KAPE.L Regulatory News (KAPE)

12 September 2022

Kape Technologies plc

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

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022

Strong H1 performance, exceptional integration progress, FY22 guidance reiterated

Kape Technologies plc (AIM: KAPE), the digital security and privacy software business, announces its unaudited results for the six months ended 30 June 2022.

Financial highlights

● Strong performance across H1 2022, underpinned by profitable growth and integration synergies

o  Revenues increased by 216.6% to $302.4 million (H1 2021: $95.5 million), a 19% increase on a pro forma organic basis

o  Strong growth in recurring revenues to $268.0 million, an increase of 353.5% (H1 2021: $59.1 million)

o  Proforma Adjusted EBITDA1, 2 up 209.7% to $88.9 million (H1 2021: $28.7 million), an increase of 17% on a pro forma basis, with Proforma Adjusted EBITDA margin at 29.4% (H1 2021: 30.0%)

o  Operating profit up 333.8% to $59.0 million (H1 2021: $13.6 million)

o  Increase of 278.9% in Diluted Adjusted Earnings Per Share3 to 34.1 cents (H1 2021: 9.0 cents)

o  Growing cash generation; adjusted cash flow from operations increased by 517% to $90.1 million (H1 2021: $14.6 million). Reported cash flow from operations increased by 596.8% to $87.8 million (H1 2021: $12.6 million)

Operational highlights

● Ongoing demand for privacy and security products continues to drive both new customer growth and upsell opportunities from existing subscribers

o  Kape's privacy segment revenues grew 19% in H1 2022 on a pro forma organic basis, with the security division growing 15.7%

● Exceptional progress integrating ExpressVPN

o  Highly earnings accretive acquisition which significantly scales the Group

o  Created unified teams across the privacy business, on track to realise $9 million in synergies in 2022

● Kape's content division, based on the Webselenese acquisition, delivering growth and support for the business:

o  Content division generated significant organic growth, with revenues up 25% on a pro forma basis

o  Integral to Kape's strategic roadmap, augmenting go-to-market capabilities and reducing Customer Acquisition Costs ("CAC")

● Expanded service offerings across key brands

o  ExpressVPN reinforced market-leading position with multiple product launch

o  CyberGhost and other key brands rolled out new features and product updates

Outlook

● Kape expects to generate revenues for the year ended 31 December 2022 of between $610-624 million and pro forma Adjusted EBITDA of between $166-172 million for the year ending 31 December 2022.

Post period-end - Option to prepay deferred consideration

● Kape has signed an option agreement (the "Prepayment Agreement") which could provide substantial savings for the Company in the event that it pays early the deferred consideration for the acquisition of ExpressVPN. Under the terms of that acquisition, completed on 15 December 2021, Kape is due to pay to the sellers deferred cash consideration of US$172.5 million on each of the first and second anniversaries of completion.

● The Prepayment agreement signed with Peter Burchhardt and Dan Pomerantz, the co-founders of ExpressVPN, that Kape may (but is not obliged to) elect to prepay on or before 15 December 2022, at a discount to its headline value, all or any of the deferred cash consideration. Pre-payments will attract a discount (calculated on an annualised basis from the date of prepayment to the date on which payment is otherwise due under the acquisition agreement) of 8.939%, provided that on or before 15 December 2022 Kape both prepays all the deferred consideration (after application of any applicable discount) and enters a new or revised bank borrowing facility of not less than US$345 million. If either of such conditions is not met, the annualised discount rate applicable to any prepayments made falls to 6.939% and only prepayments of up to US$172.5 million will benefit from a discount.

● An additional saving arising from any prepayment is a reduction in the commitment fee under the Deferred Consideration Facility agreed to be made available to the Company by TS Next Level Investments Limited at the time of the acquisition, which accrues at 3.50% per annum.

● The co-founders of ExpressVPN are considered related parties of Kape for the purposes of the AIM Rules for Companies. The entering into of the Prepayment Agreement by the Company is therefore a related party transaction under Rule 13 of the AIM Rules for Companies. The independent directors of Kape (in this instance being Don Elgie, Ido Erlichman, Oded Baskind, David Cotterell, Pierre Lallia and Martin Blair) consider, having consulted with the Company's nominated adviser, Shore Capital and Corporate Limited, that the terms of the Prepayment Agreement are fair and reasonable insofar as the Company's shareholders are concerned.

