Avast PLC

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FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019

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Avast plc, together with its subsidiaries ('Avast', 'the Group' or 'the Company'), a leading global cybersecurity provider, announces its results for the year ended 31 December 2019.

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Ondrej Vlcek, Chief Executive of Avast, said:

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"I'm pleased to report another year of good performance for Avast in 2019, with results in line with the Board's expectations.�Group Adjusted Revenue was $873.1m, with organic growth of 9.1%¹, driven by double-digit growth in our Consumer Direct Desktop business. We also sustained a high level of profitability with Adjusted EBITDA margin² at 55.3%.

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"The core of the Avast business and our fundamental strengths remain unchanged. Our focus on cross-sell and upsell, our localisation strategy, and new product releases continue to drive good growth. There is an exciting pipeline of product launches for the year ahead. We continue to expect healthy growth in 2020 and remain confident in the long-term prospects for the business.

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"For the full year 2020 we expect Group mid-single digit�organic revenue growth, and a stable EBITDA margin percentage."

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FINANCIAL HIGHLIGHTS

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�	Strong overall performance in line with expectations
�	Adjusted Billings at $911.0m up 5.7% at actual rates, with organic growth of 10.2%
�	Adjusted Revenue at $873.1m up 5.6% at actual rates, with organic growth of 9.1%
�	Consumer Direct Desktop Adjusted Revenue at $632.9m, up 9.1% at actual rates, with organic growth of 10.7%
�	Adjusted EBITDA up 7.9% to $483.0m; Adjusted EBITDA margin at 55.3%, up 119bps
�	Adjusted fully diluted earnings per share ('EPS') up 14.1% to $0.32 (versus $0.28 at YE 2018)
�	Proposed final dividend payable in June 2020 of 10.3 cents per share; total dividend for the year of 14.7 cents per share, up 8.1%3
�	Continued strong cash generation with Unlevered Free Cash Flow up 7.9% to $424.6m and Levered Free Cash Flow up 14.0% to $370.4m
�	Net debt / LTM ('last twelve months') Adjusted EBITDA at 1.8x at year end
�	On a statutory basis, Revenue up from $808.3m to $871.1m, Operating profit up from $248.3m to $344.6m, fully diluted EPS at $0.24.

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OPERATIONAL AND STRATEGIC HIGHLIGHTS

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�	Customer retention rates on Consumer Direct Desktop have increased to 67%, driven by lower churn in paid anti-virus and CCleaner products, and APPC growth. Desktop operating KPIs tracked positively, with customers4 up 3.5% to 12.62m, APPC5 up 4.2% to 1.45 and ARPC6 up 3.6% to $51.02
�	Strong growth in the Desktop business was driven from the cross-selling of Privacy products such as VPN and AntiTrack, and Performance products such as Cleanup and Driver Updater
�	There has been continued expansion of multi-device subscriptions, with Consumer Desktop an important channel for transactions of mobile-enabled products
�	Customer numbers and penetration has risen in both established markets such as the US, and new target countries, including an increase in customer numbers by 19% in South East Asia and 13% in Central and Eastern Europe
�	Avast announced the termination of the provision of data to Jumpshot from January 2020, aligning our customer offering to the company's core values of privacy and protection.

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX) 7
Adjusted Billings	911.0	862.1	5.7	8.1
Acquisitions	1.4	0.0	n/a	n/a
Disposal Managed Workplace (SMB) 8	0.0	10.5	n/a	n/a
Discontinued Business9	8.9	15.5	(42.6)	(41.7)
Adjusted Billings excl. Acquisitions, Disposals and Discontinued business	900.7	836.2	7.7	10.2

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Revenue	873.1	827.0	5.6	7.0
Acquisitions	1.4	0.0	n/a	n/a
Disposal Managed Workplace (SMB)	0.0	10.5	n/a	n/a
Discontinued Business	8.9	15.5	(42.6)	(41.7)
Adjusted Revenue excl. Acquisitions, Disposals and Discontinued business	862.8	801.0	7.7	9.1

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($'m)	FY 2019	FY 2018	Change %
Adjusted EBITDA	483.0	447.7	7.9
Adjusted EBITDA Margin %	55.3	54.1	1.2 ppts
Adjusted Net Income	322.3	270.8	19.0
Net Debt 10	884.5	1,138.2	(22.3)

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Statutory Results:

($'m)	FY 2019	FY 2018	Change %11
Revenue	871.1	808.3	7.8
Operating profit	344.6	248.3	38.8
Net Income	248.9	241.2	3.2
Net Cash Flows from operating activities	399.1	376.0	6.1

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PRESENTATION OF RESULTS

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A presentation for analysts and investors will be held at 9:00 AM GMT today (26 February) at UBS, 5 Broadgate, London, EC2M 2QS. To register your attendance please contact [email protected]. The presentation will also be accessible via a conference call and live webcast. Please register for the call or webcast on the Company website at https://investors.avast.com. A Q&A facility will be available for conference call participants.

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PUBLICATION OF ANNUAL REPORT

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The Company today published its Annual Report and Accounts 2019. The document will be available to view on the Company website at https://investors.avast.com and is also being submitted to the National Storage Mechanism for inspection at www.morningstar.co.uk/uk/nsm.

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ESG BRIEFING

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Avast's Chairman and Senior Independent Director will today hold a briefing and Q&A session on Environmental, Social and Governance issues relevant to the Company. The event, intended for investors and ESG rating agencies, will be held at 1:00 PM GMT in London. For further information please contact [email protected]. �

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ENQUIRIES

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Investors and analysts:

Peter Russell, Director of IR������������������������������������������������������������������������������������������������������������������������

[email protected]

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Media:

Stephanie Kane, VP PR and Corporate Communications������������������������������������

[email protected]

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Tavistock

Lulu Bridges / Jos Simson / Heather Armstrong

+44 20 7920 3150

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Cautionary statement regarding forward-looking statements

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This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the Company's business. Whilst the Company believes the expectations reflected herein to be reasonable in the light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Company's control or within the Company's control where, for example, the Company decides on a change of plan or strategy. Accordingly, no reliance may be placed on the figures contained in such forward-looking statements.

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Notes:

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Throughout the Full Year Report a number of alternative performance measures are used to provide users with a clearer picture of the performance of the business. This is in line with how management monitor and manage the business day-to-day. Definitions and details are provided below. Further definitions (see 'PRESENTATION OF RESULTS AND DEFINITIONS') and reconciliations (see 'FINANCIAL REVIEW') of non-GAAP measures are included in the notes to the financial statements.

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All dollar figures throughout the report are at actual currency rates unless otherwise indicated.

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¹ Organic growth rate excludes the impact of FX, acquisitions, business disposals and discontinued business. It excludes current period billings and revenue of acquisitions until the first anniversary of their consolidation.

² Adjusted EBITDA margin percentage is defined as Adjusted EBITDA divided by Adjusted Revenue.

³ Growth rate calculated on an annualized basis. In June 2019 the Group paid dividend of 8.6 cents per share in respect of the period 15 May 2018 to 31 December 2018 (13.6 cents per share on an annualized basis).

⁴ Users who have at least one valid paid Consumer Direct Desktop subscription (or licence) at the end of the period.

⁵ APPC defined as the Consumer Direct Desktop simple average valid licences or subscriptions for the financial period presented divided by the simple average number of Customers during the same period.

⁶ ARPC defined as the Consumer Direct Desktop revenue for the financial period divided by the simple average number of Customers during the same period.

⁷ Growth rate excluding currency impact calculated by restating 2019 actual to 2018 FX rates (see "Principal exchange rates applied "). Deferred revenue is translated to USD at date of invoice and is therefore excluded when calculating the impact of FX on revenue.

⁸ On 1 February 2019 Avast plc sold the non-core asset of Managed Workplace, its remote monitoring and management product, to Barracuda Networks, Inc. ('Barracuda'). Managed Workplace was Avast's solution in the Remote Monitoring and Management ('RMM') space, which is sold to Managed Service Providers ('MSPs'). This business was not core to our SMB strategy, which focuses on securing the workplace. Barracuda, which has a large existing MSP base but did not offer an RMM solution, provides a better long-term solution for this business. In addition, Barracuda has signed a reseller agreement with Avast under which it now resells Avast's business security solutions to MSPs. In the year ended 31 December 2018 the asset generated low teen revenue (USD million) with a materially lower margin profile than the Group.

⁹ As the company is exiting its toolbar-related search distribution business, which had previously been an important contributor to AVG's revenues (referred to above and throughout the report, with the Group's browser clean-up business, as 'Discontinued Business'), the growth figures exclude Discontinued Business, which the Group expects to be negligible by the end of 2020. The Discontinued Business does not represent a discontinued operation as defined by IFRS 5 since it has not been disposed of but rather it is being continuously scaled down and is considered to be neither a separate major line of business, nor geographical area of operations.

¹⁰ The Group applied the IFRS 16 standard as of 1 January 2019 using the modified retrospective approach and did not restate comparative amounts for the year prior to first adoption. Net Debt as of 31 December 2019 includes the balance of IFRS 16 lease liabilities. No lease liabilities are included in the Net Debt as of 31 December 2018. Net Debt as of 31 December 2018 adjusted for opening balance of IFRS 16 lease liabilities would be $1,209.9m.

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CHIEF EXECUTIVE OFFICER'S REVIEW

The Group has delivered another strong year of top line growth and high levels of profitability. The Group's Adjusted Billings of $911.0m were up 5.7% at actual rates, with organic growth of 10.2%. The Group's Adjusted Revenue of $873.1m were up 5.6% at actual rates, with organic growth of 9.1%. The Consumer and SMB segments contributed $823.9m and $49.2m respectively.

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Avast's advanced machine learning monetisation platform remains a key driver of the company's success. It effectively promotes up-sells and cross-sells across the existing user base, across different device types and various operating systems. In FY 2019 Avast continued its strong investment in technology capability and innovation, and further enhanced the customer experience. The company offered more multi-device subscriptions, with Consumer Desktop an important channel for transactions of mobile-enabled products, in particular for Privacy solutions such as VPN and Password Manager.

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Consumer

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Billings	865.0	801.7	7.9	10.3
Acquisitions	1.4	0.0	n/a	n/a
Discontinued Business	8.9	15.5	(42.6)	(41.7)
Adjusted Billings excl. Acquisitions and Discontinued business	854.8	786.2	8.7	11.2

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Revenue	823.9	763.7	7.9	9.3
Acquisitions	1.4	0.0	n/a	n/a
Discontinued Business	8.9	15.5	(42.6)	(41.7)
Adjusted Revenue excl. Acquisitions and Discontinued business	813.6	748.3	8.7	10.2

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SMB

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Billings	45.9	60.5	(24.0)	(22.3)
Disposal Managed Workplace	0.0	10.5	n/a	n/a
Adjusted Billings excl. Disposal	45.9	50.0	(8.1)	(6.0)

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Revenue	49.2	63.3	(22.2)	(21.4)
Disposal Managed Workplace	0.0	10.5	n/a	n/a
Adjusted Revenue excl. Disposal	49.2	52.7	(6.7)	(5.8)

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Business Unit Performance

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Consumer Direct Desktop

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Billings	668.3	613.9	8.9	11.8
Acquisitions	0.3	0.0	n/a	n/a
Adjusted Billings excl. Acquisitions	668.0	613.9	8.8	11.7

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Revenue	632.9	580.0	9.1	10.7
Acquisitions	0.3	0.0	n/a	n/a
Adjusted Revenue excl. Acquisitions	632.6	580.0	9.1	10.7

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Operational KPIs

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�	31 December 2019	31 December 2018	Change %
Number of customers	12.62m	12.19m	3.5
Average Products Per Customer	1.45	1.40	4.2
Average Revenue Per Customer	$51.02	$49.24	3.6

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�	The largest component of the Avast business, Consumer Direct Desktop, performed strongly in the year. Adjusted Billings of $668.3m were up 8.9% at actual rates, with organic growth of 11.7%. Adjusted Revenue of $632.9m grew 9.1% at actual rates, with organic growth of 10.7%, in line with guidance of low double-digit growth.
�	Customer retention rates have increased to 67%, driven by lower churn in paid anti-virus and CCleaner products, and growth in Average Products per Customer. All three key operating metrics-End of Period Customers, Average Products per Customer, and Average Revenue Per Customer- tracked in line with growth guidance of low single digit, mid single digit and mid single digit respectively. While the number of users has remained within a consistent range, we have started to see lower value returns from our PPI investments, and expect that trend to continue.
�	The consumer monetisation platform remains a key driver of growth, effectively promoting up-sells and cross-sells of products, in particular Privacy type products led by VPN and AntiTrack.
�	The performance of the AV business has proved resilient, benefiting from enhanced product features and a reworked value proposition, built around a more streamlined product line.
�	The number of multi-device subscriptions purchased on Consumer Direct Desktop has continued to increase. Mobile-enabled VPN and Password Manager products have led the trend, and the introduction of multi-device compatibility for other products is set to accelerate the convergence.�
�	In July, Avast released its IoT direct-to-consumer product 'Omni' to users in the US market. The product was named a Best of Innovation Honoree in the prestigious CES Innovation Awards. While volumes remain modest, initial customer feedback has been positive and assimilated to advance product positioning.
�	Additional investments have been made in engagement strategies to both strengthen customer care and build customer lifetime value. Deeper analysis of processes and data has helped optimise content, frequency and context of communications, driving an improvement in Support Net Promoter Score and retention rates.
�	There has been continued strong execution on the localisation program, with a sustained uplift in customer numbers and penetration rates in new target countries from Malaysia in South East Asia to Poland in Europe. This is in addition to continued good growth in customer numbers in traditional markets such as the US.
�	In FY 2020 we expect Consumer Direct Desktop to deliver mid-single digit organic revenue growth.

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Consumer Direct Mobile

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Billings	77.3	84.6	(8.6)	(7.6)
Acquisitions	1.1	0.0	n/a	n/a
Adjusted Billings excl. Acquisitions	76.2	84.6	(9.9)	(8.9)

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Revenue	75.4	82.5	(8.6)	(7.9)
Acquisitions	1.1	0.0	n/a	n/a
Adjusted Revenue excl. Acquisitions	74.3	82.5	(9.9)	(9.2)

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�	Adjusted Billings of $77.3m were down 8.6% at actual rates, representing an organic decline of 8.9%. Adjusted Revenue of $75.4m was down 8.6% at actual rates, an organic decline of 9.2%, behind the guidance of mid-single digit decline.
�	Sustained double-digit growth in the direct-to-consumer subscription business has been driven by product promotion and high renewal rates. The channel has also benefited from a positive trend in the uptake of Avast Mobile Security for iOS. The product has become a contributor to sales after its release last year and more recently benefited from enhanced privacy features.
�	Multi-platform subscriptions sold through desktop continue to negatively impact mobile. This is a trend we expect to continue, further dampening growth in the mobile segment.
�	While adversely affected by the carry-over impact from the 2017 Sprint loss, performance in the carrier channel has also been affected by lower marketing investments by US carriers and subsequent weaker product performance. This resulted in weaker than expected sales in the carrier channel, notably in the second half of 2019.
�	After strengthening its salesforce and presence in different geographies at the start of the year Avast has since made progress in deepening new carrier relationships. The company is involved in several late-stage tenders and discussions around the provision of IoT and other customer security solutions.
�	The first half of 2019 saw the launch of Avast's IoT router-based solution via the Italian operator Wind Tre, the first of our carrier partners worldwide to add the security, based on Avast's Smart Life platform. Avast has further developed and commenced customisation of its IoT solutions in response to carriers' stated needs.
�	We remain cautious� of the headwinds in the carrier channel, and therefore expect mid-single digit organic revenue decline in the mobile business overall in 2020.

