completing the intangible
asset so that the asset will be available for use or sale
Its intention to complete and its ability and intention to
use or sell the asset
Notes to the consolidated financial statements continued
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2 Significant accounting policies continued
How the asset will generate future economic benefits
The availability of resources to complete the asset
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 and Loss as incurred.
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:
Years
Leasehold improvements
over the lease term
Machinery and equipment
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%.
Notes to the consolidated financial statements continued
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2 Significant accounting policies continued
For any new contracts entered into on or after 1 January
2019, the Group assesses at contract inception 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.
The Group applies a single recognition and measurement
approach for all leases, except for short-term leases and
leases of low-value assets. The Group recognises lease
liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.
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 reasonably certain 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 depends on an index or rate (using the original discount
rate). In such cases, there is a corresponding adjustment
to the right-of-use asset.
Short-term leases and leases of low-value assets
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.
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.
Notes to the consolidated financial statements continued
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2 Significant accounting policies continued
When the terms of an equity-settled award are modified, the
minimum expense recognised is the grant date fair value of
the unmodified award, provided the original vesting terms
of the award are met. An additional expense, measured as at
the date of modification, is recognised for any modification
that increases the total fair value of the share-based payment
transaction, or is otherwise beneficial to the employee. The
additional expense, if any, for the incremental fair value of
the modified award, measured under IFRS 2, is recognised
over the period from the date of the modification to the
end of the modified vesting period. 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 share-based payment expense for the year is reflective
of scheme modifications made in October 2021 that would
come into place as a result of the proposed Merger, as it is
deemed probable that these modifications will apply. These
modifications predominantly relate to the early vesting of a
pro-rated portion as at the date of the proposed Merger. The
expense still to be recognised relating to the awards that are
to early vest, is recognised prospectively from the date of
modification to the expected date of the proposed Merger.
Any incremental value of the modification is also recognised
prospectively from the date of modification to the expected
date of the proposed Merger. In total, these modifications
increased the share-based payment charge for the year by
$2.2m in relation to Performance Stock Units (PSUs) and
$4.0m in relation to Restricted Stock Units (RSUs) (see
Note 33 for scheme details). See significant estimates and
judgements made in regards to the modification in Note 3.
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.
Employee benefits
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.
Employee benefit trust
The Group has established an employee benefit trust
(Avast plc Employee Benefit Trust) in 2019. The trust is
treated as an extension of the Company.
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 34
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
Notes to the consolidated financial statements continued
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2 Significant accounting policies continued
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
the 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.
Cash and cash equivalents
For the purpose of the Consolidated Statement of Cash
Flows, cash and cash equivalents consist of cash at bank
and cash in hand.
The Group´s Consolidated Statement of Cash Flows
is prepared based on the indirect method from the
Consolidated Statement of Financial Position and the
Consolidated Statement of Profit and Loss.
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.
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. Refinancing of the term loan was treated as an
extinguishment of the old term loan and recognition of a
new loan. See Note 27 for further details.
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.
Notes to the consolidated financial statements continued
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2 Significant accounting policies continued
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. Exceptional items are
identified by virtue of their size, nature, or incidence so as
to facilitate comparison with prior periods and to assess
underlying trends in the financial performance of the Group
and its reportable segments. In determining whether an
event or transaction is exceptional, management considers
quantitative as well as qualitative factors. Once an item is
disclosed as exceptional, it will remain exceptional through
completion of the event or programme. Examples of such
items include but are not restricted to: legal and advisory
costs related to the proposed Merger, acquisition, disposals
(including gain on disposal), integration, costs incurred due
to discontinuation of business and COVID-19 donations.
Change in the reporting of
Billings and Revenues
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 is reported together with the desktop business
within the one category ‘Consumer Direct’, due to a rise
of multi-device subscriptions. Consumer Indirect consists
of revenues generated via the carrier channel (named
as Partner) alongside 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 are consistently reported as Consumer
and SMB. Comparative balances have been adjusted for
consistency purposes.
Notes to the consolidated financial statements continued
Previous structure ($’m)
Year-ended
31 December
2020
Partner/carriers
Mobile
subscription
New structure ($’m)
Year-ended
31 December
2020
Consumer Direct Desktop
699.7
–
30.3
Consumer Direct
730.1
Consumer Direct Mobile
72.1
(41.8)
(30.3)
Consumer Indirect
67.9
41.8
–
Consumer Indirect
109.6
SMB
48.0
–
–
SMB
48.0
Consumer Other*
5.1
–
–
Consumer Other*
5.1
Total
892.9
–
–
Total
892.9
*
For the year ended 31 December 2021 and 2020, Consumer Other includes a portion of revenue from discontinued business and Jumpshot revenue of nil and $1m, respectively.
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 10 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
$8.2m 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 significant changes to the extension options for the year ended 31 December 2021. The lease term
will be reassessed after the proposed Merger, once completed.
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.
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3 Significant accounting judgements,
estimates and assumptions continued
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). Management assesses that
these deferred tax assets are recoverable, with key elements
of judgement being the fact that US tax losses carry over
indefinitely, Group’s transfer pricing agreement in place
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 30-year timeframe. 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. Given the transfer pricing
agreement in place and the Group's business model,
management has not identified any material climate risks
which may impact recoverability of the deferred tax asset.
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.
Forecasts used for assessing recoverability of deferred tax
assets are those approved by Avast, and do not reflect any
changes to the business (or to the quantum of tax losses)
that might result from the proposed Merger. It is uncertain if
tax loss carryforward can be utilised in full amount after the
proposed Merger and (potential) changes in the Group and
tax structure.
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
predominantly comprise potential claims in relation to
regulatory investigations, contractual indemnities and
disputes. The management has provided the best estimate
of the provisions, based on the legal advice. Refer to Note 25
for further details.
De-recognition of goodwill
On 16 April 2021, the Group sold a Location Lab to Smith
Micro Inc. ('Smith Micro'). As a result, the Group had to
de-recognise all assets and liabilities of the sold subsidiary
including goodwill. Since the sold business concerns part
of Consumer cash-generating unit (CGU), the amount of
goodwill de-recognised was determined on the basis of the
relative value of the part divested compared to the value of
Consumer CGU after the disposal. When determining the
value in use of Consumer CGU, the Group used a discounted
cash flow model taking into consideration the latest forecast
approved by the management. The Group has determined
that the appropriate amount of goodwill disposed of is
$24.7m which was part of the Consumer CGU (see Note 16).
Share-based payments
In October 2021, management accounted for scheme
modifications that are expected to come into place as
a result of the proposed Merger. These modifications
will result in the early vesting of a pro-rated proportion
of awards. In respect of Restricted Stock Units (RSUs)
management have made best estimates in regards to the
expected timing of proposed Merger on 4 April 2022, and
the number of ‘good’ leavers, whose awards will vest in the
event that they are made redundant as a consequence of
the Merger. In respect of Performance Stock Units (PSUs),
management have made best estimates in regards to the
expected timing of proposed Merger, and the performance
attainment that will be achieved by scheme members.
In addition, there are judgements to accelerate the cost of
awards vesting earlier under the modification prospectively
from date of modification to estimated date of Merger.
Modification resulted in additional share-based payment
expense $2.2m in relation to PSUs and $4.0m in relation to
RSUs for the year ended 31 December 2021.
If the Merger were to be completed one month later, the
impact on the share-based payments expense would have
been $2.0m lower for the year ended 31 December 2021.
It is assumed 25% of RSU holders will be ‘good’ leavers at
the time of the Merger. An increase of 5% to the expected
number of ‘good’ leavers would increase the share-based
payment expense by $0.8m for the year ended 31 December
2021. An increase of 10% to the performance attainment
would increase share-based payment expense by $1.0m.
Notes to the consolidated financial statements continued
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170
4 Application of new and revised
IFRS standards
New and adopted standards
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). The amendments include several practical
expedients that are not applicable to Avast except the
following one:
A practical expedient to require contractual changes, or
changes to cash flows that are directly required by the
reform, to be treated as changes to a floating interest rate,
equivalent to a movement in a market rate of interest.
The Group borrowed a term loan with a USD and EUR
tranche tied to the three-month USD LIBOR and three-
month EURIBOR, respectively. Maturity of the term
loan is on 22 March 2028. See Note 27 for further details.
EURIBOR is expected to continue beyond 2021 and there
is no current indication it will cease in the near future.
On the other hand, the three-month USD LIBOR will cease
on 30 June 2023.
Upon the discontinuation of USD LIBOR, the Group's credit
agreement contains a mechanism by which USD LIBOR will
be replaced with a new reference rate reflecting the market
standard. According to the credit agreement, the new
reference rate will be determined by Credit Suisse as set
forth in order:
(1) The sum of: (a) term SOFR and (b) the related
spread adjustment
(2) The sum of: (a) daily simple SOFR and (b) the related
spread adjustment
(3) The sum of: (a) the alternate benchmark rate that has
been selected by Credit Suisse and the Company as the
replacement for the then-current rate; and (b) the related
spread adjustment
If the replacement rate is the rate reflected in numbers (1) or
(2) above, then no further consents are required under the
credit agreement for implementation of the new reference
rate. If the replacement rate is the rate reflected in number
(3) below, the credit agreement may be amended without
further consent so long as the Required Lenders have not
objected to such amendment after five business days' notice
to the Lenders of such change.
Any technical, administrative, or operational changes
(including changes to the definition of 'Base Rate', the
definition of 'Business Day', the definition of 'Interest
Period', timing and frequency of determining rates and
making payments of interest, timing of borrowing requests
or prepayment, etc.) might be adopted or implemented
by Credit Suisse in a manner substantially consistent with
market practice.
Credit Suisse will however promptly notify the Company
of the new reference rate, effective date and the removal
or reinstatement of any tenor.
The three-month USD LIBOR will be discontinued
immediately after 30 June 2023. While the current IBOR
fixings allow the next interest rate payment to be determined
at the beginning of the period (forward-looking approach),
the benchmark based on the new reference rates will not be
set until the end of the interest period (backward-looking
approach) since the new reference rates are based on
actual transactions. Floor of 0% will be unchanged.
The above provisions explain how the interest rate will be
determined when the USD LIBOR rates cease, especially
having the spread adjustment, which will ensure economic
equivalence between the contracting parties. These
amendments had no impact on the consolidated financial
statements of the Group. The Group will apply the practical
expedients in future periods once the three-month USD
LIBOR ceases to be calculated.
For lease liabilities under IFRS 16 using an incremental
borrowing rate, IBOR replacement is not expected to have
an impact on existing lease liabilities. This is because the
incremental borrowing rate is fixed at the inception of the
lease, and that rate is applied to the lease liability over
the whole lease term to measure the lease liability at its
effective interest rate. Lease payments are not contractually
dependent on IBOR. New leases entered into following
IBOR replacement will then have incremental borrowing
rates determined using a benchmark rate based on the
IBOR replacement rate.
Standards issued but not yet effective and
not early adopted
The Group has not applied certain new standards,
amendments and interpretations to existing standards that
have been issued but are not yet effective. These include:
Amendment to IFRS 3 Business Combinations –
effective on 1 January 2022
Proceeds before Intended Use – Amendment to
IAS 16 Property, Plant and Equipment – effective on
or 1 January 2022
Onerous Contracts – Costs of Fulfilling a Contract –
Amendments to IAS 37 Provisions, Contingent Liabilities
and Contingent Assets – effective on 1 January 2022
Annual Improvements 2018-2020 (Amendment) –
effective on 1 January 2022
Notes to the consolidated financial statements continued
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4 Application of new and revised
IFRS standards continued
Amendments to IAS 1: Classification of Liabilities as
Current or Non-current – effective on 1 January 2023
Definition of Accounting Estimates – Amendments to
IAS 8 – effective on 1 January 2023
Deferred Tax related to Assets and Liabilities arising
from a Single Transaction – Amendments to IAS 12 –
effective on 1 January 2023
Disclosure of Accounting Policies – Amendments to
IAS 1 – effective on 1 January 2023
IFRS 17 Insurance Contracts – effective on 1 January 2023
The Group does not currently plan to adopt early any of
the new standards issued but not effective as discussed
above. The Group is currently assessing the impact of
these amendments.
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 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
SMB 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 upfront, under IFRS subscription
revenue is deferred and recognised ratably over the life
of the subscription agreement, whereas non-subscription
revenue is typically recognised immediately.