● The Company is in the early stages of considering with its syndicate of lending banks the possibility of materially upsizing the Group's debt facilities in order to provide the Group with greater flexibility in its capital resources to pursue attractive future value-creation opportunities should they arise.

Ido Erlichman, Chief Executive Officer of Kape, commented:

"Our excellent operational and financial progress across H1 2022 has underpinned a period of record profitable growth for Kape, reinforcing our widely recognised status as a leading player in the global digital privacy and security arena.

We are experiencing growing demand across our full range of product suite, reinforced by our premium service offering. This is testament to the efforts of the entire Kape team who have worked tirelessly to deliver cutting-edge products to market and drive innovation.

From the successful integration of ExpressVPN to expanding our burgeoning product stack, we believe we are now ideally placed to capture the global demand from individuals who want to grow their control over their digital lives."

Analyst and institutional investor webcast

A webcast presentation for analysts and institutional investors will be held on Monday, 12 September 2022 at 2.00 p.m. BST (9.00 a.m. EST). To register for this event and join the stream on the day, please click the following link:

https://stream.brrmedia.co.uk/broadcast/6305d685da906b287e99d178

Retail investor webcast

A webcast for retail investors will be held on Tuesday, 13 September 2022 at 2.45 p.m. BST (9.45 a.m. EST). The presentation will be hosted on the Investor Meet Company platform. Investors can sign-up for free and add to meet Kape via:

https://www.investormeetcompany.com/kape-technologies-plc/register-investor

1Adjusted EBITDA is a non GAAP measure and a company specific measure which is calculated as operating profit before depreciation (including right-to-use assets amortisation), amortisation, exceptional or non-recurring costs, other operating income/(expense) and employee share-based payment charges

2Proforma Adjusted EBITDA is a non GAAP measure, it's the Company Adjusted EBITDA after adding back deferred contracts costs fair value accounting adjustment following ExpressVPN consolidation.

3Adjusted EPS is calculated from earnings per share adding back, share-based payments and non-recurring costs

Enquiries:

About Kape

Kape is a leading 'privacy-first' digital security software provider to consumers. Through its range of privacy and security products, Kape focuses on protecting consumers and their personal data as they go about their daily digital lives.

Kape has c.7 million paying subscribers, supported by a team of over 1,000 people across ten locations worldwide. Kape has a proven track record of revenue and EBITDA growth, underpinned by a strong business model which leverages our digital marketing expertise.

Through its subscription-based platform, Kape has fast established a highly scalable SaaS-based operating model, geared towards capitalising on the vast global consumer digital privacy market.

www.kape.com

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Chief Executive Officer's review

Overview

The first half of 2022 was Kape's strongest period to date, in which we delivered accelerated profitable growth.

Pleasingly, the Group delivered 216.6% revenue growth with $302.4 million (H1 2021: $95.5 million) of revenue and 209.7% Pro Forma Adjusted EBITDA1 ,2 growth with $88.9 million (H1 2021: $28.7 million), record operating cash flow of $87.8 million (H1 2021: $12.6 million) and Pro Forma Adjusted EBITDA margin of 29.4% in the period. We now have c.7 million paying customers across our products, positioning Kape as one of the leaders in the growing digital privacy and security consumer space. 

Despite turbulent general market conditions, the need for privacy and security solutions for consumers continues to grow. This favourable backdrop has continued to allow Kape to expand its share of this rapidly growing market, with the Group's privacy division growing 19% on an organic pro forma basis and security division growing 15.7% in H1 2022. Significantly, Kape's digital content segment delivered a 25% increase in revenues on an organic pro forma basis, following the full integration of Webselenese and the expansion into new verticals during the period.

The expansion of our customer base to over 7 million paying customers is driven by a number of macro trends, including the growing amount of personal data online, heightened demand for digital privacy and security protection by consumers online, and a growing willingness from individuals to pay for superior services. Our user base mostly consists of 20-45 year olds, with over 45% from North America and c.30% located across Europe.

Kape provides consumers with products that enable them to enjoy the digital universe without compromising their identity or security. Not only are individuals owning a wider collection of personal digital devices, but consumers are increasingly seeking to obtain comprehensive cybersecurity coverage across their range of appliances to securely expand their digital lives, whether at home or on-the-go.