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Consumer Indirect

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

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Billings	119.5	103.2	15.8	16.7
Discontinued Business	8.9	15.5	(42.6)	(41.7)
Adjusted Billings excl. Discontinued business	110.6	87.8	26.1	26.9

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Revenue	115.5	101.2	14.1	15.0
Discontinued Business	8.9	15.5	(42.6)	(41.7)
Adjusted Revenue excl. Discontinued business	106.7	85.8	24.3	25.2

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�	Within Consumer Indirect, Adjusted Revenue was $115.5m, up 14.1% at actual rates, with organic growth of 25.2%, in line with double-digit growth guidance.The business unit excluding Jumpshot delivered 8.6% organic revenue growth.
�	Avast Secure Browser, focused on internet security and privacy, has performed strongly in the year, benefiting from organic demand including from beyond the Avast and AVG user base. At year end the Secure Browser had 35m active monthly users. Monetisation has continued to increase at a growing rate. Avast expects the Secure Browser to be the key driver in the Consumer Indirect in the medium term.
�	Chrome distribution continued to soften in line with expectations. The current Avast contract to distribute Chrome to Avast, AVG and Ccleaner branded product sets extends to March 2020, and renewal is currently under consideration.
�	Avast's data analytics business, Jumpshot, delivered double-digit growth rates. In January 2020, Avast decided to terminate the provision of anonymized data to its data analytics business, Jumpshot, having concluded that the business was not consistent long term with the Group's privacy priorities as a global cybersecurity company.
�	In FY 2020 we expect the organic revenue growth in Consumer Indirect (excluding Jumpshot) to be high-single digit.

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SMB

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Billings	45.9	60.5	(24.0)	(22.3)
Disposal Managed Workplace	0.0	10.5	n/a	n/a
Adjusted Billings excl. Disposal	45.9	50.0	(8.1)	(6.0)

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($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Revenue	49.2	63.3	(22.2)	(21.4)
Disposal Managed Workplace	0.0	10.5	n/a	n/a
Adjusted Revenue excl. Disposal	49.2	52.7	(6.7)	(5.8)

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�	The SMB business has performed in line with expectations of mid-single digit organic revenue decline provided at half year.
�	Further to the launch of Secure Web Gateway in the first half of the year, in October we introduced Secure Internet Gateway (SIG), SIG is an advanced cloud security solution, set to replace hardware based gateway solutions with better scalability. It is especially suited to larger SMBs and Managed Service Providers (MSPs). Early progress in Secure Web and Internet Gateway sales pipeline development has been encouraging.
�	As part of Avast's layered security protection, our new Patch Management Solution (PMS) went live in June 2019. This was followed by its fourth-quarter release on the CloudCare platform, which specifically services MSPs. In December we additionally launched a PMS version for the Business Console platform, adding improved functionality based on customer requests. PMS is expected to become a meaningful revenue contributor within SMB over time.
�	As part of the transition plan, the new SMB leadership team is now in place. The business has also exited several low-performing countries.
�	The aforementioned product initiatives are at an early stage. As the SMB business continues its transition to integrated endpoint and network security, in FY 2020 we expect low-single digit organic revenue decline.

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Group Outlook

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The Group expects to deliver healthy growth during FY 2020 with organic mid-single digit revenue growth. Organic billings growth for the FY 2020 will be broadly in line with organic revenue growth, albeit slightly weighted towards the second half of the financial year because of the Group's deferral of product upgrades and �releases in the first half of the year. This is due to the rebuild of the product environment that was undertaken to proactively harden and further secure this infrastructure after the attempted attack late last year.

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Adjusted Group EBITDA margin is expected to be broadly flat versus FY 2019. Jumpshot is expected to incur approximately $5m of operating costs, with negligible associated revenue, as the business is wound down. Incremental expense released from Jumpshot will be re-invested into the business to support long term growth initiatives.

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In relation to termination of the provision of data to Jumpshot, the Group expects to incur a one-time exceptional cash cost in the range of $15m-$25m in FY 2020 to cover closure costs, asset write-down and employee restructuring. Avast will return the investments made by Ascential plc into the business, along with associated exit costs, amounting to $73m.

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FINANCIAL REVIEW

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Billings, Revenue and EBITDA

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In line with our expectations, the Group has achieved good growth and maintained high levels of profitability.

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The Group's Adjusted Billings increased by $48.8m to $911.0m in the year ended 31 December 2019, mostly driven by the core Consumer Direct Desktop business. This represented a 5.7% increase at actual rates and organic growth of 10.2%. Subscription billings represented 83.4% of the Group's total Adjusted Billings in FY 2019 (85.0% in FY 2018).

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The Group's Adjusted Revenue increased by $46.1m to $873.1m in the year ended 31 December 2019, which represents a 5.6% increase at actual rates and organic growth of 9.1%. Adjusted Revenue included $387.6m from the release of prior-period deferred revenue. The Adjusted Deferred Revenue¹¹ balance at the end of the period exlcuding Jumpshot was $467.8m, comprising $413.6m that will be recognised within 12 months of the balance sheet date. Including Jumpshot it was $476.3m and $422.1m respectively. This compares to $439.0m, comprising of $387.6m respectively, at the same time last year. The average subscription length in the year ended 31 December 2019 was 14 months, flat versus FY 2018.

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The Group's reported Billings increased by $48.8m to $911.0m in the year ended 31 December 2019, which represents a 5.7% increase. The Group's reported Revenue increased by $62.8m to $871.1m, which represents a 7.8% increase. It should be noted that the difference between the Group's statutory Revenue of $871.1m and Group's Adjusted Revenue of $873.1 in 2019 is diminishing as the magnitude of non-cash historical adjustments arising from the AVG acquisition decreases (for the reconciliations, please refer to 'PRESENTATION OF RESULTS AND DEFINITIONS'). These adjustments are expected to be zero after 2019.��

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Profitability was driven by the Group's scale and operating leverage. Adjusted EBITDA increased 7.9% to $483.0m, 8.6% excluding FX, resulting in Adjusted EBITDA margin of 55.3% (including c.1pt upside from IFRS 16 adoption in 2019). This is in line with full year guidance of broadly flat adjusting for the IFRS 16 impact (54.1% EBITDA margin in FY 2018).

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The reported Operating Profit increased by $96.3m to $344.6m. The increase was driven by a more modest impact from the deferred revenue haircut from the AVG acquisition of $13.7m, increase in Adjusted EBITDA of $35.3m, lower exceptional items of $23.8m, lower depreciation and amortisation of acquisition and non-acquisition intangibles of $33.4m and the lower impact of other adjustments of $1.2m, partially offset by higher share-based payments costs including related employer's costs of $(11.1)m.

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The table below presents the Group's Adjusted Billings and Adjusted Revenue for the periods indicated:

($'m)	FY 2019	FY 2018	Change %	Change % (excluding FX)
Adjusted Billings	911.0	862.1	5.7	8.1
Consumer	865.0	801.7	7.9	10.3
Acquisitions	1.4	0.0	n/a	n/a
Direct (excl. Acquisitions)	744.1	698.4	6.5	9.2
Discontinued Business	8.9	15.5	(42.6)	(41.7)
Indirect (excl. Discontinued Business)	110.6	87.8	26.1	26.9
SMB	45.9	60.5	(24.0)	(22.3)
Disposal Managed Workplace	0.0	10.5	n/a	n/a
SMB excl. Disposal	45.9	50.0	(8.1)	(6.0)
Adjusted Billings excl. Acquisitions, Disposals and Discontinued business	900.7	836.2	7.7	10.2
Adjusted Revenue	873.1	827.0	5.6	7.0
Consumer	823.9	763.7	7.9	9.3
Acquisitions	1.4	0.0	n/a	n/a
Direct (excl. Acquisitions)	706.9	662.5	6.7	8.2
Discontinued Business	8.9	15.5	(42.6)	(41.7)
Indirect (excl. Discontinued Business)	106.7	85.8	24.3	25.2
SMB	49.2	63.3	(22.2)	(21.4)
Disposal Managed Workplace	0.0	10.5	n/a	n/a
SMB excl. Disposal	49.2	52.7	(6.7)	(5.8)
Adjusted Revenue excl. Acquisitions, Disposals and Discontinued business	862.8	801.0	7.7	9.1

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Costs

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($'m)	FY 2019	FY 2018	Change	Change %
Cost of revenues	(210.7)	(241.4)	30.7	12.7
Share-based payments (incl. employer's costs)	0.5	0.2	0.3	Fav12
Amortisation of acquisition intangible assets	88.3	127.5	(39.2)	(30.7)
Depreciation and amortisation (excl. amortisation of acquisition intangible assets)	8.9	9.4	(0.5)	(5.0)
Gross-up and other adjustments	(0.3)	(2.6)	2.3	90.3
Exceptional items	0.1	0.6	(0.5)	(78.8)
Adjusted Cost of revenues (excluding D&A)	(113.2)	(106.3)	(6.9)	(6.5)

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The increase in the Group's Adjusted Cost of Revenues reflects higher sales commissions and licence fees of $(4.1)m related to the increase in Adjusted Revenue, increase in costs for distribution of digital content of $(1.1)m and investment into personnel costs of $(1.9)m, offset by a positive FX impact and other costs of $0.2m. Adjusted Cost of Revenues represent the Group's cost of revenues adjusted for depreciation and amortisation charges, share-based payments charges, exceptional items and other adjustments.

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The Group's reported Cost of revenues decreased by $30.7m to $(210.7)m primarily due to the lower amortisation of acquisition intangibles. The amortisation of acquisition intangibles represents intangible assets acquired through business combinations.

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($'m)	FY 2019	FY 2018	Change	Change %
Operating costs	(315.8)	(318.6)	2.8	0.9
Share-based payments (incl. employer's costs)	24.4	13.7	10.7	77.9
Depreciation and amortisation (excl. amortisation of acquisition intangible assets)	12.7	6.8	5.9	87.8
Exceptional items	1.7	25.0	(23.3)	(93.2)
Adjusted Operating costs (excluding D&A)	(276.9)	(273.0)	(3.9)	(1.4)

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The increase in the Group's Adjusted Operating costs excluding the positive impact of IFRS 16 implementation of $8.5m was $(12.5)m. The increase was caused by investment into R&D of $(11.0)m, sales and marketing of $(6.9)m, offset by lower bad debt costs and other costs of $5.4m. Adjusted Operating costs represent the Group's operating costs adjusted for depreciation and amortisation charges, share-based payments charges and exceptional items.

�

The decrease in the Group's reported Operating costs of $2.8m, from $(318.6)m to $(315.8)m, reflects the lower exceptional items, partially offset by higher share-based payments and higher depreciation and amortisation of non-acquisition intangibles driven primarily by amortisation of right-of-use assets. The net impact of IFRS 16 implementation on reported Operating costs including impact on amortisation is a decrease in costs of $0.8m.

�

Exceptional items

Exceptional items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the Group. The Group believes that these non-recurring items should be separately disclosed to show the underlying business performance of the Group more accurately. Once an item is disclosed as exceptional, it will remain exceptional through completion of the event or programme. Exceptional items in 2019 consist primarily of legal fees and restructuring costs related to the disposal of a subsidiary and related business operation (Managed Workplace business of SMB segment) and to the acquisition of TrackOFF and Tenta (see Note 6 Exceptional items). The portion of the exceptional items directly related to the disposal of a business operation was included in the investing cash flow and costs related to the acquisition were included in operating cash flow. The net gain on disposal of a business operation of $17.5m (see Note 16 Disposal of business operation) was treated as exceptional and is not included in Adjusted Net income. Exceptional items in 2018 related mainly to IPO costs.

�

Finance income and expense

�

Adjusted finance expense on a net basis was $(61.4)m in 2019, $30.9m lower compared to $(92.3)m in 2018. Excluding the negative impact of the implementation of IFRS 16 of $(2.3)m, the adjusted finance costs decreased by $33.2m. The decrease was driven by lower total loan interest costs of $29.3m resulting from the repayment of $300m debt post IPO in 2018 and the additional repayment of $297.4m in 2019 (see Note 27 Term Loan), positive FX impact of $3.8m and decrease in other finance costs of $0.1m.

�

The Group's statutory net finance costs decreased by $18.4m to $(47.5)m in 2019 resulting from the decrease in adjusted finance costs described above, offset by the lower unrealised foreign exchange gains in 2019 from the Euro denominated debt.

�

($'m)	FY 2019	FY 2018	Change	Change %
Finance income and expenses, net	(47.5)	(65.9)	18.4	27.9
Unrealized FX (gain)/loss on EUR tranche of bank loan	(13.9)	(26.4)	12.5	47.4
Adjusted Finance income and expenses, net	(61.4)	(92.3)	30.9	33.5

�

Income tax

�

In the year ended 31 December 2019, the Group reported an Income tax expense of $(65.7)m, compared to the income tax benefit of $58.7m in the year ended 31 December 2018. The income tax benefit in 2018 was primarily driven by the transfer of AVG E-comm web shop to Avast Software B.V. ("Avast BV") on 1 May 2018 ("IP transfer").� Subsequently, the former Dutch AVG business from Avast BV (including the web shop) was sold to Avast Software s.r.o. The total net impact of this transaction was $94.4m, which was treated as an exceptional item in 2018. The transferred IP is amortised for tax purposes over 15 years.

�

Income tax was further impacted by the tax benefit of the foreign exchange movements on intercompany loans arising in the statutory accounts of the subsidiary concerned of $0.4m (tax benefit of $9.8m in 2018) and the recognition of previously unrecognised tax losses related to the previous periods of $4.7m.

�

The tax impact of other adjusted items represents the tax impact of amortisation of acquisition intangibles, deferred revenue haircut reversal arising from prior acquisitions, exceptional items and other adjusted items, which has been calculated applying the tax rate that the Group determined to be applicable to the relevant item.

�

Adjusted Income tax is $(77.8)m for FY 2019, resulting in an adjusted effective tax rate of 19.4% (FY 2018: 20.2%). The Adjusted effective tax rate is the Adjusted Income tax percentage of Adjusted Profit before tax of $400.1m (defined as Adjusted Net Income of $322.3m before the deduction of Adjusted Income tax of $(77.8)m.)

�

($'m)	FY 2019	FY 2018	Change	Change %
Income tax	(65.7)	58.7	(124.3)	Unf
Tax impact of FX difference on intercompany loans	(0.4)	(9.8)	9.4	96.3
Tax impact of IP transfer	6.3	(99.2)	105.5	Fav
Tax impact of COGS deferral adjustment	-	0.3	(0.3)	Unf
Tax impact of disposal of a business operations	2.3	-	2.3	n/a
Tax impact on adjusted items	(20.3)	(18.5)	(1.9)	(10.4)
Adjusted Income tax	(77.8)	(68.4)	(9.3)	(13.7)

�

Cash Flow

�

Unlevered free cash flow represents the amount of cash generated by operations after allowing for capital expenditure, taxation and working capital movements. Unlevered free cash flow provides an understanding of the Group's cash generation and is a supplemental measure of liquidity in respect of the Group's operations.

Levered free cash flow represents amounts of incremental cash flows the Group has after it has met its financial obligations (after interest and lease repayments) and is defined as Unlevered Free Cash Flow less cash interest and lease repayments.