The Group evaluates the performance of its segments based
primarily on Billing, Revenue and Operating profit. Billings
are not defined or recognised under IFRS and considered
as a non-IFRS financial measure used to evaluate current
business performance. Certain costs that are not directly
applicable to the segments are identified as ‘Corporate
Overhead’ costs and represent general corporate costs that
are applicable to the consolidated Group. In addition, costs
relating to share-based payments and exceptional items
are not allocated to the segments since these costs are
not directly applicable to the segments, and therefore not
included in the evaluation of performance of the segments.
Notes to the consolidated financial statements continued
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5 Segment information and other disclosures continued
The following tables present summarised information by segment:
For the year ended 31 December 2021 ($m)
Consumer
SMB
Total
Billings
896.3
52.1
948.4
Deferral of revenue
(6.8)
(0.5)
(7.3)
Segment revenue
889.5
51.6
941.1
Segment cost of revenues
(86.1)
(4.0)
(90.1)
Segment sales and marketing costs
(112.1)
(19.3)
(131.4)
Segment research and development costs
(40.4)
(3.4)
(43.8)
Segment general and administrative costs
(1.8)
(0.7)
(2.5)
Total Segment operating profit
649.1
24.2
673.3
Corporate overhead
(155.7)
Depreciation and amortisation
(44.2)
Exceptional items
(31.7)
Share-based payments
(46.0)
Employer’s taxes on share-based payments
(1.1)
Consolidated operating profit
394.6
For the year ended 31 December 2020 ($’m)
Consumer
SMB
Total
Billings
873.6
48.4
922.0
Deferral of revenue
(28.8)
(0.3)
(29.1)
Segment revenue
844.8
48.1
892.9
Segment cost of revenues
(81.1)
(5.8)
(86.9)
Segment sales and marketing costs
(84.3)
(17.5)
(101.8)
Segment research and development costs
(49.2)
(3.5)
(52.7)
Segment general and administrative costs
(1.2)
0.2
(1.0)
Total Segment operating profit
629.0
21.5
650.5
Corporate overhead
(154.9)
Depreciation and amortisation
(87.6)
Exceptional items
(49.9)
Share-based payments
(21.9)
Employer’s taxes on share-based payments
(0.8)
Consolidated operating profit
335.4
Notes to the consolidated financial statements continued
Corporate overhead costs primarily include the costs of
the Group’s IT, Technology (R&D), HR, Finance and Central
Marketing functions, legal and office related costs, which are
not allocated to the individual segments.
The following table presents depreciation and amortisation
by segment:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Consumer
23.6
67.4
SMB
0.1
0.1
Corporate overhead
20.5
20.1
Total depreciation and
amortisation
44.2
87.6
The following table presents further disaggregation
of revenue:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Consumer Direct
811.2
730.0
Consumer Indirect
76.1
109.7
SMB
51.6
48.0
Other
2.2
5.2
Total
941.1
892.9
As described in the Note 2, the Group changed its
disaggregation of Consumer reporting of billings and
revenues. Comparative information for the year ended
31 December 2021 was adjusted accordingly.
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5 Segment information and other disclosures continued
The following table presents the Group´s non-current assets, net of accumulated depreciation and amortisation, by country.
Non-current assets for this purpose consist of property and equipment, right-of-use assets and intangible assets.
31 December 2021
31 December 2020
($m)
(in %)
($m)
(in %)
Czech Republic
160.8
79.5%
193.7
86.0%
USA
30.7
15.2%
12.9
5.7%
UK
7.2
3.6%
13.9
6.1%
Other countries*
3.6
1.7%
4.8
2.2%
Total
202.4
100%
225.3
100.0%
*
No individual country represented more than 5% of the respective totals.
The following table presents revenue attributed to countries based on the location of the end user:
Year-ended 31 December 2021
Year-ended 31 December 2020
($m)
(in %)
($m)
(in %)
USA
345.6
36.7%
349.0
39.1%
UK
90.6
9.6%
81.6
9.1%
France
73.3
7.8%
69.2
7.8%
Germany
67.5
7.2%
60.1
6.7%
Other countries*
364.1
38.7%
332.9
37.3%
Total
941.1
100%
892.9
100%
*
No individual country represented more than 5% of the respective totals.
Revenues from relationships with certain third parties exceeding 10% of the Group’s total revenues were as follows:
Year-ended 31 December 2021
Year-ended 31 December 2020
($m)
(in %)
($m)
(in %)
Revenues realised through online resellers: Digital River
711.4
75.6%
620.1
69.5%
In 2021 and 2020, revenues realised through Digital River significantly increased by $91.3m and $98.3m, 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 $31.6m (2020: $22.5m)
of revenues were reported in the SMB segment.
Notes to the consolidated financial statements continued
6 Exceptional items
The following table presents the exceptional items by
activity:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Exceptional items in
operating profit
31.7
49.9
Net gain on disposal of
business operation
(47.0)
–
Exceptional items in operating profit
During the year ended 31 December 2021, the Group
incurred legal, professional and impairment costs of
$4.0m in relation to the disposal of Family Safety mobile
business (see Note 16), legal and professional costs
of $2.6m in relation to the acquisition of Evernym (see
Note 15), exceptional impairment and onerous contract
provision costs of $7.5m related to data servers necessary
to remain in operating condition due to an ongoing
regulatory investigation and $9.2m of personnel, legal
and consultancy costs related to the proposed Merger
with NortonLifeLock Inc. Personnel costs related to the
proposed Merger of $2.6m comprise primarily retention
bonuses, which are accrued over the retention period. The
remaining $8.4m of exceptional items relates to costs of
restructuring programme and the change in provisions
related to regulatory investigation and contract indemnity
claims relating to Jumpshot (see Note 25). Restructuring
programme focused on transformation of operations will be
completed in 2022. Tax benefit from these exceptional items
amounted to $2.5m.
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Notes to the consolidated financial statements continued
6 Exceptional items continued
Total $31.7m of exceptional items included in operating
profit comprised $3.2m included in the cash flow from
investing activities and $5.5m of impairment charges, which
were non-cash items. Out of remaining $23.0m exceptional
items that enter operating cash flows, $14.9m were not paid
before year-end and included in liabilities.
During the year ended 31 December 2020, the Group
returned the investment made by Ascential plc into
Jumpshot in the total amount of $73.0m, which included
associated exit costs of $8.2m. These costs were included in
the exceptional costs, in the net cash flows from operating
activities and treated as tax non-deductible. The amount of
investment returned to Ascential excluding exit costs was
included in the net cash flows from financing activities.
In total, the Group incurred $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. 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
programmes 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 16 April 2021, the Group sold a portfolio of mobile
parental controls services including location features,
content filtering and screen time management to Smith
Micro Software Inc. ('Smith Micro') recognising a gain
of $47.0m as an exceptional item. Proceeds from this
transaction, net of cash sold, have been included in cash
flows from investing activities. The tax impact of the net
gain on disposal of a business operation was $16.7m of
which majority is taxable in the USA and will be offset
against tax loss carryforward (Note 13), thus does not
significantly impact income tax paid.
All exceptional items incurred during the 12 months
ended 31 December 2021 and 2020 relate to the
Consumer segment.
7 Auditor's remuneration
The Group paid the following amounts to its auditors in
respect of the audit of the financial statements and for other
non-audit services provided to the Group.
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Audit of the financial statements
1.9
0.9
Audit of the financial statements
of subsidiaries
0.1
0.2
Total audit fees
2.0
1.1
Audit related assurance
services*
0.1
0.1
Total non-audit fees
0.1
0.1
Total fees
2.1
1.2
*
The audit related assurance services relate to provision of Financial Statement Review
procedures on the 30 June 2021 Financial Statements.
8 Cost of revenues
Cost of revenues consist of the following:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Amortisation
22.7
65.9
Depreciation
9.3
8.4
Personnel costs of product
support and virus updates
13.8
18.2
Share-based payments
(incl. employer’s costs)
2.4
0.8
Digital content distribution costs
17.2
20.9
Third-party licence costs
4.6
5.6
Other product support and
virus update costs
17.3
13.4
Commissions, payment and
other fees
62.2
60.5
Impairment
–
2.3
Total
149.5
196.0
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Notes to the consolidated financial statements continued
9 Operating costs
Operating costs are internally monitored by function; their
allocation by nature is as follows:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Depreciation
9.7
11.3
Amortisation
2.5
2.0
Personnel expenses
171.3
169.4
Share-based payments
(incl. employer’s costs)
44.7
21.8
Advertising
85.4
59.1
Purchases of services from
third-party vendors
75.8
69.2
Gifts and charities
2.7
27.8
Other operating expenses
(0.7)
0.4
Impairment
5.6
0.5
Total
397.0
361.5
Purchases of services from third-party vendors include legal,
outsourced and other services.
10 Personnel expenses
Personnel expenses consist of the following:
($m)
Year-ended 31 December 2021
Year-ended 31 December 2020
Employees
Non-Executive
Directors
Employees
Non-Executive
Directors
Wages and salaries
143.5
0.7
137.8
0.8
Social security and health insurance*
29.8
–
27.4
–
Pension costs
1.0
–
0.5
–
Social costs
6.4
–
6.7
–
Severance payments and termination benefits
3.7
–
14.3
–
Share-based payments (including employer’s costs)
47.1
-
22.7
-
Total personnel expense
231.5
0.7
209.4
0.8
*
State and government pension costs of Czech employees are also included in the social security and health insurance costs.
The average number of employees by category during the period was as follows:
Year-ended
31 December
2021
Year-ended
31 December
2020
Sales and marketing
724
683
Research and development
775
878
General and administrative
301
242
Total average number of employees
1,800
1,803
The decrease in average number of employees reflects the disposal of Family Safety mobile business (more than 85% of these
employees were included in R&D function).
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11 Finance income and expenses
Interest income:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Interest on bank deposits
0.2
0.4
Total finance income
0.2
0.4
Interest expense:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Term loan interest expense
(25.0)
(33.4)
Lease interest expense
(1.8)
(2.1)
Total interest expense
(26.8)
(35.5)
Other finance income and expense (net):
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Changes of fair values of
derivatives
0.4
1.7
Revolving loan –
commitment fee
(0.3)
(0.4)
Foreign currency gains/(losses)
2.3
(7.7)
Unrealised foreign exchange
gains/(losses) on borrowings
32.2
(62.1)
Other financial income
0.7
4.5
Total other finance income and
expense (net)
35.3
(64.0)
12 Depreciation and amortisation
Amortisation by function:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Cost of revenues
22.7
65.8
Total amortisation of acquisition
intangible assets
22.7
65.8
Cost of revenues
0.6
0.6
Sales and marketing
0.5
0.2
Research and development
0.4
0.4
General and administration
1.0
0.9
Total amortisation of non-
acquisition intangible assets
2.5
2.1
Total amortisation
25.2
67.9
Depreciation by function:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Cost of revenues
9.2
8.4
Sales and marketing
–
0.1
Research and development
0.2
0.2
General and administration*
9.6
11.0
Total depreciation
19.0
19.7
*
$6.7m (2020: $7.9m) 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 (2020: $1.9m) is
part of the caption tax receivables.
The major components of the income tax in the consolidated
statement of comprehensive income are:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Current income tax
Related to current year
(73.6)
(68.0)
Related to prior year
(0.2)
0.3
Current income tax total
(73.8)
(67.7)
Deferred tax
Related to current year
(28.8)
1.2
Related to prior year
0.7
(0.2)
Deferred tax total
(28.1)
1.0
Total income tax (expense)/
income through P&L
(101.9)
(66.7)
Notes to the consolidated financial statements continued
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13 Income tax continued
The Group changed the presentation in the Consolidated
Statement of Financial Position of the deferred tax liability
related to Group purchase price allocations ($22.5m
as at 31 December 2020) to offset this amount against
the recognised deferred tax assets. This balance relates
principally to taxable entities in the Czech, UK and US
jurisdictions for which significant deferred tax assets are
recognised. As required by IAS12 ‘Income Taxes’, deferred
tax liabilities are offset against deferred tax assets in the
Consolidated Statement of Financial Position where there
is a legally enforceable right to set off current tax assets
and current tax liabilities, and the deferred tax assets and
deferred tax liabilities relate to income taxes levied by
the same taxation authority on the same taxable entity
or different taxable entities which intend to either settle
current tax liabilities and assets on a net basis or to realise
the assets and settle the liabilities simultaneously in future
periods. Comparative information for the year ended
31 December 2020 was adjusted accordingly. There is no
impact on profit or earnings per share of this adjustment.