As the demand for privacy and security products continues to rise, Kape is ideally placed to strengthen its reputation as a go-to provider of expert digital privacy and security solutions, continuing our mission of safeguarding consumers worldwide from critical cyberthreats.

A key growth strategy is to continue to expand our product set, which will bring us closer to our customers by creating multiple touch points on a daily basis. We see a significant opportunity in the market to both further support our existing customer base and expand our global footprint in the near term.

Operational review

Key Performance Indicators

Kape performed strongly across its KPIs in the period, demonstrating the resilience of the Group's SaaS business model which functions as a catalyst for profitability and growth.

Kape reached the 7.0 million subscriber milestone in the period, broadening the Group's international footprint up from 6.6 million at 2021 year-end. Pleasingly, Kape delivered a growth in both digital privacy and digital security subscribers in H1 2022.

The Group's retention rate remains high at 82% (31 December 2021: 81%), which is market-leading for a B2C SaaS-business, whilst deferred income was $161.0 million as at 30 June 2022 (31 December 2021: $155.9 million)

Integration of ExpressVPN

The acquisition of ExpressVPN in December 2021 significantly scaled the Group, increasing our penetration of the North American market, with 45% of Kape's customers now based in the region. The integration has progressed ahead of expectation, and we are now operating as a unified team. More importantly, we are delighted that ExpressVPN's founders and key members of its management team have taken up operational positions across the Group.

We are on track to realise in the region of c. $9 million in operational synergies by the end of the year. We have completed the customer support integration and we now have a unified customer service arm that services all of our brands, providing 24/7 online support as well as multi language support. In addition, in the privacy division, we have now integrated the teams to form one R&D platform, elevating Kape's existing and highly regarded R&D capabilities. We have also unified the marketing teams in the privacy divisions and are now cross collaborating with our content division. We anticipate that this new ability to support multiple brands will contribute to better products for our end consumers, CAC reduction and accelerated growth.

We are already seeing the benefits of leveraging our economies of scale as well as delivering ongoing infrastructure synergies. We still have some way to go to realise the $30 million annualised synergies which, we believe, we will enjoy to a full extent next year. 

Digital content and digital security

The Group's digital content division revenues increased by 25% on an organic pro forma basis, supported by the strong demand from our privacy and security verticals. As a result of ongoing investment in establishing new verticals, reported margins are lower in the period, however we expect them to improve as these segments move into a more mature phase. The division operates as a standalone division whilst supporting the broader business to reduce further the average CAC and further strengthen the Group's revenue model.

This digital content platform is a highly strategic growth engine for Kape, providing unparalleled analytical insight into prevalent digital privacy and security market trends via its industry-leading review site, bringing Kape even closer to consumers.

Our digital content division now reaches over 120 million unique monthly readers in over 29 languages, enabling Kape to tailor marketing campaigns and product launches to different geographies across our brand portfolio.

Our digital security division has also experienced growth, mainly through our Intego endpoint protection where we are the premium endpoint security for Mac and have launched our PC solution last year. We launched a new malware detection engine which displays dramatic improvements to our antivirus performance and improves the way we detect and block malware. It is designed to serve customers across our product offering and can be used as an external SDK.

Product development

Kape's premium brands rolled out a number of new products in H1 2022, alongside innovative features to upgrade existing privacy and security solutions. ExpressVPN advanced its already robust VPN service by launching several new features, generating growing customer value and retention as consumers increasingly seek comprehensive protection from a fast-growing range of digital threats.

'Keys', 'Parallel Connections', and 'Threat Manager' are just a selection of new products and add-on features which we launched across H1 2022 to optimise our existing service, helping foster greater lifetime-value for Kape's ever-expanding network of customers whilst consolidating the Group's position as a premium pure-play digital security and privacy business. Concurrently, CyberGhost has secured Google Play Protect certification, with the brand's latest app now available to millions more consumers via Google Play.

Providing a premium service means we are always developing and enhancing our products. This year, we have upgraded our service quality, replacing our 1Gbps servers with new 10Gbps servers around the world, providing even faster speeds and increased reliability connections. We have seen 40-50% faster speed amongst our users, which has reduced our energy spend and cost per user.