�

($'m)	FY 2019	FY 2018	Change	Change %
Adjusted Cash EBITDA	519.4	476.8	42.6	8.9
Net change in working capital (excl. change in deferred revenue and deferred COGS)	(10.0)	13.8	(23.8)	Unf
Capex	(29.9)	(16.8)	(13.1)	(77.7)
Cash Tax (excl. Dutch exit tax)	(54.8)	(79.8)	25.0	31.3
Unlevered Free Cash Flow	424.6	394.0	30.7	7.9
Cash Interest	(45.1)	(67.6)	22.5	33.2
Lease Repayments	(9.2)	(1.5)	(7.6)	Unf
Levered Free Cash Flow	370.4	324.9	45.5	14.0
Cash conversion13	82%	83%	�

�

The working capital movement in 2018 comprised a positive movement in receivables driven by the renegotiation of payment terms with payment providers. Adjusted for the impact of renegotiation of payment terms with payment providers, the cash conversion in FY 2018 would be 78%.

�

In line with guidance, capex represents 3% of Adjusted revenue in 2019, which is a slight increase versus 2018 (2%), due to investment into network infrastructure.

�

The cash tax included in the calculation of Unlevered Free Cash Flow excludes a $49.4m Dutch exit tax paid in March 2019 as this was treated as an exceptional item. The decrease in the adjusted cash tax is driven by the Czech Republic true-up system, where a company is obliged to make quarterly income tax advances based on its last known tax liability. Upon filing a tax return, tax advances paid during the year for which the tax return is filed offset the final tax liability. As the taxable income for 2017 was significantly higher than the taxable income for 2018 due to unrealized FX gain on intercompany loans, the reported cash tax in 2018 was higher by the amount of the true up. No such true up payment occurred in 2019.

�

($'m)	FY 2019	FY 2018	Change	Change %
Net cash flows from operating activities	399.1	376.0	23.1	6.1
Net cash used in investing activities	(16.7)	(28.8)	12.1	42.0
Net cash flows from financing activities	(440.9)	(254.0)	(186.9)	(73.6)

�

The following table presents a reconciliation between the Group's Adjusted Cash EBITDA and Net cash flows from operating activities as per the consolidated statement of cash flows.

�

($'m)	FY 2019	FY 2018	Change	Change %
Adjusted Cash EBITDA	519.4	476.8	42.6	8.9
Net change in working capital (excl. change in deferred revenue and deferred COGS)	(10.0)	13.8	(23.8)	Unf
Cash Tax (excl. Dutch exit tax)	(54.8)	(79.8)	25.0	31.3
Dutch exit cash tax	(49.4)	-	(49.4)	n/a
Movement of provisions and allowances	5.9	3.5	2.4	68.6
Exceptional items (excl.transaction costs)	(1.5)	(25.6)	24.1	94.1
Employer's costs on share-based payments	(4.2)	-	(4.2)	n/a
FX gains/losses and other non-cash items	(6.3)	(12.7)	6.4	50.4
Net Cash Flows from operating activities	399.1	376.0	23.1	6.1

�

The Group's net cash flow from operating activities increased by $23.1m primarily due to higher Adjusted Cash EBITDA of $42.6m, lower cash tax of $25.0m, lower exceptional items (excl. transaction costs) of $24.1m, positive impact of the movement in provisions and allowances of $2.4m and positive change in FX gains/losses and other financial expenses and non-cash gains of $6.4m, offset by Dutch exit tax paid of $(49.4)m, negative impact of working capital movement (excl. change in deferred revenue and deferred COGS) of $(23.8)m and employer's costs on share-based payments of $(4.2)m (see Note 35 Share-based payments). The portion of the exceptional items directly related to the disposal of business operation of $(0.3)m was included in cash flows from investing activities.

�

The Group's net cash outflow from investing activities of $(16.7)m was comprised of capex of $(29.9)m, consideration paid for TrackOFF and Tenta acquisitions net of cash acquired of $(14.8)m (see Note 15 Business combinations), settlement of contingent consideration of $(0.2)m, proceeds from the sale of a business operation net of cash disposed and transaction costs of $26.7m (see Note 16 Disposal of a business operation) and interest received of $1.5m. The Group's net cash outflow from investing activities in 2018 of $(28.8)m was comprised of capex of $(16.8)m, consideration paid for InLoop acquisition net of cash acquired of $(4.2)m (see Note 15 Business combinations), payment of the remaining portion of the consideration for the acquisition of AVG Technologies B.V. of $(8.0)m and interest received of $0.3m.

�

The Group's net cash outflow from financing activities includes $(83.7)m final dividend paid in respect of 2018, $(43.2)m interim dividend paid in respect of 2019, $(297.4)m net voluntary repayment of borrowings, $(63.0)m mandatory repayment of borrowings, interest paid of $(45.1)m, transaction costs related to borrowings of $(0.9)m, lease repayments of $(9.2)m, proceeds from the exercise of options of $47.2m and net proceeds from transactions with non-controlling interest $54.3m (see Note 34 Non-controlling interest). The full amount of lease repayments in FY 2019 of $(9.2)m relates to IFRS 16 implementation and the comparable amount of cash outflow in FY 2018 was included under cash flows from operating activities. The Group's net cash outflow from financing activities in 2018 included net proceeds from the issue of shares of $195.8m, proceeds from exercise of options in 2H 2018 of $0.9m, offset by the voluntary repayment of borrowings of $(300.0)m, the mandatory repayment of borrowings of $(78.5)m, interest paid of $(67.6)m, transaction costs related to borrowings of $(3.1)m and lease repayments of $(1.5)m.

�

Financing

�

The Group reduced its term loan by the repayment of $400m from USD tranche in March 2019, while executing an incremental �177.5m ($202.6m) add-on to EUR tranche, and voluntarily repaid another $100m from USD tranche in October 2019 (see Note 27 Term Loan). As of 31 December 2019, the total Gross debt¹⁴ of the Group was $1,101.1m and the total Net debt¹⁴ was $884.5m. The decrease in gross debt since 31 December 2018 is attributable to $297.4m voluntary repayment of borrowings, $63.0m of mandatory repayment of borrowings, $6.9m decrease in lease liabilities and a positive unrealised FX gain of $13.9m on the EUR tranche of the loan. The Group adopted IFRS 16 as of 1 January 2019 using the modified retrospective approach and did not restate for the year prior to first adoption. The balance of lease liabilities as of 31 December 2018, shown in the table below, have been presented as if adjusted for opening balance of IFRS 16 impact.

�

In April 2019 the Group applied for the margin reduction by 0.25% p.a. on both tranches due to a favorable leverage ratio and, in October 2019, the Group further reduced the margin on the EUR tranche by 0.25% p.a (see Note 27 Term Loan).

�

($'m)	31 December 2019 �		31 December 2018 �	31 December 2018 incl. IFRS 16 impact	Margin �
USD tranche principal	336.5		864.7	864.7	USD LIBOR plus 2.25%
EUR tranche principal	699.8		545.8	545.8	EURIBOR plus 2.25%
Revolver/Overdraft	-		-	-	USD LIBOR plus 2.25%
Lease liabilities	64.8		-	71.7	�
Gross debt	1,101.1		1,410.5	1,482.2	�
Cash and cash equivalents	(216.6)		(272.3)	(272.3)	�
Net debt	884.5		1,138.2	1,209.9	�
Net debt / LTM Adjusted EBITDA		1.8x	2.5x	2.7x	�
�	�	�	�	�	�

�

Principal exchange rates applied

�

The table below summarises the principal exchange rates used for the translation of foreign currencies into US Dollar. The assets and liabilities are translated using period-end exchange rates. Income and expense items are translated at the average exchange rates for the period.

�

($:1.00)	�	�	FY 2019 average	FY 2018 average
AUD	�	�	���� 0.6966	���� 0.7479
BRL	�	�	���� 0.2545	���� 0.2757
CAD	�	�	���� 0.7524	���� 0.7720
CHF	�	�	���� 1.0061	���� 1.0228
CZK	�	�	���� 0.0437	���� 0.0461
EUR	�	�	���� 1.1212	���� 1.1814
GBP	�	�	���� 1.2757	���� 1.3357
ILS	�	�	���� 0.2797	���� 0.2784
NOK	�	�	���� 0.1139	���� 0.1230

�

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 $0.24 (see Note 14 for the statutory earnings per share).

�

($'m)	FY 2019	FY 2018
Adjusted Net Income attributable to equity holders	322.1	270.8
Basic weighted average number of shares	973,788,157	914,567,949
Effects of dilution from share options and restricted share units	44,313,005	62,120,397
Dilutive weighted average number of shares	1,018,101,162	976,688,346
Basic Adjusted earnings per share ($/share)	0.33	0.30
Diluted Adjusted earnings per share ($/share)	0.32	0.28

�

Dividend

�

The Directors propose to pay a final dividend of�10.3 cents per share�in respect of the year ending 31 December 2019 (payment of $104.6m). Combined with the interim dividend of 4.4 cents per share paid in October 2019 (payment of $43.2m), gives a total dividend for the financial year of 14.7 cents (total payment of $147.8m), which represents 40% of the Group's levered free cash flow for the period in accordance with the Company's dividend policy. Subject to shareholder approval, the final dividend will be paid in US dollars on 24 June 2020 to shareholders on the register on 22 May 2020. There will be an option for shareholders to elect to receive the dividend in pounds sterling and such an election should be made no later than 8 June 2020. The foreign exchange rate at which dividends declared in US dollars will be converted into pounds sterling will be calculated based on the average exchange rate over the five business days prior to 11 June 2020 and announced shortly thereafter.

Proposed Dividend Timetable

Ex-dividend Date: 21 May 2020

Record Date: 22 May 2020

Last Date for Currency Election: 8 June 2020

Payment: 24 June 2020

�

Notes:

¹¹ Adjusted deferred revenue represents the balance of deferred revenue excluding the effects of the fair value revaluation of the acquiree's pre-acquisition deferred revenues and including the impact of gross-up adjustment.

¹² 'Fav' in change % represents favorable growth rate figure over 100 per cent, 'Unf' represents unfavorable decline greater than negative 100 per cent.

¹³ Cash conversion is defined as Unlevered Free Cash Flow divided by Adjusted Cash EBITDA.

¹⁴ Gross debt represents the sum of the total book value of the Group's loan obligations (i.e. sum of loan principals) and lease liabilities. Net debt indicates gross debt netted by the company's cash and cash equivalents. Both gross debt and net debt exclude the amount of capitalized arrangement fees on the balance sheet as of 31 December 2019 of $8.7m and accrued interest of $(0.1)m (31 December 2018: $19.1m and $(0.1)m).

�

�

�

PRINCIPAL RISKS AND UNCERTAINTIES

�

The occurrence of any of the key risks below would have a material adverse effect on the Group's business, results of operations, financial condition and/or prospects:

�

Risk	Impact	Strategy �
Offering: The risk is that our product and service offerings stop appealing to users.	If we do not offer products and services that appeal to users, our free user base may materially decline and/or we will fail to monetise our products and services. �	Our strategy to address this risk and achieve long term strategic objectives is to invest in product innovation, product management, quality assurance, and customer care.
People: The risk is talented people leave or do not join our workforce.	If we cannot attract or retain a talented workforce, we will not remain competitive in our industry.	We believe we need to create an exciting brand; provide attractive and competitive compensation; provide our people with global mobility; recruit from a broad pool of candidates; promote based on diversity of backgrounds, skills, cultures, gender, and ethnicity; and provide effective training for personal and professional growth in order to achieve long term strategic objectives.
Data and our security systems: The risk is that the data we store, such as customer data, and the systems that store, manage and process this data become compromised.	Failing to protect the data we store and the systems that store this data could have a material adverse impact on our reputation, and our ability to provision services and updates, potentially resulting in a material decline in our user base, negative financial consequences and investigations, fines and censure by governmental and regulatory bodies.	We strive for strong, effective, and comprehensive data and systems security and governance. As a result, we have implemented a host of new security processes and measures to protect the data we store, systems that store such data, and the updates we provide to provision our products and services. We develop products and services designed for security and privacy, and believe this helps us maintain an ethical culture in which people are concerned about and committed to securing and protecting data.
Regulatory: We operate a digital business globally, and the scale and complexity of new laws, including regarding data protection, auto-renewal billing and tax, are increasing as the digital economy becomes the backbone of global economic growth.	New laws may impose restrictions and obligations on the Group that negatively impact the Group's profitability and ability to grow.	We monitor global legal developments and participate in industry-wide lobbying. �
Concentration: Our products rely on our users being able to easily find and install them.	We face exposure and risks from large vendors, such as Microsoft, Google, Apple, Facebook, Digital River, and telecommunication carriers, who may take actions that restrict our users from being able to access and use our products.	We develop deep partner relationships with these vendors; however, we continually seek out additional strategic partnerships and growth through organic initiatives.

�

�

PRESENTATION OF RESULTS AND DEFINITIONS

�

This Full Year Report contains certain non-IFRS financial measures to provide further understanding and a clearer picture of the financial performance of the Group. These alternative performance measures (APMs) are used for the assessment of the Group's performance and this is in line with how management monitor and manage the business day-to-day. It is not intended that APMs are a substitute for, or superior to statutory measures. The APMs are not defined or recognised under IFRS including Adjusted Billings, Adjusted Revenue, Organic Growth, Adjusted EBITDA, Adjusted Cash EBITDA, Adjusted Net Income and Unlevered Free Cash Flow as defined and reconciled below.

�

These non-IFRS financial measures and other metrics are not measures recognised under IFRS. The non-IFRS financial measures and other metrics, each as defined herein, may not be comparable 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" and "Underlying" numbers were presented in the Full Year Report for the year ended 2018. Many of the adjusting items were common to both and the values were similar. As presenting a large number of similar APMs can increase complexity to users, the Group limited the metrics to "Adjusted" measures, which is consistent with those used in the business. Organic Growth APMs were introduced in this Full Year Report to present the change in revenue and billings resulting from continuing Group operations. Besides these changes, the definitions of non-GAAP measures in the year ended 31 December 2019�are consistent with those presented in the IPO prospectus and there have been no changes to the bases of calculation.

�

�

CONSOLIDATED STATEMENT OF ADJUSTED PROFIT AND LOSS�

FOR THE YEAR ENDED 31 DECEMBER 2019

($'m)

�

�		�	Year ended	Year ended
�		�	31 December 2019 �	31 December 2018 �
REVENUES		�	873.1	827.0
Cost of revenues		�	(113.2)	(106.3)
GROSS PROFIT		�	759.9	720.7
Gross profit margin		�	87.0%	87.1%
�		�	�	�
Sales and marketing		�	(123.1)	(116.3)
Research and development		�	(76.7)	(65.7)
General and administrative		�	(77.0)	(91.0)
Total operating costs		�	(276.9)	(273.0)
�		�	�	�
EBITDA		�	483.0	447.7
EBITDA margin		�	55.3%	54.1%
�		�	�	�
Depreciation & Amortisation 15		�	(21.6)	(16.2)
EBIT		�	461.5	431.6
�		�	�	�
Finance income and expenses		�	(61.4)	(92.3)
PROFIT BEFORE TAX		�	400.1	339.3
�		�	�	�
Income tax		�	(77.8)	(68.4)
NET INCOME		�	322.3	270.8
Net Income margin		�	36.9%	32.7%
�		�	�	�
Net income attributable to:		�	�	�
- equity holders of the parent	�		322.1	270.8
- non-controlling interest	�		0.2	-
�	�		�	�
Earnings per share (in $ per share):		�	�	�
Basic EPS		�	0.33	0.30
Diluted EPS		�	0.32	0.28
�	�	�	�	�

�

Adjusted Billings

�

Adjusted Billings represent the full value of products and services being delivered under subscription and other agreements and include sales to new end customers plus renewals and additional sales to existing end customers. Under the subscription model, end customers pay the Group for the entire amount of the subscription in cash upfront upon initial delivery of the applicable products. Although the cash is paid upfront, under IFRS, subscription revenue is deferred and recognised rateably over the life of the subscription agreement, whereas non-subscription revenue is typically recognised immediately. Adjusted Billings represents the Group's reported billings.