The Group generates a temporary difference relating
to an intra-group loan denominated in USD received by
Avast Software s.r.o., a subsidiary with a USD functional
currency (but with a tax currency of CZK). This loan is
subject to hedging in its local statutory books (with the
effect that current tax relief does not cover the full period
exchange differences). The tax impact related to the loan
is a deferred tax benefit of $1.5m (2020: expense $4.4m)
and the Group reports a deferred tax asset of $7.2m
(2020: $5.7m) related to the loan.
The reconciliation of income tax (expense)/benefit
applicable to accounting profit before income tax at the
statutory income tax rate to income tax expenses at the
Group’s effective income tax rate is as follows:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Profit before tax
450.3
236.2
Group effective income tax rate
(19.5% in 2021 and in 2020*)
(87.8)
(46.1)
Recurring adjustments
Non-deductible expenses
(3.8)
(1.8)
Share-based payments
(6.1)
(3.0)
FX effect on intercompany loans
1.5
(4.4)
Non recurring adjustments
Current year deferred tax
assets not recognised
(1.6)
(19.2)
Recognition of previously not
recognised deferred tax assets
6.5
0.7
Effect of prior year taxes
0.5
0.1
Effect of enacted changes in
tax rates on deferred taxes
0.9
1.1
Taxable gain on Family Safety
mobile business disposal
(7.3)
–
De-recognition of previously
recognised deferred tax assets
(5.9)
–
Effect of higher tax rate in
the Netherlands
(1.6)
3.4
Remaining impact of tax rate
variance and other effects
2.8
2.5
Total income tax
(101.9)
(66.7)
*
Estimated as a Group’s blended rate across the jurisdictions where the Group operates.
The deferred tax relates to following temporary differences:
($m)
31 December
2021
31 December
2020
Temporary differences
Asset/(Liability)
Asset/(Liability)
Tangibles and intangibles
fixed assets
(25.0)
(26.2)
IP transfer tax benefit
106.7
119.8
Deferred revenue and
unbilled receivables
1.0
1.7
Tax loss carryforward
38.3
50.1
Tax credits carryforward
7.6
7.1
Loans and derivatives
(0.4)
2.4
Carryforward of
unutilised interest
2.0
3.4
Share-based
payments transactions
4.0
3.4
Provisions
1.6
2.3
Tax impact from FX difference
on intercompany loans
7.2
5.7
Other
(1.6)
4.5
Net
141.4
174.2
Notes to the consolidated financial statements continued
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13 Income tax continued
Tax losses carried forward are recorded by the
following subsidiaries:
($m)
31 December
2021
31 December
2020
Deferred tax
from tax losses
carryforward
Deferred tax
from tax losses
carryforward Tax jurisdiction
Avast Software Inc.
(tax group incl.
Location Labs and AVG
Technologies USA)
36.9
49.9
USA
Other
1.4
0.2
–
Total deferred tax from
tax losses carryforward
38.3
50.1
–
Total deferred tax asset recognised by Avast Software Inc.
(tax group incl. Location Labs and AVG Technologies
USA), in excess of deferred tax liabilities is $35.8m
(2020: $62.3m). Refer to Note 3 for the nature of the
evidence supporting its recognition.
Tax losses carried forward in the USA are related mainly to
share-based payments exercises.
As a result of share-based payments exercises there was a
$15.5m (2020: $41.0m) tax deduction in Avast Software,
Inc., Location Labs, LLC, Jumpshot, Inc., Avast plc, AVG
UK, Privax UK and Piriform UK that created a tax benefit of
$3.4m (2020: $9.6m). A tax benefit of $1.5m (2020: $7.3m)
exceeding related cumulative remuneration expenses is
recognised directly in equity, of which the current tax benefit
is $1.5m (2020: $0.4m) and deferred tax benefit is $0m
(2020: $6.9m).
The tax deduction for share-based payments is not received until the instruments are exercised. Therefore, a temporary
difference arises between the tax deduction (pro-rated for the period to vesting) and the tax effect of the related cumulative
remuneration expense. The deferred tax asset of $4.0m (2020: $3.4m) is measured as an estimated tax deduction at the
date of exercise (pro-rated for the period to vesting), based on the year-end share price. As the amount of the deferred tax
asset exceeded the tax effect of the related cumulative remuneration expense, the reduction in the excess of the associated
deferred tax of $0.7m was recognised directly in equity.
Tax losses reported by Avast Software Inc. can be utilised by all subsidiaries incorporated in the USA (Note 37) excluding
Jumpshot, Inc. Tax credit of $0m (2020: $4.5m) from federal and state tax losses generated during the years 2011–2017 can
be utilised over 20 years. Tax credit of $36.9m (2020: $45.4m) from federal and state tax losses can be carried forward for an
indefinite period of time.
Deferred tax asset related to carryforward of unused tax loss, tax credits and other temporary differences in the United States
is recoverable based on the current business model and the group structure of Avast. Potential impacts of the proposed
Merger on the recoverability of this deferred tax asset have not been analysed yet. It is uncertain if tax loss carryforward
can be utilised in full amount after the proposed Merger and (potential) changes in the group and tax structure.
Following the transactions of IP transfer in 2018, the Group reports a deferred tax asset of $106.7m (2020: $119.8m), of which
the major part of $104.7m 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.
The Group does not recognise the following potential deferred tax asset of $40.8m (2020: $39.6m), mostly related to
Jumpshot tax losses $17.3m (2020: $14.9m), non-deductible finance costs $13.5m (2020: $4.1m) temporary difference
related to EUR loan $0m (2020: $14.5m), for which the Group considers future recoverability to be uncertain.
($m)
31 December
2021
31 December
2020
Asset/(Liability)
Asset/(Liability)
Tax losses carried forward – expiration 20 years
9.1
6.6
Tax losses carried forward – indefinite
15.8
7.6
Tax losses carried forward – expiration 1–10 years
1.3
5.5
Temporary differences related to loans and interests – indefinite
13.5
18.6
Other temporary differences – expiration n/a
1.1
1.3
Total deferred tax asset not recognised
40.8
39.6
Notes to the consolidated financial statements continued
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13 Income tax continued
The movement in deferred tax balances:
($ m)
31 December
2020
31 December
2021
Temporary differences
Asset/(Liability)
Effect of business
combinations
Recognised in
profit and loss
Recognised
in equity
Asset/(Liability)
Fixed assets
(26.2)
(4.0)
5.2
–
(25.0)
IP transfer tax benefit
119.8
–
(13.1)
–
106.7
Deferred revenue and unbilled receivables
1.7
–
(0.7)
–
1.0
Tax loss carryforward
50.1
–
(11.8)
–
38.3
Tax credits carryforward
7.1
–
0.5
–
7.6
Loans and derivatives
2.4
–
(2.8)
–
(0.4)
Carryforward of unutilised interest
3.4
–
(1.4)
–
2.0
Share-based payments transactions
3.4
–
1.3
(0.7)
4.0
Provisions
2.3
–
(0.7)
–
1.6
Tax impact from FX difference on intercompany loans
5.7
–
1.5
–
7.2
Other
4.5
–
(6.1)
–
(1.6)
Net
174.2
(4.0)
(28.1)
(0.7)
141.4
($m)
31 December
2019
31 December
2020
Temporary differences
Asset/(Liability)
Recognised in
profit and loss
Recognised in
equity
Asset/(Liability)
Fixed assets
(38.2)
12.0
–
(26.2)
IP transfer tax benefit
122.9
(3.1)
–
119.8
Deferred revenue and unbilled receivables
3.5
(1.8)
–
1.7
Tax loss carryforward
45.8
(2.7)
7.0
50.1
Tax credits carryforward
4.2
2.9
–
7.1
Loans and derivatives
2.1
0.3
–
2.4
Carryforward of unutilised interest
2.7
0.7
–
3.4
Share-based payments transactions
5.7
(0.9)
(1.4)
3.4
Provisions
0.8
1.5
–
2.3
Tax impact from FX difference on intercompany loans
10.1
(4.4)
–
5.7
Other
8.0
(3.5)
–
4.5
Net
167.6
1.0
5.6
174.2
Notes to the consolidated financial statements continued
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Notes to the consolidated financial statements continued
13 Income tax continued
The deferred tax asset increased significantly due to tax
losses realised in 2018, 2019 and 2020 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 $56.5m (2020: $77.1m). These relate to undistributed
reserves of the US subsidiaries, which would be subject to
withholding taxes if distributed. The Group has determined
that the undistributed profits of its subsidiaries will not be
distributed in the foreseeable future. While EU subsidiaries
(including the Czech Republic and the Netherlands) have
significant reserves, the management has determined that,
based on the Group structure, no material withholding
taxes would arise from distributions from these subsidiaries
following the UK’s exit from the European Union.
14 Earnings per share
Basic earnings per share (EPS) is calculated by dividing the
net profit for the period attributable to equity holders of the
Group by the weighted average number of shares of ordinary
shares outstanding during the year.
Diluted EPS is calculated by dividing the net profit for the
period attributable to equity holders of the Group by the
weighted average number of ordinary shares outstanding
during the period plus the weighted average number of
shares that would be issued if all dilutive potential ordinary
shares were converted into ordinary shares.
Adjusted EPS is calculated by dividing the adjusted net
profit for the period attributable to equity holders by the
weighted average number of ordinary shares outstanding
during the period.
The following reflects the income and share data used in
calculating EPS:
Year-ended
31 December 2021
Year-ended
31 December 2020
Net profit attributable to
equity holders ($m)
348.4
169.6
Basic weighted average
number of shares
1,031,854,145 1,022,001,218
Effects of dilution from share
options, performance and
restricted share units
7,425,430
14,815,576
Total number of shares used
in computing dilutive earnings
per share
1,039,279,575 1,036,816,794
Basic earnings per share
($/share)
0.34
0.17
Diluted earnings per share
($/share)
0.34
0.16
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Notes to the consolidated financial statements continued
14 Earnings per share continued
Adjusted earnings per share measures:
Year-ended
31 December 2021
Year-ended
31 December 2020
Net profit attributable to
equity holders ($m)
348.4
169.6
Share-based payments
(including employer‘s costs)
47.1
22.7
Exceptional items
31.7
49.9
Amortisation of acquisition
intangible assets
22.7
65.8
Unrealised FX (gain)/loss on
EUR tranche of bank loan
(32.2)
62.1
Tax impact from
FX difference on
intercompany loans
(1.5)
4.4
Tax impact on donations
–
(4.7)
Tax impact on adjusted items
(2.9)
(15.7)
Tax impact of IP transfer
6.3
6.3
Gain on disposal of
business operation
(47.0)
–
Tax impact from disposal of
business operation
16.7
–
Adjusted net profit
attributable to equity
holders ($ 'm)
389.4
360.2
Basic weighted average
number of shares
1,031,854,145 1,022,001,218
Adjusted basic earnings
per share ($/share)
0.38
0.35
Diluted weighted average
number of shares
1,039,279,575 1,036,816,794
Adjusted diluted earnings
per share ($/share)
0.37
0.35
Management regards the above adjustments necessary to
give a fair picture of the adjusted results of the Group for
the period.
15 Business combinations
Acquisition of Evernym, Inc. ('Evernym')
On 9 December 2021, Avast Group announced that it
would acquire a self-sovereign identity (SSI) company
Evernym, Inc. that provides decentralised identity solutions
that enable organisations to issue and request verifiable
credentials, and individuals to establish identity wallets
and personal control over identity information. Adding a
decentralised identity function to Avast’s personal privacy
tools is a natural step to empower individuals to take control
of and protect their online presence.
The transaction closed on 17 December 2021 which is
considered the acquisition date. 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
$49.7 million for 100% ownership. The consideration
given was paid in cash.
The fair value of assets acquired and liabilities incurred on
the acquisition date was determined on a provisional basis
as follows:
($m)
Fair value
recognised on
17 December
2021
ASSETS
Cash and cash equivalents
0.2
Trade and other receivables
0.2
Tax receivables
0.1
Prepaid expenses
0.1
Other financial assets
0.4
Intangible assets
16.8
Total assets
17.8
LIABILITIES
Trade and other payables
1.1
Deferred tax liability
4.0
Total liabilities
5.1
Net assets acquired
12.7
Consideration paid
49.7
Goodwill
37.0
The business combination resulted in the recognition
of goodwill of $37.0m, which is allocated to the Consumer
CGU and is tested for impairment at least annually.