This year we have also released our native M1 and M2 Apple applications. We are one of a handful of companies who released a native application for Apple's new M series silicon chip, which translates into superior experience, speed, and ease of use on all new Apple devices. A majority of our peer group have not adapted and require a software "translation", which reduces the user experience quality.

In line with Kape's long-term strategy for the roll out of our Privacy First Anti-Virus solution for PC, Private Internet Access customers now have access to the feature, facilitating protection from security threats by effectively safeguarding users from one point of purchase.

Outlook

Kape's strong customer traction across H1 2022, together with the expansion of our service offering and solid organic growth, has put the Group in an ideal position to continue on our current growth trajectory.

Our scalable SaaS operating model and strong financial foundations continue to facilitate additional M&A opportunities, whilst enabling the Group to focus efforts on expanding our customer footprint through product innovation and brand recognition. Our growing profitability and the sheer scale of our customer base combined with the current market conditions present a prime opportunity for Kape on the M&A front. 

With dependable and affordable digital protection an ever-increasing priority for individuals worldwide, and a vast number of daily activities across business and leisure becoming digitalised, Kape is more confident than ever of our near term and long term growth prospects. We empower people to expand their digital activity; providing individuals with secure and private means to be who they want to be and do what they want to do.

Looking ahead, Kape expects to deliver on our growth targets and focus on organic growth engines as well as continue to execute on its successful in-organic strategy assessing selected M&A targets to accelerate that growth. We are well positioned to deliver on our expectations for the full year 2022, with the enlarged Group expected to generate revenues of between $610-624 million and pro forma Adjusted EBITDA of between $166-172 million for the year ended 31 December 2022.

Ido Erlichman

Chief Executive Officer

12 September 2022

1Adjusted EBITDA is a non GAAP measure and a company specific measure which is calculated as operating profit before depreciation (including right-to-use assets amortisation), amortisation, exceptional or non-recurring costs, other operating income/(expense) and employee share-based payment charges

2Proforma Adjusted EBITDA is a non GAAP measure, it's the Company Adjusted EBITDA after adding back deferred contracts costs fair value accounting adjustment following ExpressVPN consolidation.

3Retention rates are calculated on a six-month basis.

Chief Financial Officer's review

Overview

The Company had a strong financial performance in the first half of 2022 as revenues increased by 216.6% to $302.4 million (H1 2021: $95.5), or 19% on a proforma basis. The increase in the proforma basis revenues is a result of an increase in the Company's subscriptions base while retaining healthy retention rates. Proforma Adjusted EBITDA increased by 209.7% to $88.9 million (H1 2021: $28.7 million). Operating profit increased by 333.8% to $59.0 million (H1 2021: $13.6 million).

Adjusted cash flow from operations was $90.1 million (H1 2021: $14.6 million), which represents a cash conversion of 101.3% from the Proforma Adjusted EBITDA. The increase is a result of growing percentage of customers that are with the Company for over a year.

Segment Result

The segment result has been calculated using revenue less costs directly attributable to that segment. Cost of sales comprises payment processing fees and infrastructure costs for the Group's privacy products. Direct sales and marketing costs are user acquisition costs.

During the period, the Digital Privacy segment has seen continued growth with a 411.6% increase in revenue to $253.5 million (H1 2021: $49.6 million), 19% on proforma basis, and a 594.5% increase in the segment result to $192.2 million (H1 2021: $27.7 million). Proforma base revenue growth was driven by subscriber base growth of 10.4% to 6.1 million and maintaining strong healthy retention rate. Proforma Adjusted Segment result is calculated by adding the Proforma Deferred contract costs expenses adjustment related to the ExpressVPN acquisition. The decrease in proforma adjusted Segment margin is attributed to the higher cost to serve of ExpressVPN's premium product.

During the period, revenue from the Digital Security segment continued to grow with an increase of 15.7% to $21.4 million (H1 2021: $18.5 million). The increase was driven by an 18.7% growth in revenue from Intego's Endpoint security products. In addition, revenue from the PC performance products has increased by 14.8% but with a higher margin of 27.7% (H1 2021: 24%).

During the period, revenue from the Digital Content segment was $27.5 million and segment results were $4.5 million. On a proforma basis, excluding revenue that was generated from Kape brands, revenue for the six months ended 30 June 2022 has significantly increased by 25% compared with the first half of 2021. The segment margin decreased to 16.4%. The revenue growth has been driven by revenue generated from new verticals introduced during the last six months. Usually new verticals attribute lower margin during the initial period until the organic traffic is established and the acquired sources are fully optimised.