�

Adjusted Revenue

�

Adjusted Revenue represents the Group's reported revenue adjusted for the Deferred Revenue Haircut Reversal¹⁶ and� Gross-Up Adjustment¹⁷. These historical adjustments are expected to be zero from 2019. The following is a reconciliation of the Group's reported Revenue to the Group's Adjusted Billings and Group's reported Revenue to the Group's Adjusted Revenue:

�

($'m)	FY 2019	FY 2018	Change	Change %
Revenue	871.1	808.3	62.8	7.8
Net deferral of revenue	39.9	53.9	(14.0)	(26.0)
Adjusted Billings	911.0	862.1	48.8	5.7
�	�	�	�	�
Revenue	871.1	808.3	62.8	7.8
Deferred Revenue Haircut reversal / Other	1.8	17.2	(15.4)	(89.3)
Gross-Up Adjustment	0.1	1.5	(1.3)	(91.2)
Adjusted Revenue	873.1	827.0	46.1	5.6
�	�	�	�	�

Adjusted EBITDA

�

Adjusted earnings before interest, taxation, depreciation and amortisation ('Adjusted EBITDA') is defined as the Group's operating profit/loss before depreciation, amortisation of non-acquisition intangible assets, share-based payments including related employer's costs, exceptional items, amortisation of acquisition intangible assets, the Deferred Revenue Haircut Reversal and the COGS Deferral Adjustments¹⁸.

�

Adjusted Cash EBITDA

�

Cash earnings before interest, taxation, depreciation and amortisation ('Adjusted Cash EBITDA') is defined as Adjusted EBITDA plus the net deferral of revenue, the net change in deferred cost of goods sold and the reversal of the COGS Deferral Adjustments.The following is a reconciliation of the Group's reported Operating profit to Adjusted EBITDA and Adjusted Cash EBITDA:

�

�

($'m)	FY 2019	FY 2018	Change	Change %
Operating profit	344.6	248.3	96.3	38.8
Share-based payments (incl. employer's costs)	24.9	13.9	11.1	79.5
Exceptional items	1.8	25.6	(23.8)	(92.8)
Amortisation of acquisition intangible assets	88.4	127.5	(39.0)	(30.6)
Deferred Revenue Haircut reversal / Other	1.8	17.2	(15.4)	(89.3)
COGS Deferral Adjustments	(0.1)	(1.1)	1.0	89.1
Depreciation	18.8	13.4	5.5	41.0
Amortisation of non-acquisition intangible assets	2.8	2.8	(0.1)	(2.1)
Adjusted EBITDA	483.0	447.7	35.3	7.9
Net change in deferred revenues including FX re-translation / Other	38.0	36.6	1.4	3.9
Net change in deferred cost of goods sold	(1.8)	(8.7)	6.9	78.7
Reversal of COGS deferral adjustment	0.1	1.1	(1.0)	(90.1)
Adjusted Cash EBITDA	519.4	476.8	42.6	8.9

�

Adjusted Net Income

�

Adjusted Net Income represents statutory net income plus the Deferred Revenue Haircut Reversal, share-based payments, exceptional items, amortisation of acquisition intangible assets, unrealised foreign exchange gain/loss on the EUR tranche of the bank loan, the COGS Deferral Adjustments, the tax impact from the unrealised exchange differences on intercompany loans and the tax impact of the foregoing adjusting items and IP transfers, less gain on disposal of business operation. The following is a reconciliation of the Group's reported Net income to Adjusted Net Income:

�

($'m)	FY 2019	FY 2018	Change	Change %
Net Income	249.0	241.2	7.8	3.2
Deferred Revenue Haircut reversal / Other	1.8	17.2	(15.4)	(89.3)
Share-based payments	24.9	13.9	11.1	79.5
Exceptional items	1.8	25.6	(23.8)	(92.8)
Amortisation of acquisition intangible assets	88.4	127.5	(39.1)	(30.6)
Unrealised FX gain/(loss) on EUR tranche of bank loan	(13.9)	(26.4)	12.5	47.4
Tax impact from FX difference on intercompany loans	(0.4)	(9.8)	9.4	96.3
COGS Deferral Adjustments	(0.1)	(1.1)	1.0	89.1
Tax impact of COGS deferral adjustment	-	0.3	(0.3)	Unf
Tax impact on adjusted items	(20.3)	(18.5)	(1.8)	(9.8)
Tax impact of IP transfer	6.3	(99.2)	105.5	Fav
Gain on disposal of business operation	(17.5)	-	(17.5)	n/a
Tax impact from disposal of business operation	2.3	-	2.3	n/a
Adjusted Net Income	322.3	270.8	51.5	19.0

�

Unlevered Free Cash Flow

�

Represents Adjusted Cash EBITDA less capex, plus cash flows in relation to changes in working capital (excluding change in deferred revenue and change in deferred cost of goods sold as these are already included in Adjusted Cash EBITDA) and taxation. Changes in working capital are as per the cash flow statement on an unadjusted historical basis and unadjusted for exceptional items. Cash tax excludes a $49.4m Dutch exit tax paid in March 2019 as this was treated as an exceptional item.

�

Levered Free Cash Flow

�

Represents amounts of incremental cash flows of the Group after it has met its financial obligations (after interest and lease repayments) and is defined as Unlevered Free Cash Flow less cash interest and lease repayments.

�

�

Rounding

�

Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided, however growth rates are calculated based on precise actual numbers.

�

Notes:

¹⁵ Depreciation and amortisation included in Adjusted Net Income excludes amortisation of acquisition intangibles. �

¹⁶ Under IFRS 3, Business Combinations, an acquirer must recognise assets acquired and liabilities assumed at fair value as of the acquisition date. The process of determining the fair value of deferred revenues acquired often results in a significant downward adjustment to the target's book value of deferred revenues. The reversal of the downward adjustment to the book value of deferred revenues of companies the Group has acquired during the periods under review is referred to as the 'Deferred Revenue Haircut Reversal'.

¹⁷ The �'Gross-Up Adjustment' refers to the estimated impact of the additional amount of 2015 and 2016 revenue and expenses and their deferral that would have been recognised by Avast had the contractual arrangements with certain customers qualified to have been recognised on a gross rather than a net basis prior to 2017 (AVG had historically recognised Billings and revenues on a gross basis, whereas Avast recognised them on a net basis). Both businesses recognise revenue on a gross basis since 2017.

¹⁸ There was no deferred cost of goods sold ('COGS') balance consolidated by the Group in the acquisition balance sheet of AVG in 2016 and thus no subsequent expense was recorded as the revenue in respect of pre-acquisition date billings was recognised. The 'COGS Deferral Adjustments' refers to an adjustment to reflect the recognition of deferred cost of goods sold expenses that would have been recorded in 2016 and 2017 in respect of pre-acquisition date AVG billings, had the AVG and the Group's businesses always been combined and had AVG always been deferring cost of goods sold.

�

�

�

CONSOLIDATED STATEMENT OF PROFIT AND LOSS�

For the year-ended 31 December 2019

�

�

�	�	Year-ended 31 December 2019 $M	Year-ended 31 December 2018 $M
�	Note
REVENUE	5	871.1	808.3
Cost of revenues	8	(210.7)	(241.4)
GROSS PROFIT	�	660.4	566.9
�	�	�	�
Sales and marketing	�	(132.0)	(124.5)
Research and development	�	(82.5)	(68.9)
General and administrative	�	(101.3)	(125.2)
Total operating costs	9	(315.8)	(318.6)
�	�	�	�
OPERATING PROFIT	�	344.6	248.3
�	�	�	�
Net gain on disposal of a business operation	16	17.5	-
�	�	�	�
Interest income	11	1.5	0.3
Interest expense	11	(58.7)	(85.8)
Other finance income and expense (net)	11	9.7	19.7
PROFIT BEFORE TAX	�	314.6	182.5
�	�	�	�
Income tax	13	(65.7)	58.7
PROFIT FOR THE FINANCIAL YEAR	�	248.9	241.2
Attributable to:	�	�	�
���������� Equity holders of the parent	�	248.7	241.2
���������� Non-controlling interest ("NCI")	34	0.2	-

�

�

Earnings per share (in $ per share):	�		�	�
Basic EPS		14	0.26	0.26
Diluted EPS		14	0.24	0.25
�	�	�	�	�

�

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

�

�

�

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year-ended 31 December 2019

�		Year-ended 31 December 2019 $M		Year-ended 31 December 2018 $M
�
Profit for the financial year		248.9		241.2
Other comprehensive gains/(losses):		�		�
�		�		�
Items that may be reclassified subsequently to profit or loss:		�		�
-������ Translation differences		0.3		(1.6)
Total other comprehensive gains/(losses)		0.3		(1.6)
Comprehensive income for the year		249.2		239.6
� Attributable to:	�	�	�
��������������� Equity holders of the parent	�	249.0		239.6
��������������� Non-controlling interest	�	0.2		-
�	�	�	�	�

�

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

�

�

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2019

Company registered number: 07118170		Note	31 December 2019 $M	31 December 2018 $M
ASSETS	�		�	�
Current assets	�		�	�
Cash and cash equivalents	17		216.6	272.3
Trade and other receivables	18		78.9	82.9
Capitalised contract costs	19		33.3	31.2
Prepaid expenses	�		13.6	8.5
Inventory	�		0.4	0.5
Tax receivables	13		22.0	7.3
Other financial assets	�		1.2	0.4
�	�		366.0	403.1
Non-current assets	�		�	�
Property, plant and equipment	20		42.9	29.3
Right-of-use assets	21		62.6	-
Intangible assets	22		193.3	267.3
Deferred tax assets	13		203.8	204.1
Other financial assets	�		0.8	0.7
Capitalised contract costs	19		4.4	4.6
Prepaid expenses	�		0.8	2.0
Goodwill	23		1,991.3	1,993.7
�	�		2,499.9	2,501.7
TOTAL ASSETS	�		2,865.9	2,904.8
SHAREHOLDERS' EQUITY AND LIABILITIES	�		�	�
Current liabilities	�		�	�
Trade payables and other liabilities	24		65.1	64.0
Lease liability	21		7.3	0.4
Provisions	25		11.6	9.1
Income tax liability	13		0.3	40.4
Deferred revenue	26		420.5	384.3
Term loan	27		58.2	73.4
�	�		563.0	571.6
Non-current liabilities	�		�	�
Lease liability	21		57.5	2.6
Provisions	25		0.9	0.9
Deferred revenues	26		54.3	51.2
Term loan	27		969.5	1,318.1
Financial liability	�		2.1	1.0
Other non-current liabilities	�		1.7	4.3
Redemption obligation	29		56.3	-
Deferred tax liabilities	13		36.2	54.7
�	�		1,178.5	1,432.8
Shareholders' equity	�		�	�
Share capital	31		136.0	129.0
Share premium, statutory and other reserves	31, 32		280.7	275.9
Translation differences	�		1.3	(0.3)
Retained earnings	�		698.9	494.8
Equity attributable to equity holders of the parent	�		1,116.9	899.4
Non-controlling interest	33		7.5	1.0
� � ���������������������	�		1,124.4	900.4
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES	�		2,865.9	2,904.8
�	�	�	�	�

�

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

�

�

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY�

For the year-ended 31 December 2019

�

�	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 2017	�	�	371.7		3.3	1.3		57.9		434.2		0.9		435.1
Result of the year	�	�	-		-	-		241.2		241.2		-		241.2
Other comprehensive income	�	�	-		-	(1.6)		-		(1.6)		-		(1.6)
Comprehensive income for the year	�	�	-		-	(1.6)		241.2		239.6		-		239.6
Primary proceeds	31	�	8.0		191.8	-		-		199.8		-		199.8
Group re-organisation	31	�	(250.8)		250.8	-		-		-		-		-
Capital reduction	31	�	-		(180.6)	-		180.6		-		-		-
Other movements	�	�	-		-	-		0.3		0.3		-		0.3
Share issue expense	31	�	-		(4.0)	-		-		(4.0)		-		(4.0)
Share-based payments deferred tax	13	�	-		-	-		14.8		14.8		-		14.8
Share-based payments	35	�	-		13.8	-		-		13.8		0.1		13.9
Exercise of options	31	�	0.1		0.8	-		-		0.9		-		0.9
At 31 December 2018	�	�	129.0		275.9	(0.3)		494.8		899.4		1.0		900.4
Result of the year	�	�	-		-	-		248.7		248.7		0.2		248.9
Other comprehensive income	�	�	-		-	0.3		-		0.3		-		0.3
Comprehensive income for the year	�	�	-		-	0.3		248.7		249.0		0.2		249.2
Transactions with NCI - Sale of interest	34	�	-		-	-		48.6		48.6		5.7		54.3
Transactions with NCI - Recognition of put liability	29	�	-		(55.7)	-		-		(55.7)		-		(55.7)
Share-based payments deferred tax	�	�	-		-	-		34.9		34.9		-		34.9
Other movements	�	�	-		0.2	1.3		(1.1)		0.4		-		0.4
Share-based payments	35	�	-		20.1	-		-		20.1		0.6		20.7
Exercise of options	31	�	7.0		40.2	-		-		47.2		-		47.2
Cash dividend	33	�	-		-	-		(127.0)		(127.0)		-		(127.0)
At 31 December 2019	�	�	136.0		280.7	1.3		698.9		1,116.9		7.5		1,124.4
�	�	�	�	�	�	�	�	�	�	�	�	�	�	�	�

�

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

�

�

�

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year-ended 31 December 2019

�	�	Year-ended 31 December 2019 $M	Year-ended 31 December 2018 $M
�	Note
Cash flows from operating activities	�	�	�
Profit for the financial year	�	248.9	241.2
Non-cash adj. to reconcile profit to net cash flows:	�	�	�
Income tax	13	65.7	(58.7)
Depreciation	12	18.9	13.4
Amortisation	12	91.1	130.3
Gain on disposal of a business operation	16	(17.5)	-
Gain on disposal of property, plant and equipment	�	(0.2)	(0.2)
Movement of provisions and allowances	�	5.9	3.5
Interest income	11	(1.5)	(0.3)
Interest expense, changes of fair values of derivatives and other non-cash financial expense	11	59.6	85.5
Shares granted to employees	34	20.7	13.9
Effect of exchange rate changes on cash and cash equivalents held in foreign currencies	�	(2.8)	(2.8)
Unrealised foreign exchange gains and losses and other non-cash transactions	�	(13.8)	(32.0)
Working capital adjustments:	�	�	�
(Increase)/decrease in trade and other receivables and inventories	�	(10.4)	4.1
Increase/(decrease) in trade and other payables	�	(1.2)	1.0
Increase in deferred revenues	26	39.9	56.9
Income tax paid	�	(104.2)	(79.8)
Net cash flows from operating activities	�	399.1	376.0
Cash flows from investing activities	�	�	�
Acquisition of property and equipment	20	(26.3)	(13.5)
Acquisition of intangible assets	22	(3.6)	(3.4)
Investment in subsidiary, net of cash acquired	15	(14.8)	(4.2)
Settlement of contingent consideration	�	(0.2)	(8.0)
Proceeds from sale of a business operation, net of cash disposed	16	26.7	-
Interest received	�	1.5	0.3
Net cash used in investing activities	�	(16.7)	(28.8)
Cash flows from financing activities	�	�	�
Proceeds from issue shares	31	-	199.8
Transaction costs related to the issue shares	31	-	(4.0)
Transaction with NCI, net of fees	34	54.3	-
Exercise of options	31	47.2	0.9
Dividend paid	33	(127.0)	-
Repayment of borrowings	27	(562.9)	(378.5)
Proceeds from borrowings	27	202.6	-
Transaction costs related to borrowings	27	(0.9)	(3.1)
Interest paid	27	(45.1)	(67.6)
Lease payments interest	21	(2.3)	-
Lease payments principal	21	(6.8)	(1.5)
Net cash used in financing activities	�	(440.9)	(254.0)
�	�	�	�
Net increase/(decrease) in cash and cash equivalents	�	(58.5)	93.2
Effect of exchange rate changes on cash and cash equivalents held in foreign currencies	�	2.8	2.8
Cash and cash equivalents at beginning of period	17	272.3	176.3
Cash and cash equivalents at end of period	�	216.6	272.3

�

The accompanying notes form an integral part of these 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.