The goodwill of $37.0m comprises the workforce 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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182
Notes to the consolidated financial statements continued
15 Business combinations continued
Determination of the fair value of acquired assets and
liabilities comprised of:
Current assets – the fair value of all current assets of the
acquiree has been determined to correspond to their
carrying values
Intangible assets – the business combination resulted in
the recognition of intangible assets. The fair value of each
of the assets was determined by an independent external
valuer using cash flows, margins and discount rates
inherent to each asset. See Note 22 for further details
Deferred revenues – due to negligible incremental costs
resulting from the obligation to provide support and
maintenance services in the future, the fair value of
deferred revenues was revalued to zero
Trade payables – there was no significant difference
between the carrying and fair value of the other liabilities
as of the acquisition date
A deferred tax liability of $4.0m was recognised in
respect of the above intangible assets
Analysis of cash flow on acquisition:
($m)
Cash consideration
(49.7)
Net cash acquired with the business (included
in cash flow from investing activities)
0.2
Net cash flow on acquisition
(49.5)
The Group incurred acquisition-related transaction
costs of $2.6 million which were recorded as general and
administrative expenses in the Consolidated Statement
of Profit and Loss and treated as exceptional items.
The revenues and net profit of the Group for the year ended
31 December 2021 would not have been significantly
different had the acquisition occurred at the beginning of
the reporting period (1 January 2021).
16 Disposal of a business operation
Disposal of Family Safety mobile business
On March 8, 2021 Avast Group announced that it would sell
a portfolio of mobile parental controls services including
location features, content filtering and screen time
management to Smith Micro Software Inc. ('Smith Micro').
The transaction consisted of the sale of 100% of the shares
of in Location Labs, owned by AVG Technologies USA,
LLC, containing patents and part of contractual
relationships, sale of intellectual property (IP) owned by
Avast Software s.r.o. and sale of other assets of Avast
Software Inc, Avast Slovakia, s.r.o., and Privax d.o.o.
The transaction closed on 16 April 2021 which is considered
the disposal date.
The total selling price for the transactions was $85.8m and
comprised the following components:
Cash of $57.9m was received on the disposal date.
Escrow amount of $5m 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.
Receivable of $0.5m. As of 31 December 2021, this
amount was received.
1.5m shares of common stock of Smith Micro with the
fair value of $8.4m on the disposal date.
Earn-out of $1.2m was estimated at the time of disposal as
it was assessed there was a low probability the conditions
would be met. Conditions related to the renewal of
customer’s agreement which however was secured under
the new ownership of Location Lab subsequent to the
disposal. As of 31 December 2021, Avast received
$14.0m as the earn-out conditions were met.
The carrying amounts of assets and liabilities as of the date
of sale were as follows:
($m)
16 April 2021
Cash and cash equivalents
6.3
Trade and other receivables
6.2
Prepaid expenses
0.5
Current assets
13.0
Property, plant & equipment
0.9
Intangible assets
0.2
Non-current assets
1.1
Total assets
14.1
Trade and other payables
1.0
Deferred revenues
0.2
Other current liabilities
0.1
Total current liabilities
1.3
Net assets
12.8
Since the sold business concerns part of Consumer
cash-generating unit (CGU), the amount of goodwill
de-recognised was determined on the basis of the relative
value of the part divested compared to the value of
Consumer CGU after the disposal. When determining
the value in use of Consumer CGU, the Group used a
discounted cash flow model taking into consideration the
latest forecast approved by the management. The Group
has determined that the appropriate amount of goodwill
disposed of is $24.7m which was part of the Consumer CGU.
Notes to the consolidated financial statements continued
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183
16 Disposal of a business operation continued
The resulting gain on disposal of a business operation is
shown in the table below:
($m)
16 April 2021
Total disposal consideration
85.8
Carrying amount of net assets sold
(12.8)
Gain on disposal of a business operation
73.0
Other adjustments:
Goodwill write-off (Note 23)
(24.7)
Intangibles write-off (Note 22)
(1.3)
Net gain on disposal of a business operation
47.0
Analysis of cash flows on disposal:
($m)
Cash received
57.9
Net cash sold of the business (included in cash
flow from investing activities)
(6.3)
Transaction costs paid
(3.2)
Earn-out received
14.0
Net cash flow on disposal
62.4
Transaction costs of $3.2m have been expensed and are
included in general and administrative expenses in the
Consolidated Statement of Profit and Loss and are part of
investing cash flows in the Consolidated Statement of
Cash Flows. These costs have been treated as exceptional.
17 Cash and cash equivalents
For purposes of the Consolidated Statement of Cash Flows,
cash and cash equivalents comprise the following:
($m)
31 December
2021
31 December
2020
Cash on hand and
cash equivalents
0.2
0.3
Cash in bank
428.8
175.1
Total
429.0
175.4
18 Trade and other receivables
($'m)
31 December
2021
31 December
2020
Trade receivables
6.5
13.6
Unbilled revenues
46.3
48.1
Other receivables
1.4
3.5
Trade receivables, gross
54.2
65.2
Less: Expected loss allowance
on trade receivables, unbilled
revenues and other receivables
(0.8)
(2.2)
Trade receivables, net
53.4
63.0
Trade receivables are non-interest bearing and are generally
payable on 30-day terms. The fair value of receivables
approximates their carrying value due to their short-term
maturities. The expected loss allowance relates to trade
receivables (with only insignificant amounts relating to
other classes of receivable).
Unbilled revenues represent sold products (for which the
revenue has been deferred over the term of the product
licence) but for which an invoice has not yet been issued.
Other receivables represent mainly advances to, and
receivables from, employees.
($m)
Amount
Allowances at 31 December 2019
6.8
Additions
3.7
Write-offs
(5.3)
Reversals
(3.0)
Allowances at 31 December 2020
2.2
Additions
–
Write-offs
(0.8)
Reversals
(0.6)
Allowances at 31 December 2021
0.8
Movements in the allowances described above relate
mainly to trade receivables.
As of 31 December 2020 and 2021, the nominal value of
receivables overdue for more than 360 days are $1.2m
(carrying value: nil) and $0.1m (carrying value: nil), respectively.
The ageing analysis of trade receivables, unbilled receivables
and other receivables was as follows (carrying amounts after
valuation allowance):
Notes to the consolidated financial statements continued
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18 Trade and other receivables continued
($ m)
Not past due
Past due
1–90 days
Past due more
than 90 days
Past due more
than 180 days
Past due more
than 360 days
Total
31 December 2020
62.0
0.8
0.1
0.1
–
63.0
31 December 2021
53.0
0.4
–
–
–
53.4
19 Capitalised contract costs
($m)
31 December
2021
31 December
2020
At 1 January
37.8
37.7
Additions
65.6
67.7
Sales commissions and fees
61.7
61.6
Licence fees
3.9
6.1
Amortisation
(66.8)
(67.6)
Sales commissions and fees
(62.2)
(62.1)
Licence fees
(4.6)
(5.5)
At 31 December
36.6
37.8
Total current
34.2
35.0
Total non-current
2.4
2.8
Capitalised contract costs include commissions and fees and third-party licence costs related to the subscription software
licences that are amortised on a straight-line basis over the licence period, consistent with the pattern of recognition of the
associated revenue. Capitalised contract costs are reviewed for impairment annually. All costs are expected to be recovered.
Notes to the consolidated financial statements continued
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185
20 Property, plant and equipment
($m)
Equipment,
furniture and
fixtures
Vehicles
Leasehold
improvements
In progress
Total
Cost at 31 December 2019
61.6
0.1
9.5
7.7
78.9
Additions
9.0
–
0.7
2.7
12.4
Transfers
6.4
–
0.5
(6.9)
–
Disposals
(2.0)
–
–
(0.1)
(2.1)
Cost at 31 December 2020
75.0
0.1
10.7
3.4
89.2
Additions
6.6
–
1.4
1.1
9.1
Transfers
3.1
–
–
(3.1)
–
Disposals
(21.6)
–
(0.5)
(0.1)
(22.2)
Disposal of a business operation (Note 16)
(1.9)
–
–
–
(1.9)
Net foreign currency exchange difference
0.2
–
–
–
0.2
Cost at 31 December 2021
61.4
0.1
11.6
1.3
74.4
($m)
Equipment,
furniture and
fixtures
Vehicles
Leasehold
improvements
In progress
Total
Acc. depreciation and impairment losses at
31 December 2019
(33.5)
(0.1)
(2.4)
–
(36.0)
Depreciation
(10.0)
–
(1.8)
–
(11.8)
Impairment
(2.2)
–
–
–
(2.2)
Disposals
2.0
–
–
–
2.0
Acc. depreciation and impairment losses at
31 December 2020
(43.7)
(0.1)
(4.2)
–
(48.0)
Depreciation
(10.3)
–
(2.0)
–
(12.3)
Impairment
(4.3)
–
–
(0.5)
(4.8)
Disposals
21.6
–
0.5
–
22.1
Disposal of a business operation (Note 16)
1.0
–
–
–
1.0
Acc. depreciation and impairment losses at
31 December 2021
(35.7)
(0.1)
(5.7)
(0.5)
(42.0)
NBV at 31 December 2020
31.3
–
6.5
3.4
41.2
NBV at 31 December 2021
25.7
–
5.9
0.8
32.4
Notes to the consolidated financial statements continued
For the year ended 31 December 2021, the Group recorded
an impairment loss of $4.8m (2020: $2.2m) for idle fixed
assets due to discontinuation of Jumpshot’s business. These
have been fully impaired as there is no future use expected.
The impairment loss is included in general and administrative
expenses in Consumer segment in the Consolidated
Statement of Profit and Loss.
There has been no individually significant addition to the
property, plant and equipment during the year.
21 Leases
Right-of-use assets
Set out below, are the carrying amounts of the Group’s
right-of-use assets and the movements during the
period. The Group has lease contracts related primarily
to office buildings.
($m)
31 December
2021
31 December
2020
At 1 January
56.4
62.6
Additions
0.2
3.2
Remeasurements
(0.8)
0.6
Impairment
(0.8)
(0.5)
Disposals
(0.3)
(1.6)
Depreciation of
right-of-use assets
(6.7)
(7.9)
At 31 December
48.0
56.4
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Notes to the consolidated financial statements continued
21 Leases continued
Lease liabilities
Lease liabilities are presented in the statement of financial
position as follows:
($m)
31 December
2021
31 December
2020
At 1 January
64.5
64.8
Additions
0.2
3.2
Remeasurements
(1.0)
0.6
Terminations
(0.3)
(1.9)
Lease interest expense
1.8
2.1
Payments of lease liabilities
(8.6)
(9.3)
Foreign currency exchange
difference
(4.1)
5.0
At 31 December
52.5
64.5
($m)
31 December
2021
31 December
2020
Current
7.0
7.0
Non-current
45.5
57.5
Total
52.5
64.5
Below are the terms of significant lease contracts as of 31 December 2021:
Significant lease contracts
Carrying amount ($m)
End date
Option to extend
Option to be used
Enterprise Building in Prague,
Czech Republic*
20.5
August 2024
24 months
two times
Yes – in full
Vlněna Office in Brno,
Czech Republic
20.7
January 2026
60 months
two times
Yes – in full
*
Lease payments are subject to indexation based on changes of consumer price index. A 1% increase in the index would not substantially increase total lease payments.
The following table shows the breakdown of the lease expense between amount charged to operating profit and amount
charged to finance costs:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
Depreciation of right-of-use assets
6.7
7.9
Short-term lease expense
0.8
0.5
Impairment
0.8
0.5
Leases of low-value lease expense
0.2
–
Charge to operating profit
8.5
8.9
Lease interest expense
1.8
2.1
Charge to profit before taxation for leases
10.3
11.0
For maturity of the leases, refer to Note 29.