Adjusted EBITDA from continued operations

Adjusted EBITDA for the year to 30 June 2022 was $151.4 million (H1 2021: $28.7 million). Adjusted

EBITDA is a non-GAAP company specific measure that is considered to be a key performance indicator of the Group's financial performance. Adjusted EBITDA is calculated as operating profit before depreciation (including right-to-use assets amortisation), amortisation, exceptional or non-recurring costs, other operating (expense)/income, deferred contracts fair value adjustment and employee share-based payment. Proforma Adjusted EBITDA is calculated by adding the proforma deferred contract costs expenses adjustment related to the ExpressVPN acquisition. As these are non-GAAP measures, they should not be considered as replacements for IFRS measures. The Group's definition of these non-GAAP measures may not be comparable to other similarly titled measures reported by other companies. Such amounts are excluded from the following analysis:

The marginal decrease in the Proforma Adjusted EBITDA margin is attributable to the lower EBITDA margin of ExpressVPN offset by the cost synergies following the acquisition on December 2021.

Operating profit

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

Exceptional and non-recurring costs in H1 2022 comprised of $0.2 million employees onerous contract termination costs, and $1.7 million for professional services and other business combinations related costs.

Profit before tax

Profit before tax was $46.2 million (H1 2021: $10.0 million). Finance costs of $12.9 million comprised mainly of $2.6 million of interest on debt facilities (H1 2021: $3.1 million), $6.0 million of commitment fees on the TSNLI revolving facility related to the ExpressVPN acquisition (H1 2021: Nil) and $1.7 million non-cash interest on deferred consideration mainly related to the ExpressVPN acquisition.

Profit after tax

Profit after tax was $41.0 million (H1 2021: $7.5 million). Tax expenses for the period are $5.2 million (H1 2021: $2.4 million), the tax charge derives mainly from group subsidiaries' residual profits. Since the amortisation of acquired intangibles and share-based payment charges are not tax-deductible in several of the jurisdictions in which the Company operates, management believes it is appropriate to examine the effective tax rate out of Proforma Adjusted EBITDA rather than profit before tax. The effective tax rate out of Proforma Adjusted EBITDA decreased to 5.8% (H1: 2021 8.5%). The decrease is due to acquired intangibles tax deductible amortisation in some of the jurisdictions.

Cash flow

Cash flow from operations was $87.8 million (H1 2021: $12.6 million). Adjusted cash flow from operations after adding back one-off payments was $90.1 million (H1 2021: $14.6 million), which represents a cash conversion of 101.3% from the Proforma Adjusted EBITDA. The increase of the cash conversation is a result of the growing percentage of customers that are with the Company over a year.

Net income tax payments in the period were $4.4 million (H1 2021: $2.1 million). The increase is mainly due to $3.7 million income tax prepayments paid by Israeli subsidiaries during the period compared to $1.4 million that was paid in H1 2021.

Cash outflow from investing activities of $31.5 million (H1 2021: $118.6 million) mainly comprises payments of $22.1 million for business combinations (H1 2021: $116.1) related mainly to ExpressVPN in 2022 and Webselenese in 2021, $7.6 million (H1 2021: $2.4 million) capitalised development costs and $1.8 million (H1 2021: $0.3 million) purchase of fixed assets.

Cash flow used in financing activities of $15.4 million (H1 2021: Cash flow generated from financing activities of $80.7 million) included a repayment of long-term loan principal of $10.0 million (H1 2021: $1.8 million) and $1.9 million interest (H1 2021: $0.2 million), $1.1 million (H1 2021: $0.8 million) has been received following the exercise of employee share options and $4.6 million (H1 2021: $1.4 million) were paid for the Group's leases.

Financial position

At 30 June 2022, the Group had cash of $62.9 million (31 December 2021: $27.0 million), net assets of $917.3 million (31 December 2021: $863.5 million), and net debt of $391.9 million (31 December 2021: $457.5 million). At 30 June 2022, trade receivables were $34.1 million (31 December 2021: $42.1 million).