These results do not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006. The consolidated financial statements for the year ended 31 December 2019 have been audited with an unqualified report that did not contain an emphasis of matter referenced or a statement under section 498(2) or (3) of the Companies Act 2006.

The consolidated financial statements of the Group for the year ended 31 December 2019 were approved by the Board of Directors on 25 February 2020 and have not yet been delivered to the registrar.

2.�� Significant accounting policies

The accounting policies used in preparing the historical financial information are set out below. These accounting policies have been consistently applied in all material respects to all periods presented except for the changes described in Note 4.

�

Basis of preparation

The audited consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The consolidated financial statements have been prepared on a historical cost basis and are presented in US dollars. All values are rounded to the nearest 0.1 million ($'m), except where otherwise indicated.

Under section 408 of the Companies Act 2006, the parent company is exempt from the requirement to present its own profit and loss account.

�

The Group uses the direct method of consolidation, under which the financial statements are translated directly into the presentation currency of the Group, the US Dollar ("USD"). The consolidation of a subsidiary begins when the Group obtains control over the subsidiary, and continues to be consolidated until the date when such control ceases. All intra-group balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full on consolidation.

�

The directors have reviewed the projected cash flow and other relevant information and have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the directors continue to adopt the going concern assumption in preparing the consolidated financial statements.

�

Revenue recognition

Revenue is measured based on the fair value of consideration specified in the contract with a customer and excludes taxes and duty. The Group recognizes the revenue when it transfers control over a product and service to a customer. Each contract is evaluated to determine whether the Group is the principal in the revenue arrangements.

Revenues from individual products and services are aggregated into the following categories:

Consumer

Direct

The principal revenue stream of the Group is derived from the sale of its software and related services for desktop and mobile which protect users' security, online privacy and device performance. Licence agreements with customers include a pre-defined subscription period during which the customer is entitled to the usage of the products, including updates of the software. The typical length of a subscription period is 1, 12, 24, or 36 months. Antivirus software requires frequent updates to keep the software current in order for it to be beneficial to the customer and the customer is therefore required to use the updated software during the licence period. This provides evidence that the licence grants the right to access the software over time and therefore revenue is recognised evenly over the term of the licence. The software licence, together with the unspecified updates, form a single distinct performance obligation.

�

The Group mainly sells software licences through direct sales (mainly through e-commerce services providers including Digital River and the Group's e-shop) to customers. However, the Group also sells a small portion through indirect sales via the Group's retailers and resellers.

�

Deferred revenue represents the contract liability arising from contracts with customers. The portion of deferred revenues that will be recognised as revenue in the 12 months following the balance sheet date is classified as current, and the remaining balance is classified as non-current. Deferred revenue also materially represents the transaction price relating to sales of software licences that is allocated to future performance obligations. Some of the Group's products can be used on a one-time basis (VPN and Utilities), in which case sales are recognised immediately as revenue.

�

The Group uses a practical expedient not to adjust the promised amount of consideration for the effects of a significant financing component if the Group expects, at contract inception, that the period between when the Group transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

�

When the Group concludes that it has control over the provided product or service before that product or service is transferred to the customer, the Group acts as principal and revenues for satisfying the performance obligations are recognised on a gross basis (before deduction of resellers' commissions, payment provider fees and the third party costs). Otherwise revenues are recognised on a net basis.

�

The Group accounts for sales of products through E-Commerce partners on a gross basis before the deduction of the E-Commerce partners's commissions and fees. The Group's e-commerce service providers fulfil administrative functions, such as collecting payment and remitting any required sales tax. The Group's e-commerce service providers collect the fees and transfer cash payments to the Group on a monthly basis within 30 days after the end of the month with respect to which payment is being made. The Group sets the retail list prices and has control over the licences before transferring them to the customer.

�

The Group also sells subscription software licences through an e-shop directly to end customers in cooperation with certain payment gateways providers. Revenue from sales through the e-shop are accounted for on a gross basis before the deduction of payment gateways fees. The Group sets the final retail prices and fully controls the revenue arrangement with the end customers.

�

Location Labs, Inc. ("Location Labs") provides mobile security solutions that partner with Mobile Network Operators ("MNOs") providing locator, phone controls and drive safe products to their customers. Once the product is developed by Avast based on the MNO's requirements, the product is then sold to the end customer via the MNO's subscription plans�. The revenues generated by these arrangements are based on revenue share percentages as stated in the MNO agreements. Revenue is recognised on a net basis, after deduction of partners` commissions, based on the delivery of monthly services to the end customers of the MNOs. Avast has no control of the product and no discretion to set the final prices.

�

The Group also sells a limited amount of physical CDs through its distributors which then sell the Group's products (Internet Security and Antivirus Software) to retail stores. The retail revenue is recognised on a gross basis, before the deduction of distributors commissions, ratably over the subscription period.

�

The Group reduces revenue for estimated sales returns. End users may return the Group's products, subject to varying limitations, through resellers or to the Group directly for refund within a reasonably short period from the date of purchase. The Group estimates and records provisions for sales returns based on historical experience. The amount of such provisions is not material.

Indirect

Consumer indirect revenues arise from several products and distribution arrangements that represent the monetisation of the user base. These arrangements are accounted for on a net basis in an amount corresponding to the fee the Group receives from the monetisation arrangement. The contracted partner in the arrangement is the customer rather than the end customer. The most significant sources of revenues are:

�

�	Google - The Group has two distribution arrangements with Google Ireland Limited ("Google") pursuant to which the Group is paid fees in connection with the Group's offers to users of Google Chrome or Google Toolbar. The Group recognises revenue from Google in full in the month they are earned as the Group has no subsequent performance obligations after the date of sale.
�	Secure Browsing - The Group's Secure browser earns the Group a share of advertising revenue generated by end user search activity. Revenue is recognised immediately as the Group has no performance obligation after the date of sale.
�	Advertising - Other Consumer Indirect derived revenues are comprised of advertising fees and product fees. Advertising fees are earned through advertising arrangements the Group has with third parties whereby the third party is obligated to pay the Group a portion of the revenue they earn from advertisements to the Group's end users. Amounts earned are reflected as revenue in the month the advertisement is delivered to the end user. The Group also receives product fees earned through arrangements with third parties, whereby the Group incorporates the content and functionality of the third party into the Group's product offerings. Fees earned during a period are based on the number of active clients with the installed third-party content or functionality multiplied by the applicable client fee.�
�	Analytics - The Group offered big data and marketing analytics through its entity, Jumpshot Inc. ("Jumpshot"), generating mostly recurring subscription revenue. Subscriptions were recognised ratably over the subscription period covered by the contract. Subsequent to year end, the Group decided to wind down the Jumpshot business as further described in the Note 39.

�

Small and Medium-sized business ("SMB'')

SMB includes subscription revenue targeted at small and medium-sized businesses. Revenue is generated through the sale of security software and other IT managed solutions (including CloudCare). CloudCare is a cloud-based security suite designed for SMBs and third party managed service providers who can use this tool to manage security on behalf of their clients. Licences are provided in conjuction with hosting services as the customers have no control over the software independently. The licence is not distinct and would be combined with the hosting service as a single performance obligation. The performance obligation is typically satisfied over the subscription term, beginning on the date that service is made available to the customer.�Revenues from sales of CloudCare are recognised on a gross basis, before deduction of the payment gateways fees.

Cost of revenues

�

Expenses directly connected with the sale of products and the provision of services, e.g. commissions, payments and other fees and third party licence costs related to the subscription software licences, are recognised as cost of revenues.

Capitalised contract costs

The Group pays commissions, third party licence costs and payment fees to resellers and payment providers for selling the subscription software licences to end customers. Capitalised contract costs are amortised over the licence period and recognised in the cost of revenues. Capitalised contract costs are subject to an impairment assessment at the end of each reporting period. Impairment losses are recognised in profit or loss.�

�

Taxes

�

Current income tax assets and liabilities recognised are the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the country where the Group operates and generates taxable income.

�

Deferred tax is recognised for all temporary differences, except:

�

�	where the deferred tax arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
�	in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

�

Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available, whereby the deductible temporary differences and the carry forward of unused tax credits and unused tax losses, can be utilised.

�

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

�

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date for the respective tax jurisdiction.

�

Deferred tax items are recognised with respect to the related underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

�

Foreign currency translation

�

The Group's historical financial information is presented in US dollars ("USD" or "$"). The functional currencies of all Group entities are presented in the 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 Operations B.V.	USD
Avast Software B.V.	USD
Avast Software s.r.o.	USD
Avast Software, Inc.	USD
Avast Corporate Services B.V.	USD
Avast Deutschland GmbH	EUR
AVG Technologies UK Limited	GBP
AVG Technologies USA, Inc.	USD
FileHippo s.r.o.	CZK
InloopX s.r.o.	EUR
Location Labs, Inc	USD
Piriform Group Limited	GBP
Piriform�Limited	GBP
Piriform�Software Limited	GBP
Piriform, Inc.	USD
Privax Limited	USD
TrackOFF, Inc.	USD
Jumpshot s.r.o.	CZK
Jumpshot, 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 statement of profit and loss as finance income and expenses.
�

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

�

Business combinations and Goodwill

�

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in Administrative expenses.

�

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. It is then considered in the determination of goodwill.

�

Any contingent consideration to be transferred will be recognised at fair value at the acquisition date. Contingent consideration is measured at fair value with changes in fair value recognised in profit or loss. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.

�

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. During the measurement period, which may be up to one year from the acquisition date, the Group may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Consolidated Statement of Profit and Loss.

�

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

�

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;

-��� how the asset will generate future economic benefits;

-��� the availability of resources to complete the asset; and

-��� the ability to measure reliably the expenditure during development.

�

Development expenditure incurred on minor or major upgrades, or other changes in software functionalities does not satisfy the criteria, as the product is not substantially new in its design or functional characteristics. Such expenditure is therefore recognised as an expense in the Consolidated Statement of Profit or Loss as incurred.

�

Goodwill

Goodwill is assessed as having an indefinite useful life and is tested for impairment annually.

�

Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses. Cost comprises the aggregate amount paid and the fair value of any other consideration given
to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended.

�

Repairs and maintenance costs are charged to the Consolidated Statement of Profit and Loss during the accounting period during which they are incurred.�

�

Depreciation is recorded on a straight-line basis over the estimated useful life of an asset, as follows:

�

�	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 corresponds with operating segments (Consumer and SMB) according to the allocation from past business combinations - see Note 23. Intangible assets with indefinite useful lives are all allocated to the Group of CGUs that corresponds to the Consumer operating segment.

�

Leases

For any new contracts entered into on or after 1 January 2019, the Group considers whether a contract is, or contains a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

�

On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Group applied IFRS 16 only to contracts that were previously identified as leases. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into on or after 1 January 2019.�

�

The Group applies a recognition exemption for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'), and lease contracts for which the underlying asset is of low value ('low-value assets'). Short-term lease payments are recognised as operating expenses in the Consolidated Statement of Profit and Loss on a straight-line basis over the lease term.

�

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and are subsequently adjusted (where appropriate) for any 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 expense is presented within depreciation, allocated to general and administrative expenses. �The Group also assesses the right-of-use asset for impairment when such indicators exist.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate and lease payments within extension option periods for which the Group considers it likely that the extension option will be utilised.

�

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable.

�

The amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. Lease interest is presented within Interest expenses. In addition, the carrying amount of lease liabilities is re-measured if there is a reassessment of the lease term (using a revised discount rate at the date of the reassessment) or a change in the variable lease payments that depend on an index or rate (using the original discount rate). In such cases, there is a corresponding adjustment to the right-of-use asset.�

Operating leases (accounting policy applied prior to 1 January 2019)

Under IAS 17 (prior to transition to IFRS 16), leases where the lessee did not obtain substantially all the risks and rewards of ownership of the asset were classified as operating leases. Operating lease payments, other than contingent rentals, were recognised as an expense in the Consolidated Statement of Profit and Loss on a straight-line basis over the lease term.

Employee stock option plans

Employees of the Group receive remuneration in the form of share-based payment transactions whereby employees render services as consideration for equity instruments (equity-settled transactions).

Equity-settled transactions

The cost of equity-settled transactions is determined based on the fair value of the share-based payment award at the date when the grant is made, taking into account the market and non-vesting conditions, using an appropriate valuation model. Non-market vesting conditions are not taken into account in determining the fair value of the award. The cost is recognised, together with a corresponding increase in other capital reserves in equity, over the period in which the performance or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The Consolidated Statement of Profit and Loss expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in compensation expense.

No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

When the terms of an equity-settled transaction are modified, where the modification increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification, additional expense is recognised. When an equity-settled award is cancelled other than by forfeiture, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award. The dilutive effect of outstanding options is reflected in the computation of diluted earnings per share.

�

Payments for settlement of equity-settled awards are taken to equity up to the fair value of the award at the time of settlement (with any excess recognised in profit or loss).

�

Deferred tax assets are recognized in connection with granted stock option in the amount of the expected tax deduction available on exercise, measured using the share price at the end of the period and multiplied by the expired portion of the vesting period. The cumulative related tax benefit is recognised in profit and loss to the extent of the tax rate applied to the cumulative recognised share-based payments expense, with the excess (if any) recognised directly through equity.

Employee benefits

Pension obligations

Contributions are made to the Government health, retirement benefit and unemployment plans at statutory rates applicable during the period and are based on gross salary payments. The arrangements of the Government health, retirement benefit and unemployment plans qualify as defined contribution plans. The�Group has no further payment obligations once the contributions have been paid. The�expense for the contributions is charged to profit and loss in the same period as�the�related salary expense. As a benefit for employees, the Group also makes contributions to defined contribution schemes operated by external (third party) pension companies. These contributions are charged to�profit and loss in the period to which the contributions relate.

Defined contribution plans

The Group maintains a defined contribution 401(k) retirement savings plan for its U.S. 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 U.S. Internal Revenue Service regulations. The Group matches employee contributions to a maximum of 4% of the participant annual compensation.

�

Redundancy and termination benefits

Redundancy and termination benefits are payable when employment is terminated before the�normal retirement or contract expiry date. The Group recognises redundancy and termination benefits when it is demonstrably committed to have terminated the employment of�current employees according to a detailed formal plan without possibility of withdrawal. Benefits falling due more than 12 months after the balance sheet date are discounted to�present value. There are currently no redundancy and termination benefits falling due more than 12�months after the balance sheet date.

�

Key management personnel

The Group discloses the total remuneration of key management personnel ("KMP") as required by IAS 24 - Related party disclosures. The Group includes within KMP all individuals who have authority and responsibility for planning, directing and controlling the activities of the Group. KMP include all members of the Board and the Executive management team of the Group. Other related parties include family members if applicable. See Note 36 for more details.