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187
Notes to the consolidated financial statements continued
22 Intangible assets
($m)
Developed
technology
Trademarks
Software
Customer
relationship and
user base
Other
In progress
Total
Cost at 31 December 2019
250.5
164.1
40.0
246.6
34.6
2.8
738.6
Additions
–
–
–
–
2.0
0.7
2.7
Transfers
–
–
–
–
0.2
(0.2)
–
Disposals
–
–
–
–
–
(0.4)
(0.4)
Cost at 31 December 2020
250.5
164.1
40.0
246.6
36.8
2.9
740.9
Business combination (Note 15)
13.1
0.3
–
3.4
–
–
16.8
Additions
–
–
–
–
3.0
1.3
4.3
Transfers
–
–
–
–
0.9
(0.9)
–
Disposals
–
–
–
–
(0.2)
(0.1)
(0.3)
Disposal of a business operation (Note 16)
–
(5.3)
–
–
(0.3)
–
(5.6)
Cost at 31 December 2021
263.6
159.1
40.0
250.0
40.2
3.2
756.1
($ 'm)
Developed
technology
Trademarks
Software
Customer
relationship and
user base
Other
In progress
Total
Acc. amortisation at 31 December 2019
(245.4)
(48.9)
(27.3)
(208.4)
(15.3)
–
(545.3)
Amortisation
(5.1)
(15.7)
(4.9)
(37.8)
(4.4)
–
(67.9)
Acc. amortisation at 31 December 2020
(250.5)
(64.6)
(32.2)
(246.2)
(19.7)
–
(613.2)
Amortisation
–
(14.7)
(4.9)
(0.4)
(5.2)
–
(25.2)
Disposals
–
–
–
–
0.2
–
0.2
Disposal of a business operation (Note 16)
–
4.0
–
–
0.1
–
4.1
Acc. amortisation at 31 December 2021
(250.5)
(75.3)
(37.1)
(246.6)
(24.6)
–
(634.1)
NBV at 31 December 2020
–
99.5
7.8
0.4
17.1
2.9
127.7
NBV at 31 December 2021
13.1
83.8
2.9
3.4
15.6
3.2
122.0
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188
Notes to the consolidated financial statements continued
22 Intangible assets continued
The Group assesses that the Avast trademark, with a
carrying value of $70.3m, has an indefinite useful life,
as it is a well established brand. Avast is a core brand and
is expected to be a core brand for the foreseeable future,
as the Group constantly invests into brand development
and brand awareness.
The AVG trademark, with a carrying value of $10.5m, has a
remaining useful life of 0.8 years as of 31 December 2021.
The Piriform trademark, with a carrying value of $2.1m, has a
remaining useful life of 5.6 years as of 31 December 2021.
AVG-developed technology and customer relationship have
been fully depreciated as of 31 December 2021.
Piriform and FileHippo software, with a carrying value
of $2.9m, has a remaining useful life of 0.5 years as of
31 December 2021.
Other category of intangible assets includes intangible
assets acquired through smaller business combinations and
legal patents.
The major additions are primarily through business
combinations in the year ended 31 December 2021
(Note 15). There have been no individually significant
additions to the intangible assets during the year ended
31 December 2020.
The Group has not capitalised development costs in the
year ended 31 December 2021 (2020: nil) as the Company
believes the criteria set out in IAS 38 has not been met.
See Note 2.
23 Goodwill and impairment
($m)
31 December
2021
31 December
2020
At 1 January
1,991.3
1,991.3
Acquisitions (Note 15)
37.0
–
Disposals (Note 16)
(24.7)
–
At 31 December
2,003.6
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 and 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 2021 is performed
on the basis of two groups of cash-generating units that
correspond to the two operating segments as below:
($m)
31 December
2021
31 December
2020
Consumer
1,990.7
1,978.4
SMB
12.9
12.9
Total goodwill
2,003.6
1,991.3
The Group prepares projected 2022–2024 free cash flow
derived from the most current financial plan of the Group
approved by the Board which takes into account both
historical performance, industry forecasts and expectations
for future developments. Cash flow projections are based on
management assumptions that include compound revenue
growth of 5 to 8% (in line with assumptions used for prior
year assessment), an increase in operating costs from the
Company’s planned on-premises to cloud migration and
additional investment into marketing and new initiatives.
The forecasts (and the assessment of sensitivity) have
therefore not taken into account any impact on the business
arising from the proposed Merger. In performing the
value-in-use calculations, the Group has applied pre-tax
discount rates to discount the forecast future attributable
pre-tax cash flows.
In addition, consideration has been given to the potential
financial impacts of climate change related risks on the
prospective financial information impacting the carrying
value of goodwill through a qualitative review of the Group’s
climate change risk assessment. This review did not identify
any material financial reporting impacts.
The key assumptions used in the assessments are as follows:
($’m)
31 December
2021
31 December
2020
Terminal growth rate
2.0%
2.0%
Pre-tax discount rate
9.9%
12.2%
Terminal growth rate does not exceed the long-term average
growth rate for the market. Pre-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.
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Financial statements
Avast plc annual report 2021
189
Notes to the consolidated financial statements continued
24 Trade payables and other liabilities
($m)
31 December
2021
31 December
2020
Trade payables
8.0
5.4
Accruals
44.4
30.1
Amounts owed to employees
21.9
21.1
Social security and other taxes
2.0
2.0
Other payables and liabilities
3.5
4.6
Total trade payables and other liabilities
79.8
63.2
25 Provisions and contingent liabilities
The movements in the provision accounts were as follows:
($m)
Accrued vacation
provision
Provision for
restructuring
Onerous contract
provision
Other
Total
As at 31 December 2019
1.7
1.8
0.8
8.2
12.5
Additions
0.8
7.4
–
11.6
19.8
Utilisation
(1.7)
(1.4)
(0.3)
(0.6)
(4.0)
As at 31 December 2020
0.8
7.8
0.5
19.2
28.3
Additions
0.9
4.8
2.4
14.8
22.9
Release
–
–
–
(11.8)
(11.8)
Utilisation
(0.8)
(7.7)
(0.1)
(3.0)
(11.6)
As at 31 December 2021
0.9
4.9
2.8
19.2
27.8
As at 31 December 2020
Total current
0.8
7.8
0.2
18.9
27.7
Total non-current
–
0.3
0.3
0.6
As at 31 December 2021
Total current
0.9
4.7
1.6
19.2
26.4
Total non-current
–
0.2
1.2
–
1.4
Onerous contract provision relates to the unavoidable
costs of maintenance of data servers necessary to remain
in operating condition due to an ongoing regulatory
investigation. The Group doesn’t draw any benefits from
operating these servers, therefore an impairment has been
recorded for their net book value (see Note 20).
As disclosed in the prior year, as part of the process to
effect an orderly wind-down of Jumpshot, Avast has been
in communication with relevant regulators and authorities
in respect of certain data protection matters. These
discussions have progressed during the year, and while not
complete, Avast has received formal complaints from certain
regulatory agencies. Avast continues to believe that it has
acted appropriately and in compliance with all laws and
has not admitted any liability. However, in an effort to close
matters, discussions have commenced regarding possible
settlement. Consequently, a provision of $10.2m has been
made during the year. The timing of the potential outflow is
not known but could be within the next year.
While this represents management’s current best
estimate of the outflow required to settle the cases, there
remains the potential for additional outflows that are
not currently provided. Depending on the nature of
settlement discussions, the timing of any outflow could
take significantly longer than a year. In estimating the
likely timing and outflow required to settle the cases,
Management have considered both other previously settled
cases in the public domain, as well as the advice of its
external legal team. Avast continues to cooperate fully in
respect of all regulatory inquiries.
The release of certain provisions related mainly to a provision
for an alleged patent infringement claim, which has been
dismissed with no costs resulting from it.
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Avast plc annual report 2021
190
Notes to the consolidated financial statements continued
26 Deferred revenue
The Group sells consumer and corporate antivirus products
for periods of 12, 24 or 36 months with payment received at
the beginning of the licence term. Revenues are recognised
ratably over the subscription period covered by the
agreement. Deferred revenue materially represents the
transaction price relating to sales of software licences that is
allocated to future performance obligations.
The movements in the deferred revenue were as follows:
($m)
31 December
2021
31 December
2020
At 1 January
496.5
474.8
Additions – billings
948.4
922.0
Deductions – revenue
(941.1)
(892.9)
Disposal of a business operation
(0.2)
–
Jumpshot’s release of
deferred revenue*
–
(7.6)
Translation and other
adjustments
–
0.2
At 31 December
503.6
496.5
*
Jumpshot’s release of deferred revenue is included in exceptional costs.
Current
468.6
458.8
Non-current
35.0
37.7
Total
503.6
496.5
Prior year current deferred revenue is recognised as revenue
in the current period.
27 Term loan
Term loan balance is as follows:
($m)
31 December
2021
31 December
2020
Current term loan
41.0
64.6
Long-term term loan
744.9
769.4
Total term loans
785.9
834.0
($m)
31 December
2021
31 December
2020
USD tranche principal
462.0
113.8
EUR tranche principal
327.0
722.7
Total principal
789.0
836.5
On 22 March 2021, the Group borrowed a new term loan
with a USD and EUR tranche of USD 480m and EUR 300m
respectively, decreasing the margin on both tranches by
25bps and extending the maturity to seven years. The
new term loan was issued at a below par value of 99.75%
resulting in an effective cost of margin of 203.57. The
previous term loan was net settled. The size of the USD and
EUR tranche significantly changed which resulted in the
de-recognition of the previous term loan. The arrangement
fees of the previous term loan of $2.3m were released into
interest expense. Both term loans are presented in the
above table as outstanding at each reporting period for
the comparability.
The term facility was drawn from a syndicate of lenders, with
Credit Suisse International (CSI) as administrative agent.
The term loan is subject to quarterly amortisation payments
of 1.25% of the original principal amount, USD 6.0m and
EUR 3.8m per quarter beginning on 30 June 2021. The
Group may voluntarily prepay term loans in whole or in part
without premium or penalty.
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Avast plc annual report 2021
191
Notes to the consolidated financial statements continued
27 Term loan continued
The following terms apply to the bank loans outstanding at 31 December 2021:
Facility
Interest
Floor
Margin
31 December 2021
Margin
31 December 2020
USD Tranche
3-month USD LIBOR
0.00% p.a.
2.00% p.a.
2.25% p.a.
EUR Tranche
3-month EURIBOR
0.00% p.a.
2.00% p.a.
2.25% p.a.
Both facilities are repayable in full at the end of the 84-month term on 22 March 2028. The margin payable on both facilities
is dependent upon the ratio of the Group’s net debt to Consolidated EBITDA as defined in the facility agreement. See Note 4
for details of the transition of IBOR rates to risk-free rates.
The Credit Agreement requires the following mandatory repayments (so called Excess Cash Flow payment) in addition to
the quarterly amortisation payments: Commencing with the fiscal year of the Company ending 31 December 2022, 50% of
Excess Cash Flow (as defined and subject to certain reductions and to the extent where Excess cash flow payment exceeds
$75m and 15% of Four Quarter Consolidated EBITDA), with a reduction to 25% and elimination based upon achievement of
First Lien Net Leverage Ratios not exceeding 3.5x and 3.0x, respectively. The First Lien Net Leverage Ratio ('the leverage
ratio') is defined as the nominal value of debt less cash on hand as of the relevant date divided by adjusted operating profit for
the preceding four calendar quarters. The operating profit is adjusted for amortisation and depreciation, non-cash expenses
such as share-based payments, the effects of business combination accounting and other non-cash items.
The following pledge agreements existed as of the date of issuance of these consolidated financial statements:
Avast Software B.V. pledged its 100% share in Avast Software s.r.o.
Avast Software B.V. pledged its receivables
Avast Software B.V. pledged its equity interests in Avast Software Inc. and Sybil Software LLC
Avast Software, Inc. pledged its equity interests in AVG Technologies USA, LLC
Avast Holding B.V. pledged its 100% share in Avast Software B.V.
Avast Holding B.V. pledged its interest in any intercompany loans owed to by loan parties
Since Avast Software s.r.o. forms a substantial portion of the Group, the estimated value of the pledged assets exceeds the
total value of the term loan.
Term loan balance reconciliation
The table below reconciles the movements of the Term loan
balance with the statement of cash flow:
($m)
31 December
2021
31 December
2020
Term loan balance at
beginning of period
834.0
1,027.7
Net loan refinancing*
6.6
–
Drawing fees
(2.7)
–
Interest expense
25.0
33.4
Interest paid
(14.3)
(27.5)
Loan repayment
(31.3)
(261.9)
Unrealised foreign exchange
loss/(gain)**
(32.2)
62.1
Other
0.8
0.2
Term loan balance at
end of period
785.9
834.0
*
Net loan refinancing consists of repayment of old loan of $(827.6)m, new loan drawn of
$843.6m and portion of transaction costs related to borrowings deducted by bank of
$(5.0)m and portion of cash interest deducted by bank of $(4.0)m.