Oded Baskind

Chief Financial Officer

12 September 2022

Consolidated statement of comprehensive income

For the six months ended 30 June 2022

*Adjusted EBITDA is a non GAAP measure and a company specific measure which is earnings before interest, tax, depreciation, amortisation, share based payment charges, other operating (expense)/ income and exceptional and non-recurring costs.

Consolidated statement of financial position

As 30 June 2022

Consolidated statement of cash flows

For the six months ended 30 June 2022

Notes

1. General information

The financial information provided is for Kape Technologies Plc and its subsidiary undertakings (together the "Group", "the Company" or "Kape") in respect of the six months ended 30 June 2022. The Company is incorporated in the Isle of Man.

Kape is a leading 'privacy-first' digital security software provider to consumers. Through its range of privacy and security products, Kape focuses on protecting consumers and their personal data as they go about their daily digital lives. Kape has c.7 million paying subscribers, supported by a team of over 1,000 people across ten locations worldwide. Kape has a proven track record of revenue and EBITDA growth, underpinned by a strong business model which leverages our digital marketing expertise. Through its subscription-based platform, Kape has fast established a highly scalable SaaS-based operating model, geared towards capitalising on the vast global consumer digital privacy market.

The Board of Directors approved this interim financial information on 11 September 2022.

2. Basis of preparation

This interim consolidated financial information has been prepared in accordance with UK adopted international accounting standards (collectively IFRS). They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 31 December 2021 Annual Report. The financial information for the half years ended 30 June 2022 and 30 June 2021 does not constitute statutory accounts.

The annual financial statements of the Group were prepared in accordance with UK adopted international accounting standards (collectively IFRS).

The comparative financial information for the year ended 31 December 2021 included within this report does not constitute the full statutory annual financial statements ("Annual Report") for that period. The statutory Annual Report and Financial Statements for 2021 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 31 December 2021 was unqualified and did not draw attention to any matters by way of emphasis.

The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2021 Annual Report, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2022 and are adopted in the 2022 financial statements.

There are a number of standards, amendments to standards, and interpretations that are effective in future accounting periods that the Group has decided not to adopt early. The following amendments are effective for the period beginning 1 January 2022:

● IAS 37 (Amendment Onerous Contracts - Cost of Fulfilling a Contract). clarifies that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts. Before recognising a separate provision for an onerous contract, the entity recognises any impairment loss that has occurred on assets used in fulfilling the contract. The amendment is effective for annual reporting periods beginning on or after 1 January 2022. The adoption of this standard did not have a material impact on the Group's financial statements.

● Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41). The amendment is effective for annual reporting periods beginning on or after 1 January 2022. The adoption of this standard did not have a material impact on the Group's financial statements.

● References to Conceptual Framework (Amendments to IFRS 3). Minor amendments were made to IFRS 3 Business Combinations to update the references to the Conceptual Framework for Financial Reporting and add an exception for the recognition of liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and Interpretation 21 Levies. The amendments also confirm that contingent assets should not be recognised at the acquisition date. The amendment is effective for annual reporting periods beginning on or after 1 January 2022. The adoption of this standard did not have a material impact on the Group's financial statements.

There are a number of standards, amendments to standards, and interpretations which have been issued that are effective in future accounting periods that the group has decided not to adopt early.

● In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that 'settlement' includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments are effective for annual reporting periods beginning on or after 1 January 2023. The Group is currently assessing the potential impact of this amendment on its financial statements, however, such impact if any, is not expected to be material.

● Definition of Accounting Estimates (Amendments to IAS 8). The amendment to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors clarifies how companies should distinguish changes in accounting policies from changes in accounting estimates. The distinction is important, because changes in accounting estimates are applied prospectively to future transactions and other future events, but changes in accounting policies are generally applied retrospectively to past transactions and other past events as well as the current period. The amendment is effective for annual reporting periods beginning on or after 1 January 2023. The Group is currently assessing the potential impact of this amendment on its financial statements, however, such impact if any, is not expected to be material.

● Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). The amendments to IAS 12 Income Taxes require companies to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. They will typically apply to transactions such as leases of lessees and decommissioning obligations and will require the recognition of additional deferred tax assets and liabilities. The amendment is effective for annual reporting periods beginning on or after 1 January 2023. The Group is currently assessing the potential impact of this amendment on its financial statements, however, such impact if any, is not expected to be material.