�

Financial instruments

�

Financial assets and liabilities are recognised on the Group's Consolidated Statement of Financial Position when the Group becomes a contractual party to the instrument. When financial instruments are recognised initially, they are measured at fair value, which is the transaction price plus, in the case of financial assets and financial liabilities not measured at fair value through profit and loss, directly attributable transaction costs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

�

������ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities;

������ Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and

������ Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

�

Trade and other receivables

�

Trade receivables are at initial recognition recorded at the original invoice amount, including value-added tax and other sales taxes. At subsequent reporting dates, the carrying amount is decreased by the expected lifetime loss allowance attributable to the receivable or group of receivables based on a credit assessment of the counterparty or estimate for relevant group of receivables respectively.

�

The Group uses the expected credit loss model for impairment of receivables. The Group applies practical expedients when measuring the expected credit loss. The Group applies a simplified approach and recognises expected lifetime loss allowances for to trade receivables and contract assets. The expected lifetime loss is calculated using the provision matrix, which assigns provision rates to classes of receivables based on number of days they are overdue, based on the Group's historical credit loss experience adjusted for forward-looking development. The classes of receivables are stratified by types of customer and by operating segments between the Consumer and SMB receivables.

�

Bad debts are written off in the period in which they are determined to be completely irrecoverable.

�

Cash and cash equivalents

�

For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash at bank, cash in hand and short-term deposits with an original maturity of three months or less.

�

The Group�s Consolidated Statement of Cash Flows is prepared based on the indirect method from the Consolidated Statement of Financial Position and Consolidated Statement of Profit and Loss.

�

Pledged or restricted assets

�

Financial assets transferred to third parties as collateral, assets that are pledged and assets as to which the Group has otherwise restricted dispositions are classified as other long-term receivables, if the period until which the restriction ends or return of the assets in question will take place is more than 12 months from the balance sheet date.

�

Trade payables and other liabilities

�

Trade payables and other liabilities are recognised at their amortised cost which is deemed to be materially the same as the fair value.

�

Loans

�

Loans are initially recognised at their fair value net of transaction costs and subsequently measured at amortised cost using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial liability.

�

Derivative financial instruments

�

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently re-measured at fair value at the end of each reporting period. The resulting gain or loss is recognised in profit and loss immediately.

�

A derivative embedded within a host contract containing a financial asset host is not accounted for separately. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.

�

De-recognition of financial instruments

�

A financial asset or liability is generally de-recognised when the contract that gives right to it is settled, sold, cancelled or expires.

�

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the Consolidated Statement of Profit and Loss.

�

Provisions

�

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

�

Onerous contracts

�

If the Group has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision. However, before a separate provision for an onerous contract is established, the Group recognises any impairment loss that has occurred on assets dedicated to that contract.

�

An onerous contract is a contract under which the unavoidable costs (i.e., the costs that the Group cannot avoid because it has the contract) of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.

�

Interest income and expense

�

Interest income consists of interest income on deposits. Interest expense consists of interest expense on term loans including amortisation of arrangement fees, and interest expense on leases.

�

Other finance income and expense

�

Other financial income and expenses consist of realized and unrealized foreign exchange gains and losses, changes in fair value of derivatives, unwinding of discounts on non-current provisions and other liabilities discounted to net present value and other financial expense.

�

Exceptional items

�

Exceptional items are material or non-recurring items of income and expense which the Group believes should be separately disclosed to show the business performance of the Group more accurately. Such items are separately disclosed in the notes to the consolidated financial statements. Examples of such items include legal and advisory costs related to acquisition, disposals, integration, strategic restructuring program costs and cost of impairment.�

3.�� Significant accounting judgements, estimates and assumptions

Significant judgements

�

Leases - Extension options

When the Group has the option to extend a lease, management uses its judgement to determine whether or not an option would be reasonably certain to be exercised. The Group has the option, under some of its leases, to lease the assets for additional terms of up to ten years. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew and therefore considers all relevant factors including long-term business strategy, conditions of the lease, availability of alternative options and potential relocation costs for it to exercise the renewal. Potential future cash outflows of $7.4 million have not been included in the lease liability because it is not reasonably certain that the lease will be extended (or not terminated).

Impairment testing

Significant management judgment and estimates are required to determine the individual cash generating units ("CGUs") of the Group, the allocation of assets to these CGUs and the determination of the value in use or fair value less cost to sell of these individual assets. Management has concluded that the operating segments used for segment reporting represents the lowest level within the Group at which the Goodwill is monitored. Therefore, the operating segments correspond to groups of CGUs at which goodwill is tested for impairment.

Loans

The terms of the Credit Agreement offer the Company significant flexibility, allowing it to prepay, reprice, refinance, substitute or replace any drawn loans without penalty (except within a six-month period following issue or a repricing, a term intended to provide a degree of protection to the lenders' income).� The terms also provide for the Company to be able to request a reduction in the interest rate margin payable. Although any such reduction would, as a matter of form, be made through re-negotiation, the agreement was drawn up on the understanding by both the Company and the lenders that the Company would routinely make such requests where it was supported by appropriate evidence (that market perception of the credit risk of the company had improved) and that such requests would generally be granted (as has been the experience in 2017 to 2019 - see Note 27). If not granted the Company would be able to obtain replacement financing at the reduced market price, repay the original loan at par and the lenders would lose their income stream.

Consequently, management's judgement is that the term loan is in substance a floating rate loan for which the interest margin is reset every six months to the market rate, provided it is favorable to the Company. The reduction in margin is accounted for as a change in effective interest rate prospectively from the moment the change in estimate takes place rather than by treating it as a modification of terms.

Significant estimates

�

Deferred tax

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits.

�

The Group recognizes substantial deferred tax assets from unused tax losses in its US based subsidiaries excluding Jumpshot Inc. The management assesses that these deferred tax assets are recoverable, with key elements of judgement being the fact that US tax losses carry over indefinitely, and the significant business presence of the Group in the US market give the group ability to generate sufficient taxable profit for the forseeable future.

�

Based on expectations of future profitability, management expect to recover the deferred tax asset over a 20-year time frame. The recovery period is sensitive to the level of profitability of the underlying business, however, there are no significant assumptions which would impact our expectation of recovery.

�

The Group also recognises substantial deferred tax assets from the 2018 transfer of intellectual property to the Czech Republic, which is being recovered linearly over a 15-year period. The management assesses that this deferred tax asset is recoverable, with key elements of judgment being that the major portion of the Group's profit is generated in the Group's Czech entity and this structure is expected to remain for the foreseeable future.

�

Share-based payments

Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the volatility and dividend yield and making assumptions about them. The Group initially measures the cost of equity-settled transactions with employees using a Black-scholes model. In addition, at each reporting date before vesting, management uses the best estimate of the performance achievement of the number of equity instruments that will ultimately vest. The vesting of these awards is conditioned upon the achievement of the Group's basic EPS and adjusted revenue growth targets over the three-year period. The movements resulting from the estimates are recognised in the Consolidated Statement of Profit or Loss, with a corresponding entry in equity.

�

Redemption liability

The management believed that the estimated exercise value of the redemption liability described in Note 29, as at the end of the period, was best estimated by the original transaction price. The exercise price was at the higher of the original cost and market value. The redemption liability was remeasured to the present value of the estimated exercise price at each period end until expiry or exercise.

Due to subsequent closure of Jumpshot business in January 2020 as decribed in the Note 39, the redemption obligation is void and will be reversed in 2020.

4.�� Application of new and revised IFRS standards

Newly adopted standards

�

IFRS 16 Leases

IFRS 16 Leases supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single, on-balance sheet model.

The Group acts mainly as a lessee and the only significant lease contracts are leased office buildings.

The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application, without any restatement to comparatives. The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'), and lease contracts for which the underlying asset is of low value ('low-value assets'). The Group does not have any significant short-term or low value assets.

Right-of-use assets were measured at the amount of the lease liability on adoption using the incremental borrowing rate at the date of initial application (adjusted for any prepaid or accrued lease expenses and assessed for impairment).

The impact of the initial recognition on 1 January 2019 is as follows:

($'m)	1 January 2019
Right-of-use assets	69.7
Prepaid expenses	(2.0)
Accrued leased payments	4.0
Lease liabilities	(71.7)
Net assets impact	-

�

Application of IFRS 16 does not have any material impact on the Group's Net Profit or EPS comparability with the prior period. The impact is limited to differences in presentation - lease expenses are replaced by right-of-use asset amortisation and lease interest expense.

�

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

�

�	the use of a single discount rate to a portfolio of leases with reasonably similar characteristics
�	the adjustment of the right-of-use asset for any recognised onerous lease provisions, instead of performing an impairment review
�	applied the short-term leases exemptions to leases with lease term that ends within 12 months at the date of initial application
�	the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and
�	the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

�

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

�

�	($ 'm)
Operating lease commitments as at 31 December 2018	87.6
Recognition exemption:	�
������� Commitments relating to short-term leases	(0.5)
������� Other commitments	(0.3)
Net operating lease commitments as at 31 December 2018	86.8
Effect from discounting at the incremental borrowing rate as of 1 January 2019	(15.1)
Lease liabilities as at 1 January 2019	71.7

�

The lease liabilities were discounted at the incremental borrowing rates as at 1 January 2019. The weighted average discount rate was 3.3%.

�

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

�

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

�

�	Whether an entity considers uncertain tax treatments separately;
�	The assumptions an entity makes about the examination of tax treatments by taxation authorities;
�	How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates;
�	How an entity considers changes in facts and circumstances.

�

Upon adoption of the Interpretation, the Group considered whether it had any uncertain tax positions, particularly those relating to transfer pricing. The Company's and the subsidiaries' tax filings in different jurisdictions include deductions related to transfer pricing and the taxation authorities may challenge those tax treatments. The Group determined, based on its tax compliance and transfer pricing study, that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The Interpretation did not have an impact on the consolidated financial statements of the Group.

�

Standards issued but not yet effective and not early adopted

�

IFRS 3 Business Combinations (Amendments)

�

The IASB issued amendments in Definition of a Business (Amendments to IFRS 3) aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The Amendments are effective for business combinations for which the acquisition date is in the first annual reporting period beginning on or after 1 January 2020 and to asset acquisitions that occur on or after the beginning of that period, with earlier application permitted.

�

IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of 'material' (Amendments)

�

The Amendments are effective for annual periods beginning on or after 1 January 2020 with earlier application permitted. The Amendments clarify the definition of material and how it should be applied. The new definition states that, 'Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity'. In addition, the explanations accompanying the definition have been improved. Management has assessed no significant impact from the implementation of this amendment is expected by the Group.

5.�� Segment information and other disclosures

Management monitors operating results in two customer segments: consumer products (which generate direct and indirect revenue streams) and products for the SMB market. For management reporting purposes, the operating and reportable segments are determined to be Consumer and Small and Medium-sized business (''SMB''). This is the level on which the Chief Operating Decision Maker decides about the allocation of the Group's resources.

�

The principal products and services offered by each segment are summarised below:

�

Consumer -The Group's consumer products include direct revenue streams through its offerings for desktop security and mobile device protection and consist of free and premium paid products for the individual consumer market. The Group also has several value-added solutions for performance, privacy and other tools. The Group also focuses on monetising the user base indirectly, via dynamic secure search solution, including the browser toolbar, which gives users a convenient way to access a search engine at any time.

�

SMB - The Group's SMB segment focuses on delivering high-level security and protection solutions for Small and Medium sized business customers.

�

Billings is one of the important metrics used to evaluate and manage operating segments. Billings represent the full value of products and services being delivered under subscription and other agreements and include sales to new end customers plus renewals and additional sales to existing end customers. Under the subscription model, end customers pay the Group for the entire amount of the subscription in cash upfront upon initial delivery of the applicable products. Although the cash is paid up front, under IFRS, subscription revenue is deferred and recognised rateably over the life of the subscription agreement, whereas non-subscription revenue is typically recognised immediately.

�

The Group evaluates the performance of its segments based primarily on Billing, Revenue and Operating profit. Billings are not defined or recognised under IFRS and considered as a non-IFRS financial measure used to evaluate current business performance.

�

Certain costs that are not directly applicable to the segments are identified as "Corporate Overhead" costs and represent general corporate costs that are applicable to the consolidated group. In addition, costs relating to share-based payments and exceptional items are not allocated to the segments since these costs are not directly applicable to the segments, and therefore not included in the evaluation of performance of the segments.

�

The following tables present summarised information by segment:

�

For the year ended 31 December 2019 ($'m)	Consumer	SMB	Total
Billings	865.1	45.9	911.0
Deferral of revenue	(42.2)	2.3	(39.9)
Revenues	822.9	48.2	871.1
Deferred revenue haircut reversal	0.8	1.0	1.8
Segment revenue	823.7	49.2	872.9
Segment cost of revenues	(84.7)	(5.3)	(90.0)
Segment sales and marketing costs	(78.7)	(18.9)	(97.6)
Segment research and development costs	(57.7)	(4.7)	(62.4)
Segment general and administrative costs	(5.4)	3.1	(2.3)
Total Segment operating profit	597.2	23.4	620.6
Corporate overhead	�	�	(137.5)
Deferred revenue haircut reversal	�	�	(1.8)
Depreciation and amortisation	�	�	(110.0)
Exceptional items	�	�	(1.8)
Share-based payments	�	�	(20.7)
Employer's taxes on share-based payments	�	�	(4.2)
Consolidated operating profit	�	�	344.6

�

For the year ended 31 December 2018 ($'m)	Consumer	SMB	Total
Billings	801.6	60.5	862.1
Deferral of revenue	(50.7)	(3.1)	(53.8)
Revenues	750.9	57.4	808.3
Deferred revenue haircut reversal	10.0	5.5	15.5
Segment revenue	760.9	62.9	823.8
Segment cost of revenues	(74.0)	(7.2)	(81.2)
Segment sales and marketing costs	(70.6)	(23.5)	(94.1)
Segment research and development costs	(44.0)	(6.6)	(50.6)
Segment general and administrative costs	(4.7)	-	(4.7)
Total Segment operating profit	567.6	25.6	593.2
Corporate overhead	�	�	(146.2)
Deferred revenue haircut reversal	�	�	(15.5)
Depreciation and amortisation	�	�	(143.7)
Exceptional items	�	�	(25.6)
Share-based payments	�	�	(13.9)
Consolidated operating profit	�	�	248.3

�

Corporate overhead costs primarily include the costs of the Group's IT, Technology (R&D), HR, Finance and Central Marketing functions, legal and office related costs, which are not allocated to the individual segments.

�

The following table presents depreciation and amortisation by segment:

�

($'m)	Year-ended 31 December 2019	Year-ended 31 December 2018
Consumer	91.6	130.5
SMB	0.2	0.4
Corporate overhead	18.2	12.8
Total depreciation and amortisation	110.0	143.7

�

�

The following table presents revenue of subsegments:

�

($'m)	Year-ended 31 December 2019		Year-ended 31 December 2018
Consumer Direct Desktop		631.1	568.4
Consumer Direct Mobile		75.4	81.2
Consumer Indirect		106.7	85.8
SMB		49.2	57.4
Other		8.7	15.5
Total		871.1	808.3
�	�	�	�

�

The following table presents the Group�s non-current assets, net of accumulated depreciation and amortisation, by country. Non-current assets for this purpose consist of property and equipment, right-of-use assets and intangible assets.