**
Unrealised foreign exchange loss/(gain) amount includes gain of $23.3m relating to
the new term loan for the year ended 31 December 2021.
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Avast plc annual report 2021
192
Notes to the consolidated financial statements continued
27 Term loan continued
The presentation of the above items has changed since the
issuance of interim financial statements where separate
lines were presented for the new loan drawn of $843.6m,
loan repayments of $838.2m (being the sum of the old loan
repayment of $827.6m and quarterly amortisation payments
of $10.6m) and the bank fees were included within drawing
fees of $7.7m. In addition, cash flow presentation changed
to show the proceeds of $6.6m received on refinancing,
drawing fees of $2.7m and the quarterly amortisation loan
repayments of $31.3m. At the interim, the Group presented
the proceeds from borrowings/repayments of $5.4m (which
included net loan proceeds and quarterly amortisation
repayments), drawing fees of $7.7m and interest paid of
$10m (which included the bank fees/interest deducted on
refinancing) in the cash flow statement.
Revolving facility
On 22 March 2021, the Group 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 22 March 2026. The Credit
Agreement includes a financial covenant that is triggered
if at any time $35.0m or more is outstanding under the
revolving credit agreement at the last day of any four-quarter
period ending on 30 June or 31 December. If the revolving
credit facility exceeds this threshold, then the Group must
maintain, on a consolidated basis, a leverage ratio of less
than 6.5x. This covenant is tested quarterly at such time as
it is in effect.
28 Financial assets and liabilities
The carrying amount of financial assets and liabilities held by the Group was as follows:
($m)
Type
31 December
2021
31 December
2020
Financial assets
Financial assets at fair value through profit or loss
Escrow
Level 2
5.0
–
Equity instruments at fair value through other comprehensive income
Quoted equity instruments
Level 1
7.1
–
Financial assets at amortised cost
Cash and cash equivalents
429.0
175.4
Trade and other receivables
53.4
63.0
Other financial assets
1.6
1.2
Total financial assets
496.1
239.6
Total current
488.1
238.8
Total non-current
8.0
0.8
Financial liabilities
Derivatives not designated as hedging instruments
Interest rate cap
Level 3
–
0.4
Financial liabilities at amortised cost
Trade and other payables
77.8
63.2
Lease liabilities (Note 21)
52.5
64.5
Term loan
785.9
834.0
Total financial liabilities
916.2
962.1
Total current
125.8
135.2
Total non-current
790.4
826.9
Net financial liabilities
420.1
722.5
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193
29 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. 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.
Year-ended
31 December
2021
Year-ended
31 December
2020
USD
43%
46%
EUR
25%
24%
GBP
9%
9%
Other
23%
21%
Total
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:
($m)
31 December
2021
31 December
2020
USD*
(240.3)
34.3
EUR*
(223.9)
(766.4)
CZK
(11.1)
(18.5)
GBP
46.7
15.9
Other
8.5
11.3
Total
(420.1)
(723.4)
*
The fluctuation in the currencies is mainly caused by the term loan repayments as
further described in Note 27.
Financial assets and liabilities include cash and cash
equivalents, trade and other receivables and trade and
other payables, term loan, lease liabilities, other current
liabilities, and non-current financial assets and liabilities.
The table below presents the sensitivity of the profit
before tax to a hypothetical change in EUR, CZK and other
currencies and the impact on financial assets and liabilities
of the Group. The sensitivity analysis is prepared under
the assumption that the other variables are constant.
The analysis against USD is based solely on the net balance
of cash and cash equivalents, trade and other receivables,
trade and other payables and term loan.
Notes to the consolidated financial statements continued
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Avast plc annual report 2021
194
29 Financial risk management continued
($m)
% change
31 December
2021
31 December
2020
EUR
+/-10%
(22.4)/22.4
(76.6)/76.6
CZK
+/-10%
(1.1)/1.1
(1.8)/1.8
GBP
+/-10%
4.7/(4.7)
1.6/(1.6)
Other
+/-10%
0.9/(0.9)
1.1/(1.1)
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 payable to 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 liability held by the Group subject to
interest rate risk is the loan described in Note 27. Other
liabilities and provisions themselves are not subject to
interest rate risk. The Group keeps all its available cash in
current bank accounts (see Note 17).
As at 31 December 2021, the Group has a term loan
with an interest rate of three-month USD LIBOR plus a
2.00% p.a. mark-up for USD tranche and three-month
EURIBOR plus a 2.00% p.a. mark-up for EUR tranche.
The three-month USD LIBOR and three-month EURIBOR
are subject to a 0% interest rate floor. As of 31 December
2021, the three-month USD LIBOR was 0.22% p.a. and
three-months EURIBOR was -0.57%.
Notes to the consolidated financial statements continued
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:
Year-ended
31 December
2021
Year-ended
31 December
2020
Increase in interest rates
(5.7)
(3.9)
Decrease in interest rates
1.0
–
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. The Group does not intend to repay the term loan prematurely, however understands that it is NortonLifeLock’s
intention to do so, should the proposed Merger conclude. 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 2021 and 2020, the Group’s current ratio (current assets divided by current liabilities including the current
portion of deferred revenue) was 0.85 and 0.46. 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 3.24 and 1.76 as at 31 December 2021 and 2020,
respectively.
In 2021, Avast’s credit rating was upgraded to Ba1 from Ba2 with Moody’s, while Standard & Poor’s rating remained at BB+,
driven mainly by the 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.
The following table shows the ageing structure of financial liabilities as of 31 December 2021:
($m)
Due within
3 months
Due between
3 to 12 months
Due between
1 to 5 years
Due in more
than 5 years
Total
Term loan
9.9
29.6
157.8
591.7
789.0
Interest payment
4.1
12.3
69.4
5.2
91.0
Trade payables and other liabilities
69.8
8.0
–
–
77.8
Lease liability
2.1
6.2
27.8
23.0
59.1
Total
85.9
56.1
255.0
619.9
1,016.9
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Avast plc annual report 2021
195
Notes to the consolidated financial statements continued
29 Financial risk management continued
The following table shows the ageing structure of financial liabilities as of 31 December 2020:
($m)
Due within
3 months
Due between
3 to 12 months
Due between
1 to 5 years
Due in more
than 5 years
Total
Term loan
16.1
48.4
772.0
–
836.5
Interest payment
5.0
14.6
30.1
–
49.7
Trade payables and other liabilities
53.6
7.5
–
–
61.1
Derivative financial instruments
0.4
–
–
–
0.4
Other non-current liabilities
–
–
0.7
–
0.7
Lease liability
2.2
6.9
33.8
32.4
75.3
Total
77.3
77.4
836.6
32.4
1,023.7
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. Term loan was recently refinanced and recognised at fair value.
See Note 27 for further details
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
Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement
is unobservable
The carrying amount of financial assets and liabilities held by the Group is shown in Note 28.
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 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.
($m)
31 December
2021
31 December
2020
Current and
non-current liabilities
1,461.7
1,511.7
Less: cash and short –
term deposits
(429.0)
(175.4)
Net liability position
1,032.7
1,336.3
Equity
1,434.3
1,195.3
Gearing ratio
41.9%
52.8%
Strategic report
Governance
Financial statements
Avast plc annual report 2021
196
30 Share capital and share premium
Shares issued and fully paid:
Number of shares
Share
Capital
($m)
Share
Premium
($m)
Share capital at
31 December 2019
(Ordinary shares of
£0.10 each)
1,008,020,035
136.0
55.6
Issuance of shares
under share-based
payment plans
20,492,707
2.6
32.0
Share capital at
31 December 2020
(Ordinary shares of
£0.10 each)
1,028,512,742
138.6
87.6
Issuance of shares
under share-based
payment plans
8,843,143
1.2
10.2
Share capital at
31 December 2021
(Ordinary shares of
£0.10 each)
1,037,355,885
139.8
97.8
During the year 3,418,209 shares in relation to vested RSUs
(2020: 2,994,633) and 1,820,902 shares in relation to the
vested PSUs and its dividend equivalents (2020: nil) were
issued to the EBT for the nominal value of $0.7m (2020:
$0.6m). At 31 December 2021, no shares were held by
the trust.
31 Other reserves
The movements in the other reserves were as follows:
($m)
2021
2020
Other reserves at 1 January
287.2
225.1
Redemption obligation reserve
–
55.7
Share-based payments1
46.0
21.8
Transfer of share-based
payments to retained earnings2
(14.1)
(15.4)
Other reserves at 31 December
319.1
287.2
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 33 for further details of share-based payments.
2
Transfer represents reclassification of accumulated share-based payments reserve
into retained earnings in relation to share-based payments relating to the Company's
employees and recharges made by the Company to its subsidiaries. The same transfer
is made in the Company's individual financial statements.
32 Dividends made and proposed
($m)
2021
2020
Interim 2021 dividend paid of
$4.8 cents (2020: $4.8 cents)
per share
49.6
49.3
Final 2020 dividend paid of
$11.2 cents (2019: $10.3 cents)
per share
115.4
105.4
Total cash dividend paid
165.0
154.7
Dividend proposed
The Board announced on 7 February 2022 that it had
declared a conditional interim dividend of 11.2 cents
per share. The payment of this dividend is subject to the
terms of the scheme and is therefore conditional on the
Merger not having become effective before 1 March 2022.
On 18 February 2022, NortonLifeLock announced an
updated merger timetable, which included an expected
Scheme effective date of 4 April 2022. Following this
announcement, the Board confirmed on 18 February
2022 that the conditional interim dividend would be
paid on 3 March 2022 to shareholders on the register
as of 18 February 2022, with an ex-dividend date of
24 February 2022.
33 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 are 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. PSUs are exercisable once vested.
Notes to the consolidated financial statements continued
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Financial statements
Avast plc annual report 2021
197
33 Share-based payments continued
Restricted Stock Units (RSUs)
RSUs are 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 ordinarily vests 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. RSUs are exercisable once vested.
Stock options (‘options’)
Options are 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 ordinarily becomes 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. All remaining
unvested stock options may vest on the date of the Merger.
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 are granted one matched share for
every three purchased shares after a two-year period. The
plan ceased to operate on 31 December 2021.
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 ordinarily vest on the second anniversary of the date
of grant. No award under DBP was granted in 2021.
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.
Due to the proposed Merger, the above plans will be
impacted. The treatment of outstanding awards granted
under the LTIP, whether in the form of PSUs or RSUs, will
differ depending on whether the awards are vested or
unvested. The pro rata portion of Avast awards which will
vest at the point of close will be determined by applying a
specific formula, the remainder unvested Avast awards will
be rolled over to NortonLifeLock LTIP on a mandatory basis,
and will continue to vest as per the original vesting schedule.
The management have made best estimates in regards to
the expected timing of proposed Merger, and the number
of ‘good’ leavers, whose awards will vest in the event that
they are made redundant as a consequence of the Merger.
See Note 3 for significant estimates.
On 18 February 2022, NortonLifeLock and Avast plc
announced that the planned Merger between the two
entities will complete on 4 April 2022. It was assumed that
the Merger would take place before 31 March 2022 when
determining the fair value of share-based payment expense.
In the event that the Merger takes place after this date,
certain share-based payments relating to a former Director
will be partly cash-settled. As the change in expected
Merger date was not announced until 18 February 2022, this
constitutes a non-adjusting event post balance sheet. The
change would result in an increase in liabilities of $1.9m, a
decrease in other reserves $0.9m and a net $1.0m increase
in the share-based payment expense.
Share-based payment expense
The total expense that relates to share-based payment
transactions during the year is as follows:
($m)
Year-ended
31 December
2021
Year-ended
31 December
2020
LTIP*
45.6
21.9
SMP
0.2
0.5
Option plans
0.2
(0.5)
Total share-based
payment expense
46.0
21.9
*
For the year ended 31 December 2021 LTIP expense includes modification expense of
$6.2m as already described in Note 2. There was no material incremental value arising
from the modification but it led to an acceleration of share-based expense.
The Group also recognised additional $1.1m (2020: $0.8m)
of employer’s costs related to the share-based payments
exercise included in cost of revenues and operating
costs. Total costs related to share-based payments
adjusted out from the operating profit amounted to $47.1m
(2020: $22.7m).