● Disclosure of Accounting Policies, Amendments to IAS 1 and IFRS Practice Statement 2. The IASB amended IAS 1 to require entities to disclose their material rather than their significant accounting policies. The amendments define what is 'material accounting policy information' and explain how to identify when accounting policy information is material. They further clarify that immaterial accounting policy information does not need to be disclosed. If it is disclosed, it should not obscure material accounting information. The amendment is effective for annual reporting periods beginning on or after 1 January 2023. The Group is currently assessing the potential impact of this amendment on its financial statements, however, such impact if any, is not expected to be material.

The Group does not expect any other standards issued, but not yet effective, to have a material impact on its financial statements.

After making enquiries, the directors have concluded that the Group has adequate resources to continue operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly consolidated unaudited financial statements.

3.  Disaggregation of revenue

Revenues from software and SAAS products offering security, malware protection and PC performance are generated from the Digital Security CGU (Cash Generating Units- "CGU"), revenues from provision of Digital privacy software solutions are generated from the Digital Privacy CGU, revenues from Digital Content and software distribution services are generated from Digital Content CGU.

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

4. Segmental information

Segment revenues and results

The Group's reportable segments are strategic business units that offer different products and services. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the management team including the Chief Executive Officer and the Chief Financial Officer. The Group operates three reportable segments:

● Digital Security - comprising software and SaaS products offering security, endpoint protection and PC performance.

● Digital Privacy - comprising virtual private network ("VPN") solutions and other privacy SaaS products.

● Digital Content - comprising digital platforms which provide reviews and content.

(1) Adjusted EBITDA is a company-specific measure which is calculated as operating profit before depreciation (including right-to-use assets amortisation), amortisation, exceptional or non-recurring costs, other operating (expense)/ income and employee share-based payment charges as set out in note 5.

5. Operating Profit

Adjusted EBITDA

Adjusted EBITDA is calculated as follows:

Operating costs

Operating costs are further analysed as follows:

Adjusted operating costs exclude share-based payment charges and employer costs related to management share-option exercises, onerous contract costs related to employee termination costs, professional services related to business combinations, other operating expense/(income) and amortisation of acquired intangible assets.

6. Shareholder's equity

Ordinary share capital as of 30 June 2022 amounted to $35,951 (30 June 2021: $23,442; 31 December 2021: $35,875).

The number of shares in issue as of 30 June 2022 was 359,512,186 (30 June 2021: 234,421,485; 31 December 2021: 358,747,497).

As part of the LTMI Holdings acquisition in 2019, the Company undertook to issue 42,701,548 new ordinary shares ("Consideration Shares") to be paid in three phases. LTMI co-founders Andrew Lee and Steve DeProspero would each been entitled to be issued 19,247,723 Consideration Shares representing approximately 10.4% of the enlarged issued share capital of Kape, of which 5,250,363 were issued on completion, 10,498,020 were due to be issued on the first anniversary of completion and 3,499,340 would have been issued on the second anniversary of completion. The balance of the Consideration Shares, being 4,206,102 in aggregate, are to be issued to four senior executives of PIA, of which 1,147,333 were issued on completion, 2,294,077 were issued on the first anniversary of completion and 764,692 issued on January 2022.

As of 30 June 2022, the Company held in treasury a total of 4,262,799 ordinary shares of $0.0001 (30 June 2021: 9,806,501; 31 December 2021: 9,800,809). During the six months ended 30 June 2022, 1,538,010 ordinary shares of $0.0001 were transferred out of treasury (30 June 2021: 712,019) and Nil from the Employee Benefit Trust to satisfy the exercise of options by the Company employees (30 June 2021: 600,000, 31 December 2021: 1,200,000).

During the six months ended 30 June 2022 a total of Nil of ordinary shares of $0.0001 par value were transferred into treasury (30 June 2021: 804,663, 31 December 2021: 901,823).

The Kape Technologic Plc Employee Benefit Trust holds 4,000,000 Ordinary Shares (30 June 2021: 600,000; 31 December 2021: Nil), the voting rights to which have been waived.

7. Earnings per share

Basic profit per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

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

The difference between weighted average number of ordinary shares used for basic earnings per share and the diluted earnings per share 6,570,482 (H1 2021: 4,522,219) being the effect of all potentially dilutive ordinary shares derived from the number of share options granted to employees.

8. Loans and Borrowings