�	31 December 2019		31 December 2018
�	($'m)	(in %)	($'m)	(in %)
Czech Republic	257.7	86.2%	263.5	88.9%
UK	20.9	7.0%	22.2	7.5%
USA	16.1	5.4%	8.6	2.9%
Other countries*	4.1	1.4%	2.3	0.8%
Total	298.8	100.0%	296.6	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 2019		Year-ended 31 December 2018
�	($'m)	(in %)	($'m)	(in %)
United States	358.9	41.2%	349.6	43.3%
United Kingdom	75.8	8.7%	68.6	8.5%
France	66.2	7.6%	61.1	7.6%
Germany	56.6	6.5%	50.7	6.3%
Other countries*	313.6	36.0%	278.3	34.3%
Total	871.1	100%	808.3	100.0%

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

���������������������������������������������������������������������������������������������������

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

�

�		Year-ended 31 December 2019		Year-ended 31 December 2018
�	($'m)		(in %)	($'m)	(in %)
Revenues realised through online resellers:	�		�	�	�
������� Digital River	521.8		59.9%	370.1	45.8%
�	�	�	�	�	�

�

In 2019, revenues realized through Digital River significantly increased by $151.7 million due to the transfer of part of the business from in-house payment processing to the external vendor. The majority of revenues from Digital River were reported in the Consumer segment, while the remaining $12.0 million of revenues were reported in the SMB segment.

6.�� Exceptional items

The following table presents the exceptional items by activity:

�

($'m)	Year-ended 31 December 2019	Year-ended 31 December 2018
Exceptional items in the operating profit	1.8	25.6
Net gain on disposal of business operation	17.5	-

�

�

Exceptional items in operating profit

�

The Group incurred $1.8 million of legal and professional fees related to the various acquisitions and a disposal of a subsidiary and related business operation that incurred during 2019. The tax impact on these exceptional items amounted to $0.2 million (2018: $1.5 million)

�

During 2018, the Group incurred costs in the amount of $18.8 million related to one-time advisory, legal and other professional service fees of the IPO that occurred in May 2018. The majority of these costs were tax non-deductible. Total IPO costs comprise of $18.8 million recorded to the Consolidated Statement of Profit and Loss in 2018, $4.1 million already accrued in trade payables in 2017 and additional $4.0 million of direct share issue expenses recorded to equity, which gives total IPO costs of $26.8 million. The full cash impact of the IPO costs was recorded in 2018 showing $(4.0) million under the cash flows from financing activities as directly linked to the share issue and the remaining $(22.8) million is included in the cash flows from operating activities.

�

The remaining portion of 2018 exceptional costs of $6.8m related to the AVG integration and other programs implemented in prior years that were completed in 2018.

�

Net gain on disposal of a business operation

�

On 30 January 2019, the Group sold all activities of Managed Workplace business recognising a gain of $17.5 million as an exceptional item (Note 16), with a tax impact of $2.3 million.

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 2019		Year-ended 31 December 2018
Audit of the financial statements		0.9	1.1
Audit of the financial statements of subsidiaries		0.2	0.2
Total audit fees		1.1	1.3
�		�	�
Other assurance services		0.1	2.5
Corporate finance services		-	2.2
Tax services		-	0.2
Total non-audit fees		0.1	4.9
Total fees		1.2	6.2
�	�	�	�

�

The majority of other services in 2018 related to the Company's IPO, including work as reporting accountant, and related tax and other advisory work, which is an exceptional cost. See Note 6.

�

8.�� Cost of revenues

�

Cost of revenues consist of the following:

�

($ 'm)	�	Year-ended 31 December 2019	Year-ended 31 December 2018
Amortisation	�	89.9	129.4
Depreciation	�	7.2	7.4
Personnel costs of product support and virus updates	�	19.1	17.3
Digital content distribution costs	�	16.4	15.4
Third party licence costs	�	5.3	5.2
Other product support and virus update costs	�	13.2	13.9
Commissions, payment and other fees	�	59.6	52.8
Total	�	210.7	241.4

�

9.�� Operating costs

�

Operating costs are internally monitored by function; their allocation by nature is as follows:

�

($ 'm)	Year-ended 31 December 2019	Year-ended 31 December 2018
Depreciation	11.7	6.0
Amortisation	1.2	0.9
Personnel expenses	180.1	168.3
Purchases of services from third party vendors (legal, advisory and other services)	116.5	135.8
Gifts and charities	5.0	5.0
Other operating expenses	1.3	2.6
Total	315.8	318.6

�

Purchases of services from third party vendors decreased to due adoption of IFRS 16, according to which office costs are now being capitalized.

�

10. Personnel expenses

�

Personnel expenses consist of the following:

($ 'm)	Year-ended �31 December 2019		Year-ended �31 December 2018
�	Employees	Non-executive directors	Employees	Non-executive directors
Wages and salaries	135.1	0.9	135.2	0.8
Social security and health insurance*	27.2	-	23.5	0.1
Pension costs	0.2	-	0.5	-
Social costs	8.0	-	6.7	-
Severance payments and termination benefits	2.9	-	4.9	-
Share-based payments (including employer's costs)	24.9	-	13.7	0.2
Total personnel expense	198.3	0.9	184.5	1.1

�*State and Government pension costs of Czech employees are also included in the social security and health insurance costs.

�

The average number of employees by category during the period was as follows:

�

�	Year-ended 31 December 2019	Year-ended 31 December 2018
Sales and marketing	635	559
Research and development	911	807
General and administrative	246	215
Total average number of employees	1,792	1,581

�

11. Finance income and expenses

�

Interest income:

�

($ 'm)	Year-ended 31 December 2019	Year-ended 31 December 2018
Interest on bank deposits	1.5	0.3
Total finance income	1.5	0.3

�

Interest expense:

�

($ 'm)	Year-ended 31 December 2019	Year-ended 31 December 2018
Term loan interest expense	(56.4)	(85.8)
Lease interest expense	(2.3)	-
Total interest expense	(58.7)	(85.8)

�

Other finance income and expense (net):

�

($ 'm)	Year-ended 31 December 2019	Year-ended 31 December 2018
Changes of fair values of derivatives	(0.8)	1.9
Revolving loan - commitment fee	(0.8)	(1.3)
Foreign currency gains/(losses)	(3.3)	(7.1)
Unrealised foreign exchange gains/(losses) on borrowings	13.9	26.4
Other financial expense	0.7	(0.2)
Total other finance income and expense (net)	9.7	19.7

�

12. Depreciation and amortisation

Amortisation by function:

�

($ 'm)	Year-ended 31 December 2019		Year-ended 31 December 2018
Cost of revenues		88.3	127.5
Total amortisation of acquisition intangible assets		88.3	127.5
Cost of revenues		1.6	1.9
Sales and marketing		0.2	0.1
Research and development		0.1	0.1
General and administration		0.9	0.7
Total amortisation of non-acquisition intangible assets		2.8	2.8
Total amortisation		91.1	130.3
�	�	�	�

�

Depreciation by function:

�

($ 'm)	Year-ended 31 December 2019		Year-ended 31 December 2018
Cost of revenues		7.2	7.4
Sales and marketing		0.1	0.3
Research and development		0.6	1.1
General and administration*		11.0	4.6
Total depreciation		� � � � � �18.9	13.4
�	�	�	�

�� ��*$7.7 million is attributable to the depreciation of right-of-use assets (see Note 22)

�

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

13. Income tax

In the Consolidated Statement of Financial Position, the Corporate Income tax receivable of $17.2 million (2018: $5.8 million) 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 2019	Year-ended 31 December 2018
Current income tax	�	�
Related to current year	(54.8)	(86.7)
Related to prior year	(0.9)	(0.6)
Current income tax total	(55.7)	(87.3)
�	�	�
Deferred tax	�	�
Related to current year	(4.8)	145.9
Related to prior year	(5.2)	0.1
Deferred tax total	(10.0)	146.0
Total income tax (expense)/income through P&L	(65.7)	58.7

�

On 1 May 2018, AVG E-comm web shop was transferred to Avast Software B.V. ("Avast BV") and subsequently, the former Dutch AVG business (including the web shop) from Avast BV was sold to Avast Software s.r.o.� As a result, the deferred tax asset was increased by $143.8 million. In addition, an exit charge of $49.4 million was agreed upon with the Dutch tax authorities. The net tax effect of the transaction in the year ended 31�December 2018 was a tax benefit of $94.4 million.

�

On 1 August 2018, intangible assets of Piriform IP were sold to Piriform UK. As a result, a deferred tax asset of $5.6 million was recognized by the Group. The current tax expense related to the transaction was $0.7 million. The net tax effect of the transaction in the year ended 31�December 2018 was a tax benefit of $4.8 million.

�

The Group generates a temporary difference relating to an intragroup loan denominated in USD received by Avast Software s.r.o., a subsidiary with a USD functional currency (but with a tax currency of CZK). This loan is subject to hedging in its local statutory books (with the effect that current tax relief does not cover the full period exchange differences). The tax impact related to the loan is a deferred tax benefit of $0.4 million (2018: $9.8 million) and the Group reports a deferred tax asset of $10.1 million (2018: $9.8 million) 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 2019	Year-ended 31 December 2018
Profit/(loss) before tax	314.6	182.5
Group effective income tax rate (20%* in 2019 and 2018)	(62.9)	(36.5)
�	�	�
Recurring adjustments	�	�
Non-deductible expenses	(3.7)	(3.2)
Share-based payments	(1.6)	(2.8)
FX effect on Intercompany loans	0.4	9.8
�	�	�
Non recurring adjustments	�	�
Non-deductible expenses (IPO related)	-	(3.8)
AVG IP transfer net tax benefit	-	94.4
Piriform IP transfer net tax benefit	-	4.8
Current year deferred tax assets not recognised	(0.1)	(4.9)
Derecognition of previously recognized deferred tax assets	-	(8.9)
Usage of previously not recognized deferred tax assets	4.7	1.6
Effect of prior year taxes	(6.1)	(0.5)
Effect of enacted changes in tax rates on deferred taxes	0.2	(2.5)
�	�	�
Remaining impact of tax rate variance and other effects	3.4	11.2
Total income tax	(65.7)	58.7

��� *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 2019	31 December 2018
Temporary differences	����� Asset / (Liability)	������ Asset / (Liability)
Fixed assets	(38.2)	(53.1)
IP transfer tax benefit	122.9	142.9
Deferred revenue and unbilled receivables	3.5	15.9
Tax loss carryforward	45.8	16.6
Tax credits carryforward	4.2	3.7
Loans and derivatives	2.1	11.0
Carryforward of unutilised interest	2.7	-
Share-based payments transactions	5.7	-
Provisions	0.8	1.8
Tax impact from FX difference on intercompany loans	10.1	9.8
Other	8.0	0.8
Net	167.6	149.4

�

Tax losses carried forward as at 31 December 2019 are recorded by the following subsidiaries:

($ 'm)	�	�
�	Deferred tax from tax losses carryforward	Tax jurisdiction
Avast Software Inc. (tax group incl. Location Labs and AVG Technologies USA)	44.6	United States
Avast plc	0.9	United Kingdom
Other	0.3	-
Total deferred tax from tax losses carryforward	45.8	-

�

Tax losses carried forward in United States and United Kingdom are related mainly to share-based payments exercises.

�

As a result of share-based payments exercises there was a $147.6 million (2018: $70.0 million) tax deduction in Avast Software Inc., Location Labs LLC, Jumpshot Inc., Avast plc and AVG UK that created a tax benefit of $34.2 million (2018: $14.8 million). A tax benefit of $31.8 million (2018: $14.8 million) exceeding related cumulative remuneration expenses is recognized directly in equity, of which the current tax benefit is $3.4 million (2018: nil) and deferred tax benefit is $28.4 million (2018: $14.8 million).

�

Tax losses reported by Avast Software Inc. can be utilised by all subsidiaries incorporated in the United States (Note 40) excluding Jumpshot, Inc. Tax credit of $4.5 million from federal and state tax losses generated during the years 2011 - 2017 can be utilized over 20 years. Tax credit of $40.1 million from federal and state tax losses can be carried forward for indefinite period of time.

�

The tax deduction for share-based payments is not received until the instruments are exercised. Therefore, a temporary difference of $5.7 million (2018: nil) arises between the tax deduction (pro rated for the period to vesting) and the tax effect of the related cumulative remuneration expense. The deferred tax asset is measured as an estimated tax deduction at the date of exercise (pro rated for the period to vesting), based on the year end share price. As the amount of the deferred tax asset exceeded the tax effect of the related cumulative remuneration expense, the excess of the associated deferred tax of $3.1 million was recognized directly in equity.

�

Following the transactions of IP transfer in 2018, described above, the Group reports a deferred tax asset of $122.9 million (2018: $142.9 million), of which the major part of $119.5 million 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 $21.1 million (2018:�$13.8�million), mostly related to Jumpshot tax losses, for which the Group considers future recoverability to be uncertain.

�

($ 'm)	�	31 December 2019	31 December 2018
�	�	Asset / (Liability)	Asset / (Liability)
Tax losses carried forward - expiration 20 years	�	7.2	5.6
Tax losses carried forward -� indefinite	�	1.8	1.9
Tax losses carried forward - expiration 1-6 years	�	4.5	-
Temporary differences related to loans and interests - indefinite	�	5.2	6.3
Other temporary differences - expiration n/a	�	2.4	-
Total deferred tax asset not recognised	�	21.1	13.8

�

The movement in deferred tax balances:

�

($ 'm)	�	31 December 2019	31 December 2018
�	�	Asset / (Liability)	Asset / (Liability)
Deferred tax as at 1 January	�	149.4	(12.0)
Effect of business combination (Note 15)	�	(3.3)	-
Deferred tax recognised in the profit & loss	�	(10.0)	146.0
Deferred tax recognised in equity	�	31.5	14.8
Translation difference	�	-	0.6
Deferred tax as at 31 December	�	167.6	149.4

�

The deferred tax asset increased significantly due to tax losses realized in 2018 and 2019 from significant share-based payments' exercises. Such significant share-based payments' transactions are not expected to repeat in future periods and management expect the underlying business to remain profitable for the foreseeable future.

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 2019	Year-ended 31 December 2018
Net profit attributable to equity holders ($ 'm)	248.7	241.2
�	�	�
Basic weighted average number of shares	973,788,157	914,567,949
Effects of dilution from share options, performance and restricted share units	44,313,005	62,120,397
Total number of shares used in computing dilutive earnings per share	1,018,101,162	976,688,346
Basic earnings per share ($/share)	0.26	0.26
Diluted earnings per share ($/share)	0.24	0.25

�

Adjusted earnings per share measures:

�

�	Year-ended 31 December 2019		Year-ended 31 December 2018
Net profit attributable to equity holders ($ 'm)		248.7	241.2
Deferred Revenue Haircut reversal / Other		1.8	17.2
Share-based payments (including employers' costs)		24.9	13.9
Exceptional items		1.8	25.6
Amortisation of acquisition intangible assets		88.4	127.5
Unrealised FX gain/(loss) on EUR tranche of bank loan		(13.9)	(26.4)
Tax impact from FX difference on intercompany loans		(0.4)	(9.8)
COGS Deferral Adjustments		(0.1)	(1.1)
Tax impact of COGS deferral adjustment		-	0.3
Tax impact on adjusted items		(20.3)	(18.5)
Tax impact of IP transfer		6.3	(99.2)
Gain on disposal of business operation		(17.5)	-
Tax impact from disposal of business operation		2.3	-
Adjusted net profit attributable to equity holders ($ 'm)		322.1	270.8
Basic weighted average number of shares		973,788,157	914,567,949
Adjusted basic earnings per share ($/share)		0.33	0.30
Diluted weighted average number of shares		1,018,101,162	976,688,346
Adjusted diluted earnings per share ($/share)		0.32	0.28
�	�	�	�

�

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

15. Business combinations

2019 Acquisitions

Acquisition of Emerald Cactus Ventures Inc. ("Tenta")

On 6 November 2019, Avast Software, Inc. purchased a 100% stake in the American company Emerald Cactus Ventures Inc. that has been offering the Tenta Browser providing a privacy-first mobile web browser to hundreds of thousands of Android users worldwide. Tenta Browser will be paired with the current desktop-based Avast Secure Browser with its tens of millions of active users, resulting in a true multi-platform, people-centric solution for private and secure web browsing.