Notes to the consolidated financial statements continued
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Governance
Financial statements
Avast plc annual report 2021
198
33 Share-based payments continued
Share options
The number and weighted average exercise prices of, and movements in, share options of Avast Option Plan in the year is set out below:
Year-ended 31 December 2021
Year-ended 31 December 2020
Number of shares
options
Weighted average exercise
($)
Number of shares
options
Weighted average exercise
($)
Outstanding – 1 January
4,762,327
2.77
24,757,234
2.27
Forfeited
(161,227)
3.42
(3,302,223)
3.53
Exercised
(3,325,616)
2.70
(16,692,684)
2.10
Outstanding – 31 December
1,275,484
2.76
4,762,327
2.77
Vested and exercisable – 31 December
284,856
1.49
2,489,697
2.36
The weighted average share price for options exercised during the year was £ pence 567.78 (2020: £ pence 390.36).
Options outstanding at the end of the year had the following range of exercise prices and weighted average remaining contractual life:
Exercise price:
31 December 2021
31 December 2020
Number of shares
outstanding
Weighted average remaining life
(years)
Number of shares
outstanding
Weighted average remaining life
(years)
$0.77 – $0.94
105,362
3.70
470,403
3.80
$1.00 – $1.86
179,494
5.37
709,601
6.34
$2.72 – $3.63
990,628
6.17
3,582,323
7.19
Outstanding – 31 December
1,275,484
5.86
4,762,327
6.73
Replacement options
Year-ended 31 December 2021
Year-ended 31 December 2020
Number of shares
Weighted average exercise
($)
Number of shares
Weighted average exercise
($)
Outstanding – 1 January
9,393
0.19
583,435
0.18
Exercised
(9,393)
0.19
(574,042)
0.19
Outstanding – 31 December
–
–
9,393
0.19
Vested and exercisable – 31 December
–
–
9,393
0.19
Notes to the consolidated financial statements continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
199
33 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:
Year-ended 31 December 2021
Year-ended 31 December 2020
Number of shares
Weighted average share price
(£ pence)
Number of shares
Weighted average share price
(£ pence)
Outstanding – 1 January
8,469,126
443.74
8,160,349
319.76
Granted
10,188,309
546.67
5,287,758
529.86
Forfeited
(2,502,601)
467.93
(1,984,348)
355.32
Vested
(3,418,209)
396.80
(2,994,633)
303.43
Outstanding – 31 December
12,736,625
531.20
8,469,126
443.74
The fair value of RSUs granted is initially 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 of
£ pence 528.52 (2020: £ pence 503.77). Future dividends have been taken into account based on expected cash flow and dividend policy. The dividend yield assumption represents the
expected average annual dividend payment over the life of the award.
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:
Year-ended 31 December 2021
Year-ended 31 December 2020
Number of shares
Weighted average share price
(£ pence)
Number of shares
Weighted average share price
(£ pence)
Outstanding – 1 January
5,848,670
277.91
5,358,037
242.30
Granted
965,053
483.40
1,185,732
404.60
Forfeited
(1,177,251)
219.60
(695,099)
219.60
Vested
(1,727,631)
219.60
–
–
Outstanding – 31 December
3,908,841
371.97
5,848,670
277.91
PSU holders are entitled to the dividend equivalent which was issued in the form of shares of 93,271 for the year ended 31 December 2021 (2020:nil).
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 483.60 (2020: £ pence 404.60).
Notes to the consolidated financial statements continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
200
33 Share-based payments continued
Share Matching Plan
During 2021, the Group has issued 212,268 (2020: 231,348) shares to the employees under the Share Matching Plan.
Due to the proposed Merger, the plan ceased to operate on 31 December 2021 and all participants will receive all of the
matched shares that participant would have received had he/she remained in service and held their purchased Avast shares
for the full holding period of two years.
The cost of the additional shares of $0.2m is to be accelerated and recognised against the other reserves through the
proposed Merger date. The weighted average fair value of additional shares was £ pence 544.56 for the year ended
31 December 2021 (2020: £ pence 454.70).
34 Related party disclosures
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and
are not disclosed in this note.
Compensation of key management personnel (including Directors)
($m)
Year-ended 31 December 2021
Year-ended 31 December 2020
Key management
personnel
Other related
parties
Key management
personnel
Other related
parties
Short-term employee benefits (including salaries)
11.4
–
10.5
0.2
Termination benefits
3.3
–
0.2
–
Share-based payments
9.2
–
6.4
–
Total
23.9
–
17.1
0.2
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.
Statutory Directors’ remuneration amounted to $2.5m (2020: $2.7m) for qualifying services to the Company which also
includes pension contributions. In addition, statutory Directors’ termination benefits were made during the year, further
reported in the Directors' remuneration report.
The aggregate amount of gains made by Directors on the exercise of share options during the year was nil (2020: $10.7m
(£8.3m)).
The aggregate amount of gains made by Directors on the LTIP granted in 2018 was $6.7m (£4.7m) during the year (2020:nil).
The aggregate value of the LTIP granted in 2019 will be reported as statutory Directors’ remuneration when it vests in 2022
(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 109 to 130.
Notes to the consolidated financial statements continued
Other related parties
Nadační fond Abakus (’Abakus Foundation’)
On 29 September 2020, Avast’s founders Messrs. Baudiš
and Kučera established the new foundation Abakus.
On 1 January 2021, Abakus Foundation merged as a
successor company with Nadační fond Avast (’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. The foundation is considered to be a
related party as the spouses of Messrs. Kučera and Baudiš
are members of the management board of the foundation.
During the 12 months ended 31 December 2021,
Avast Software s.r.o. paid donations of $1.9m to the
Abakus Foundation.
During the 12 months ended 31 December 2020, Avast
Software s.r.o. paid donations of $4.0m to the Avast
Foundation. Further $21m were paid to the Avast
Foundation as part of COVID-19 donations.
Stichting Avast (‘Avast Foundation’)
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 programmes that are aligned with Avast's core mission
of protecting people in the digital world. The Foundation is
considered a related party as some of the key management
personnel of Avast are members of the Foundation’s Board.
During the 12 months ended 31 December 2021, Avast
Software s.r.o paid donations of $3.2m to Avast Foundation.
Strategic report
Governance
Financial statements
Avast plc annual report 2021
201
Notes to the consolidated financial statements continued
34 Related party disclosures continued
Enterprise Office Center
On 15 November 2016, Enterprise Office Center (owned by
Erste Group Immorent) where Avast Software s.r.o. resides
was sold by a third party to a group of investors including
co-founders of the Group, Eduard Kučera and Pavel Baudiš
for $119.5m (ca. €110m). The annual rent is €3.2m ($3.7m).
The term of lease ends in August 2024 and offers two
options to extend for another 24 months under the
same conditions.
35 Commitments
Below are contractual commitments in relation to cloud
computing services:
($m)
Less than 1 year
4.8
1–3 years
25.2
3–5 years
30.0
Total
60.0
36 Principal exchange rates
Year-ended
31 December
2021
Year-ended
31 December
2020
Translation of Czech crown into
US dollar ($:CZK1.00)
Average
0.0462
0.0431
Closing
0.0456
0.0468
Translation of Sterling into
US dollar ($:£1.00)
Average
1.3778
1.2860
Closing
1.3478
1.3648
Translation of Euro into
US dollar ($:€1.00)
Average
1.1894
1.1384
Closing
1.1325
1.2271
Strategic report
Governance
Financial statements
Avast plc annual report 2021
202
Notes to the consolidated financial statements continued
37 Full list of subsidiaries as of 31 December 2021
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 2021.
Country of incorporation
Registered office
Registered address
Class of shares held
Percentage of
shares held
Netherlands
Avast Holding B.V.
Databankweg 26, Amersfoort, 3821 AL, The Netherlands
Ordinary
100%
Avast Software B.V.
Databankweg 26, Amersfoort, 3821 AL, The Netherlands
Ordinary
100%
AVG Ecommerce CY BV
Databankweg 26, Amersfoort, 3821 AL, The Netherlands
Ordinary
100%
Czech Republic
Avast Software s.r.o.
Pikrtova 1737/1a, 140 00 Prague 4, Czech Republic
Ordinary
100%
Jumpshot s.r.o.
Pikrtova 1737/1a, 140 00 Prague 4, Czech Republic
Ordinary
99.9%
FileHippo s.r.o.
Pikrtova 1737/1a, 140 00 Prague 4, Czech Republic
Ordinary
100%
Germany
Avast Deutschland GmbH
Gladbecker Str. 1, 40472 Düsseldorf, Germany
Ordinary
100%
UK
AVG Technologies UK Limited
7th Floor 110 High Holborn, London, England, WC1V 6JS
Ordinary
100%
Privax Limited
7th Floor 110 High Holborn, London, England, WC1V 6JS
Ordinary
100%
Piriform Software Ltd
7th Floor 110 High Holborn, London, England, WC1V 6JS
Ordinary
100%
Evernym (UK) Limited
7th Floor 110 High Holborn, London, England, WC1V 6JS
Ordinary
100%
USA
AVAST Software, Inc.
Suite 450, 9300 Harris Corners Parkway, Charlotte, NC 28269, USA
Ordinary
100%
Remotium Inc.
Suite 450, 9300 Harris Corners Parkway, Charlotte, NC 28269, USA
Ordinary
100%
Sybil Software LLC
Suite 450, 9300 Harris Corners Parkway, Charlotte, NC 28269, USA
Ordinary
100%
Jumpshot, Inc.
Suite 450, 9300 Harris Corners Parkway, Charlotte, NC 28269, USA
Ordinary
99.9%
AVG Technologies USA, LLC*
Suite 450, 9300 Harris Corners Parkway, Charlotte, NC 28269, USA
Ordinary
100%
Piriform, Inc.
Suite 450, 9300 Harris Corners Parkway, Charlotte, NC 28269, USA
Ordinary
100%
Evernym, Inc.
Suite 450, 9300 Harris Corners Parkway, Charlotte, NC 28269, USA
Ordinary
100%
Hong Kong
AVAST Software (Asia) Limited
10/F, Guangdong Investment Tower, 148 Connaught Road Central, Hong Kong
Ordinary
100%
Cyprus
Piriform Group Ltd
1 Constantinou Skokou St, Capital Chambers, 5th Floor, Agios Antonios, 1061 Nicosia, Cyprus
Ordinary
100%
Piriform Limited
1 Constantinou Skokou St, Capital Chambers, 5th Floor, Agios Antonios, 1061 Nicosia, Cyprus
Ordinary
100%
Australia
AVG Technologies AU Pty Ltd
C/- Intertrust Australia Pty Ltd, Suite 2, Level 25, 100 Miller Street, North Sydney
NSW 2060 Australia
Ordinary
100%
Norway
AVG Technologies Norway AS
Lysaker Torg 5, 1366 Lysaker, Bærum, Norway
Ordinary
100%
Slovak Republic
Avast Slovakia s.r.o.**
Poštová 1, 010 08 Žilina, Slovakia
Ordinary
100%
Switzerland
Avast Switzerland AG
Grosspeteranlage 29, 4052 Basel, Switzerland
Ordinary
100%
Strategic report
Governance
Financial statements
Avast plc annual report 2021
203
Notes to the consolidated financial statements continued
Country of incorporation
Registered office
Registered address
Class of shares held
Percentage of
shares held
Serbia
Privax d.o.o. Beograd
Bulevar Mihaila Pupina 6, 11070 Belgrade-Novi Beograd, Serbia
Ordinary
100%
Japan
Avast Software Japan
Godo Kaisha
1F and 2F Otemachi Building, 1-6-1 Otemachi, Chiyoda-ku, Tokyo, Japan
Ordinary
100%
Romania
Avast Software Romania S.R.L.
Municipiul Iasi, Strada Palas Nr. 7B-7C, Clădirea C1, United Business Center 3, Etaj 8,
Judet Iasi, Romania
Ordinary
100%
Ireland
Avast Software Ireland Limited
5th Floor Beaux Lane House, Mercer Street, Lower Dublin 2 D02 DH60, Ireland
Ordinary
100%
Italy
Avast Software Italy s.r.l.
Viale Abruzzi 94 CAP 20131, Milano, Italy
Ordinary
100%
*
As of 28 May 2021, TrackOFF, Inc. merged into AVG Technologies USA, LLC.
**
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.
37 Full list of subsidiaries as of 31 December 2021
Strategic report
Governance
Financial statements
Avast plc annual report 2021
204
Company financial statements
Company statement of financial position
As at 31 December 2021
Notes
31 December 2021
$m
31 December 2020
$m
Non-current assets
Investment in subsidiary
4
3,277.3
3,245.6
Deferred tax assets
1.8
0.9
Total non-current assets
3,279.1
3,246.5
Current assets
Tax receivables
1.8
0.2
Trade and other receivables:
Amounts due from related party
171.8
26.4
Prepayments
0.9
0.7
5
172.7
27.1
Total current assets
174.5
27.3
Total assets
3,453.6
3,273.8
Current liabilities
Trade and other payables:
Trade payables
9.1
3.2
Amounts due to related party
0.5
–
6
9.6
3.2
Provisions
7
3.0
–
Total current liabilities
12.6
3.2
Net assets
3,441.0
3,270.6
Capital and reserves
Share capital
8
139.8
138.6
Share premium
8
97.8
87.6
Merger reserve
9
2,893.9
2,893.9
Other reserve
9
69.1
37.2
Retained earnings
240.4
113.3
Total equity
3,441.0
3,270.6
The Company has taken advantage of the exemption in section 408 of the Companies Act
2006 not to present its individual profit and loss account. The profit of the Company was
$278.2m (2020: Loss of $(6.2)m).
These financial statements were approved by the Board of Directors on 24 February 2022
and signed on its behalf by:
Stuart Simpson
Interim Chief Financial Officer
Strategic report
Governance
Financial statements
Avast plc annual report 2021
205
Company financial statements continued
Company statement of changes in equity
For the year-ended 31 December 2021
Notes
Share capital
$m
Share premium
$m
Merger reserve
$m
Other reserve
$m
Retained earnings
$m
Total equity
$m
At 31 December 2019
136.0
55.6
2,893.9
30.8
258.9
3,375.2
Loss for the year
–
–
–
–
(6.2)
(6.2)
Total comprehensive profit for the year
–
–
–
–
(6.2)
(6.2)
Share-based payments deferred tax
–
–
–
–
0.5
0.5
Share-based payments transfer to
retained earnings
9
–
–
–
(15.4)
15.4
–
Share-based payments
9
–
–
–
21.8
–
21.8
Exercise of options
8
2.6
32.0
–
–
(0.6)
34.0
Cash dividend
–
–
–
–
(154.7)
(154.7)
At 31 December 2020
138.6
87.6
2,893.9
37.2
113.3
3,270.6
Profit for the year
–
–
–
–
278.2
278.2
Total comprehensive profit/(loss)
for the year
–
–
–
–
278.2
278.2
Share-based payments deferred tax
–
–
–
–
0.5
0.5
Share-based payments transfer to
retained earnings
9
–
–
–
(14.1)
14.1
–
Share-based payments
9
–
–
–
46.0
–
46.0
Exercise of options
8
1.2
10.2
–
–
(0.7)
10.7
Cash dividend
–
–
–
–
(165.0)
(165.0)
At 31 December 2021
139.8
97.8
2,893.9
69.1
240.4
3,441.0
Strategic report
Governance
Financial statements
Avast plc annual report 2021
206
1 General
Avast plc (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 intra-group 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 from the signing
of the financial statements through 30 June 2023. 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).
Investments 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
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.
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.
Capitalisation of share-based payments
Where the Company grants share-based awards over its
own shares in exchange for employee services rendered
to its subsidiaries, it recognises an increase to the cost of
investment equivalent to the share-based payment expense
recognised in the consolidated financial statements and a
corresponding credit in other reserves in equity.
The Company recharges the expenses for share-based
awards relating to employees employed in US and UK
subsidiaries to the subsidiary which employs the respective
employee at an amount equivalent to the respective share
based payment expense recognised in the consolidated
financial statements relating to those subsidiary employees.
The Company recognises in its individual financial
statements an increase to amounts due from related
parties and a corresponding decrease in the cost of
investment. Therefore, the cost of investment increases
by the share-based payment expense recognised in the
consolidated financial statements net of any recharges
and amounts relating to services supplied to the Company.
Refer to Notes 2 and 3 of the consolidated financial
statements for accounting policy, significant estimates
and judgements in respect of share-based payments.
Foreign currencies
Transactions in foreign currencies are recorded using the
rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated using the rate of exchange valid at
the balance sheet date and the gains or losses on translation
are included in profit or loss as finance income and expenses.
Non-monetary assets and liabilities denominated in foreign
currencies are stated at historical foreign exchange rates.
Notes to the Company financial statements
Strategic report
Governance
Financial statements
Avast plc annual report 2021
207
2 Summary of significant accounting policies
continued
Functional currency
The Company’s functional currency is US dollars.
Employee benefit trust
The Group has established an employee benefit trust
(Avast plc Employee Benefit Trust) in 2019. The trust
is treated as an extension of the Company. During the
year 3,418,209 shares in relation to vested RSUs (2020:
2,994,633) and 1,820,902 shares in relation to the vested
PSUs and its dividend equivalents (2020: nil) were issued
to the EBT for the nominal value of $0.7m (2020: $0.6m).
At 31 December 2021, 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 37
of the consolidated financial statements.
$m
Cost at 31 December 2019
3,231.1
Capitalisation of share-based payments
14.5
Cost at 31 December 2020
3,245.6
Capitalisation of share-based payments
31.7
Cost at 31 December 2021
3,277.3
The additions in the year relate to IFRS 2 share-based
payment expense.
5 Trade and other receivables
($m)
31 December
2021
31 December
2020
Amounts due from related
party (subsidiary)
171.8
26.4
Prepayments
0.9
0.7
Total
172.7
27.1
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 $143.0m
(2020: $15.0m), repayable on demand, with a variable
interest rate based on three-month USD LIBOR -0.19%
(2020: -0.5%) assessed quarterly. The interest income for
the period ended 31 December 2021 was $nil (2020: $0.2m).
The interest rates for both credit and debit balances are
floored at 0%.
The cash pool agreement is tied to the three-month USD
LIBOR. Three-month USD LIBOR will cease on 30 June
2023. The Company is in process of determining the
changes to the current cash pool agreement.
Amendments to FRS 102, effective for periods beginning
on or after 1 January 2021, introduced a practical expedient
for interest rate benchmark reform similar to that under
IFRS, as described in Note 4 of the consolidated financial
statements. While the practical expedient had no impact
on the financial statements for the current financial year,
it will be applied in future periods to any changes to the basis
for determining the contractual cash flows as a consequence
of the cessation of USD LIBOR.
In addition, the amounts due from related party also include
$20.4m (2020: $6.1m) of recharges for management
services provided by the Company to Group subsidiaries
and $8.2m (2020: $5.2m) of recharges for share-based
payment expense to US and UK.
6 Trade and other payables
($m)
31 December
2021
31 December
2020
Trade payables
9.1
3.2
Amounts due to related
party (subsidiary)
0.5
–
Total
9.6
3.2
7 Provisions
The movements in the provision accounts were as follows:
($ m)
Provision for
restructuring
As at 1 January 2021
–
Additions
3.0
As at 31 December 2021
3.0
The above provision relates to the cost of restructuring
programme that is focused on transformation of operation
that will be completed in 2022. For details of provisions,
see Note 25 of consolidated financial statements.
Notes to the Company financial statements continued
Strategic report
Governance
Financial statements
Avast plc annual report 2021
208
8 Called up, allotted and fully paid share capital
Shares issued and fully paid:
Number of shares
Share Capital ($ m)
Share Premium ($ m)
Share capital on 31 December 2019
(Ordinary share of £0.10 each)
1,008,020,035
136.0
55.6
Issuance of shares under share-based payments plans
20,492,707
2.6
32.0
Share capital on 31 December 2020
(Ordinary share of £0.10 each)
1,028,512,742
138.6
87.6
Issuance of shares under share-based payments plans
8,843,143
1.2
10.2
Share capital on 31 December 2021
(Ordinary share of £0.10 each)
1,037,355,885
139.8
97.8
For details of dividends, see Note 32 of consolidated financial statements.
For details of options and other share awards over the Company’s shares, see Note 33 of consolidated financial statements of
the Company.
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 $46.0m (2020: $21.8m) represents the expense from the share awards granted under Avast’s
incentive plans for the year ended 31 December 2021. In addition, the amount of $14.1m (2020: $15.4m) represents
reclassification of accumulated share-based payments reserve into retained earnings in relation to share-based payments
relating to the Company's employees and recharges made to subsidiaries. This reflects the extent to which the share-based
payment credits are considered realised.
For more information about the plan, see Note 33 in the consolidated financial statements.
10 Dividend
The dividend income for the year ended 31 December 2021 was $290.5m (2020: $nil).
Notes to the Company financial statements continued
11 Personnel expenses
Personnel expenses of the Company consist of the following:
($m)
2021
2020
Wages and salaries
20.0
6.7
Social security and health
insurance
2.0
1.0
Social costs
0.7
0.4
Share-based payments
(including employer’s costs)
6.5
2.5
Total personnel expense
29.2
10.6
The average number of employees by category during the
period was as follows:
2021
2020
Sales and marketing
29
8
General and administrative
24
10
Total average number of
employees
53
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)
2021
2020
Avast Option Plan
0.1
0.1
LTIP
5.8
2.1
Total share-based
payment expense
5.9
2.2
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
33 of the consolidated financial statements.
Strategic report
Governance
Financial statements
Avast plc annual report 2021
209
Notes to the Company financial statements continued
12 Guarantees
As denoted in Note 37 of the consolidated accounts,
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.
Strategic report
Governance
Financial statements
Avast plc annual report 2021
210
Glossary
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. A full reconciliation is included in the ‘PRESENTATION OF RESULTS AND DEFINITIONS’.
Adjusted Cost
of Revenues/
Operating costs
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 and exceptional items. A full reconciliation is included in the ‘Costs’ section of the ‘FINANCIAL REVIEW’.
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.
A full reconciliation is included in the ‘PRESENTATION OF RESULTS AND DEFINITIONS’.
Adjusted
EBITDA margin
Adjusted EBITDA margin percentage is defined as Adjusted EBITDA divided by Revenue.
Adjusted
effective tax rate
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’.
Adjusted EPS
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
Adjusted Net Income represents statutory net income plus share-based payments, exceptional items, amortisation of acquisition intangible assets, unrealised foreign
exchange gain/loss on the EUR tranche of the bank loan, 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 is defined as the Consumer Direct simple average valid licences or subscriptions for the period presented divided by the simple average number of Customers during
the same period. See ‘Consumer Direct’.
Average Revenue
Per Customer
(ARPC)
ARPC is defined as the Consumer Direct revenue for the period of the last 12 months divided by the simple average number of customers during the same period.
See ‘Consumer Direct’.
Cash conversion
Unlevered Free Cash Flow as a percentage of Adjusted Cash EBITDA. See ‘Cash flow’ section of ‘FINANCIAL REVIEW’.
Discontinued
Business
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 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 has either not been disposed of but is being continuously scaled down, or it is considered to be neither a
separate major line of business, nor geographical area of operations.
Strategic report
Governance
Financial statements
Avast plc annual report 2021
211
Glossary continued
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 facilitate better understanding of the underlying business performance of the Group. For details see
‘Exceptional items’ of ‘FINANCIAL REVIEW’ and Note 6.
Gross debt
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’.
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. See ‘Cash flow’ section of ‘FINANCIAL REVIEW’ for reconciliation.
Net debt
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’.
Number of
customers
Users who have at least one valid paid Consumer Direct subscription (or licence) at the end of the period.
Organic growth
Organic growth represents growth figures excluding the impact of FX, acquisitions, business disposals and Discontinued Business. Excludes current period billings and
revenue of acquisitions until the first anniversary of their consolidation. As such, organic revenue refers to revenue normalised as described here.
Unlevered
Free Cash Flow
Represents Adjusted Cash EBITDA less capex, donation and taxation, 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). Changes in working capital are as per the cash flow statement on an
unadjusted historical basis and unadjusted for exceptional items. In 2020, $25m of COVID-19 donations were included in the calculation of Unlevered Free Cash Flow
as all the other exceptional costs are excluded from Adjusted Cash EBITDA (as defined above) and thus from 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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Brokers
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UBS Investment Bank
Independent Auditors
Ernst & Young
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Equiniti
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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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