The transaction represents a business combination with Avast Software Inc. being the acquirer. The fair value of the consideration at the acquisition date was determined by the Group to be $5.3 million and comprised the following components:

�	Initial payment - $3.3 million was paid to the owners of Tenta on the acquisition date.
�	Holdback amount - $0.6 million will be paid in 12 months.
�	Earn-out payment - four milestone payments of $0.4 million represents a contingent consideration payable within the next 20 months after the acquisition date to the extent that specific milestones of Tenta are met. As of the acquisition date, the probability weighted value of the earn-out was determined to be $1.4 million.

�

The fair value of assets acquired and liabilities incurred on the acquisition date was determined on final basis as follows:

�

($ 'm)	Fair Value at 6 November 2019
Intangible assets	2.3
Total Assets	2.3
Deferred tax liability	0.5
Total Liabilities	0.5
Net assets acquired	1.8
Consideration paid	5.3
Goodwill	3.5

�

The business combination resulted in the recognition of goodwill of $3.5 million, which is allocated to the Consumer CGU and is tested for impairment at least annually. The goodwill of $3.5 million comprises the workforce in place and the value of expected synergies arising from the acquisition. The carrying value of goodwill is not expected to be tax deductible.

�

The business combination resulted in the recognition of intangible assets in the amount of $2.3 million that represents the intellectual property of Tenta, and will be amortised over the estimated useful life of 5 years.

�

Analysis of cash flows on acquisition:

�

($'m)	31 December 2019
Cash consideration	(5.3)
Holdback consideration payable in 12 months	0.6
Earn-out	1.4
Net cash flow on acquisition	(3.3)

�

Transaction costs of $0.2 million have been expensed and are included in General and administrative expenses in the Consolidated Statement of Profit or Loss and are part of operating cash flows in the statement of cash flows.

The revenues and net profit of the Group for the year ended 31 December 2019 would not have been significantly different had the acquisition occurred at the beginning of the reporting period (1 January 2019).

�

Acquisition of TrackOFF, Inc. ("TrackOFF")

On 24 May 2019, Avast Software, Inc. purchased a 100% stake in the American company TrackOFF, a developer of tools to protect users' identities and personal lives. The Group has acquired TrackOFF to strengthen further the development of Avast's anti-tracking products and other products that help users maintain their privacy online.

�

The transaction represents a business combination with Avast Software Inc. being the acquirer. The fair value of the consideration at the acquisition date was determined by the Group to be $13.1 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 final basis as follows:

�

($'m) �		Fair Value at 24 May 2019
ASSETS	�	�
Current Assets	�	�
Cash and cash equivalents	�	0.6
Trade and other receivables	�	0.2
Total current assets	�	0.8
�	�	�
Non-current assets	�	�
Intangible assets	�	11.2
Deferred tax assets	�	0.4
Total non-current assets	�	11.6
TOTAL ASSETS	�	12.4
LIABILITIES	�	�
Trade payables	�	0.2
Deferred revenues	�	1.7
Other current liabilities	�	0.2
Total current liabilities	�	2.1
�	�	�
Deferred tax liability	�	2.3
Total non-current liabilities	�	2.3
TOTAL LIABILITIES	�	4.4
Net assets acquired	�	8.0
Consideration paid �	�	13.1
Goodwill	�	5.1

�

The business combination resulted in the recognition of goodwill of $5.1 million, which is allocated to the Consumer CGU and is tested for impairment at least annually. The goodwill of $5.1 million comprises the workforce in place and the value of expected synergies arising from the acquisition. The carrying value of goodwill is not expected to be tax deductible.

The business combination resulted in the recognition of intangible assets in the amount of $11.2 million that represents intellectual property of TrackOFF, and will be amortised over the estimated useful life of 5 years.

�

Analysis of cash flows on acquisition:

�

($'m)	31 December 2019
Cash consideration	(13.1)
Net cash acquired with the business (included in cash flow from investing activities)	0.6
Holdback consideration payable in 12 months	1.0
Net cash flow on acquisition	(11.5)

�

Transaction costs of $0.2 million have been expensed and are included in General and administrative expenses in the Consolidated Statement of Profit or Loss and are part of operating cash flows in the statement of cash flows.

�

Revenues and net profit of the Group for the twelve month period ended 31 December 2019 would not have been significantly different had the acquisition occurred at the beginning of the reporting period (1 January 2019).

�

2018 Acquisitions

�

Acquisition of Inloop s.r.o ("Inloop'')

On 1 August 2018, Avast Software s.r.o. acquired a 100% stake in Inloop s.r.o. ("Inloop") on behalf of INLOOPX s.r.o ("INLOOPX"), a mobile engineering services firm based in Slovakia. The reason for the acquisition was to obtain the skilled team of engineers to strengthen Avast's Mobile business.

The transaction represented a business combination with Avast Software s.r.o. being the acquirer. The acquisition date was determined to be 1 August 2018. The former shareholders of Inloop do not have ongoing involvement in the business or with the Avast Group, following the acquisition.

The fair value of the consideration including contingent payment at the acquisition date was determined by the Group to be EUR 7.3 million ($8.6 million).

The fair value of assets acquired and liabilities incurred on the acquisition date was determined on final basis as follows:

�

($ 'm)	Fair Value at 1 August 2018
Cash	0.4
Personal property	0.2
Trade and other receivables	1.5
Total Assets	2.1
�	�
Total Liabilities	0.5
Net assets acquired	1.6
Consideration paid	8.6
Goodwill	7.0

�

The business combination results in the recognition of goodwill of $7.0 million which is allocated to the Consumer CGU and is tested for impairment at least annually. The large proportion of goodwill to other identified assets is due to Inloop not having any significant identifiable assets other than the skilled workforce (the obtaining of which was the main purpose of the acquisition). The carrying value of goodwill is not expected to be tax deductible.

�

The revenues and net profit of the Group for the year ended 31 December 2018 would not have been significantly different had the acquisition occurred at the beginning of the reporting period (1 January 2018).

16. Disposal of a business operation

�

On 30 January 2019, the Avast Group sold all activities of Managed Workplace business, its remote monitoring and management product, to Barracuda Networks, Inc ("Barracuda"). The transaction consisted of the sale of a subsidiary AVG Technologies Canada, Inc. ("AVG CAN") owned by Avast Software B.V., the sale of intellectual property ("IP") owned by Avast Software s.r.o. and the sale of other assets, notably receivables, by Avast Deutschland GmbH, Avast Switzerland AG, AVG Technologies Norway A/S and AVG Distribuidora de Tecnologias do Brasil LTDA.

�

The total selling price for the transaction was $30.0 million, on a cash-free, debt-free basis, of which $3.0 million was withheld in escrow for a 12-month period to satisfy any potential indemnity claims against the Group under the applicable share and asset purchase agreement entered into between the parties.

�

As a result, the Group derecognised all assets and liabilities of the sold subsidiary AVG CAN. Because the sale of the subsidiary is part of a single transaction of the sale of a part of the business, the Group presents the result of the whole transaction (except for tax impacts) within a single line in the statement of comprehensive income, including the sale of IP and other assets.

�

The carrying amounts of assets and liabilities as of the date of sale were as follows:

�

($'m) �		30 January 2019 �
Cash and cash equivalents	�	6.0
Trade and other receivables	�	1.3
Prepaid expenses	�	0.2
Current assets	�	7.5
Tangible assets	�	1.4
Deferred tax assets	�	0.8
Non-current assets	�	2.2
Total assets	�	9.7
Trade and other payables	�	0.2
Lease liability	�	0.2
Deferred revenues	�	0.9
Other current liabilities	�	0.2
Current liabilities �		1.5
Lease liabilities		0.7
Non-current liabilities	�	0.7
Total liabilities		2.2
Net assets		7.5

�

Because the sold business was part of the group of CGUs to which goodwill was allocated, a portion of the goodwill has to be disposed as part of the transaction. The Group have determined that the appropriate amount of goodwill disposed of is $11.0 million which was part of the SMB CGU.

�

The resulting gain on disposal of a business operation is shown in the table below:

�

($'m) �		30 January 2019
Consideration received or receivable:	�	�
�� Cash	�	33.0
�� Receivable - holdback	�	3.0
Total disposal consideration	�	36.0
Carrying amount of net assets sold �	�	(7.5)
Gain on disposal of a business operation	�	28.5
Other adjustments:	�	�
� Goodwill write-off	�	(11.0)
Net gain on disposal of a business operation	�	17.5

�

Analysis of cash flows on disposal:

�

($'m)	31 December 2019
Cash received	33.0
Net cash sold of the business (included in cash flow from investing activities)	(6.0)
Transaction costs paid	(0.3)
Net cash flow on disposal	26.7

�

17. Cash and cash equivalents

For purposes of the statement of cash flows, cash and cash equivalents comprise of the following:

($ 'm)	�	31 December 2019	31 December 2018
Cash on hand and cash equivalents	�	1.4	2.0
Cash in bank	�	215.2	270.3
Total	�	216.6	272.3

18. Trade and other receivables

($ 'm)	31 December 2019	31 December 2018
Trade receivables	30.4	35.7
Unbilled revenues	48.9	49.2
Other receivables	6.4	4.0
Trade receivables, gross	85.7	88.9
Less: Expected loss allowance on trade receivables, unbilled revenues and other receivables	(6.8)	(6.0)
Trade receivables, net	78.9	82.9

�

Trade receivables are non-interest bearing and are generally payable on 30-day terms. The fair value
of receivables approximates their carrying value due to their short term maturities. The expected loss allowance relates to trade receivables (with only insignificant amounts relating to other classes of receivable).

Unbilled revenues represent sold products (for which the revenue has been deferred over the term
of the product licence) but for which an invoice has not yet been issued.

�

Other receivables represent mainly advances to, and receivables from, employees.

�

($ 'm)	Amount
Allowances at 31 December 2017	5.3
Additions	2.7
Write-offs	(2.2)
Reversals	0.2
Allowances at 31 December 2018	6.0
Additions	1.1
Write-offs	(0.3)
Reversals	-
Allowances at 31 December 2019	6.8

Movements in the allowances described above relate mainly to trade receivables.

As of 31 December 2018 and 2019, the nominal value of receivables overdue for more than 360 days are $2.0 million (carrying value: $0.1 million) and $4.5 million (carrying value: nil), respectively.

The ageing analysis of trade receivables, unbilled receivables and other receivables was as follows (carrying amounts after valuation allowance):

�	Not past due	�	�
($ 'm)		Past due 1 - 90 days	Past due more than 90 days	Past due more than 180 days	Past due more than 360 days	Total
31 December 2018	74.6	7.2	0.9	0.1	0.1	82.9
31 December 2019	72.5	5.9	0.4	0.1	-	78.9

19. Capitalised contract costs

($ 'm)	31 December 2019	31 December 2018
Capitalised contract costs at 1 January	35.8	27.2
Additions	65.6	66.1
���� Sales commissions and fees	60.6	59.8
���� Licence fees	5.0	6.3
Amortisation	(63.7)	(57.5)
���� Sales commissions and fees	(58.4)	(52.1)
���� Licence fees	(5.3)	(5.4)
Capitalised contract costs at 31 December	37.7	35.8

�

Total current	�	33.3	31.2
Total non-current	�	4.4	4.6

�

Capitalised contract costs include commissions and fees and third party licence costs related to the subscription software licences that are amortised on a straight-line basis over the licence period, consistent with the pattern of recognition of the associated revenue. Capitalised contract costs are reviewed for impairment annually. All costs are expected to be recovered.

20. Property, plant and equipment

�

($ 'm)		Equipment, furniture and fixtures		Vehicles		Leasehold improvements		In progress		Total
Cost at 31 December 2017		36.5		0.3		12.0		3.2		52.0
Additions		11.5		0.1		0.6		1.3		13.5
Transfers		2.0		-		-		(2.0)		-
Net foreign currency exchange difference		(0.8)		0.1		0.4		-		(0.3)
Disposals		(3.3)		(0.1)		(2.7)		-		(6.1)
Cost at 31 December 2018		45.9		0.4		10.3		2.5		59.1
Additions		17.8		0.1		0.9		7.5		26.3
Transfers		2.5		-		-		(2.5)		-
Net foreign currency exchange difference		0.3		(0.2)		(0.2)		0.4		0.3
Disposals		(4.9)		(0.2)		(1.5)		(0.2)		(6.8)
Cost at 31 December 2019		61.6		0.1		9.5		7.7		78.9
� �	�		�		�		�		�
($ 'm)		Equipment, furniture and fixtures		Vehicles		Leasehold improvements		In progress		Total
Acc. depreciation at 31 December 2017		(19.9)		(0.2)		(2.4)		-		(22.5)
Depreciation		(11.6)		(0.1)		(1.7)		-		(13.4)
Disposals		3.3		0.1		2.7		-		6.1
Acc. depreciation at 31 December 2018		(28.2)		(0.2)		(1.4)		-		(29.8)
Depreciation		(9.7)		(0.1)		(1.4)		-		(11.2)
Disposals		4.4		0.2		0.4		-		5.0
Acc. depreciation at 31 December 2019		(33.5)		(0.1)		(2.4)		-		(36.0)
�		�		�		�		�		�
NBV at 31 December 2018		17.7		0.2		8.9		2.5		29.3
NBV at 31 December 2019		28.1		-		7.1		7.7		42.9
�	�	�	�	�	�	�	�	�	�	�

�

There has been no impairment to the property, plant and equipment held by the Group during the year.

�

There has been no individually significant addition to the property, plant and equipment during the year.

�

For the information about items of property, plant and equipment pledged as security refer to Note 0.

21. Leases

Right-of-use assets

Set out below, are the carrying amounts of the Group's right-of-use assets and the movements during the period. The Group has lease contracts related primarily to office buildings.

($ 'm)	�
At 1 January 2019	69.7
Additions	0.9
Remeasurements	(0.1)
Impairment	(0.2)
Depreciation of right-of-use assets	(7.7)
At 31 December 2019	62.6

�

�

Lease liabilities

�

Lease liabilities are presented in the statement of financial position as follows:

($ 'm)	�
At 1 January 2019	71.7
Additions	0.9
Remeasurements	(0.1)
Lease interest expense	2.3
Payments of lease liabilities	(9.2)
Foreign currency exchange difference	(0.8)
At 31 December 2019	64.8

�

Current	�	7.3
Non-current	�	57.5
Total	�	64.8

�

�Below are the terms of significant lease contracts as of 31 December 2019:

�

Significant lease contracts �	Carrying amount ($ 'm)��	End date �	Option to extend �	Option to be used �
Enterprise Building in Prague, Czech Republic*	26.6	August 2024	24 months two times	Yes - in full
Vln?na Office in Brno, Czech Republic	23.9	January 2026	60 months two times	Yes - in full
Office in Emeryville, California, USA	3.5	June 2024	60 months	No

��� *Lease payments are subject to indexation based on changes of consumer price index. A 1% increase in the index would not substantially increase total lease payments.

�

The following table shows the breakdown of the lease expense between amount charged to operating profit and amounts charge to finance costs:

($ 'm)	2019
Depreciation of right-of-use assets	7.7
Short-term lease expense	1.2
Impairment	0.2
Leases of low-value lease expense	-
Charge to operating profit	9.1
Lease interest expense	2.3
Charge to profit before taxation for leases	11.4

�

For maturity of the leases, refer to Note 30.

22. Intangible assets

�

($ 'm)	Developed Technology	Trade marks	Software	Customer relationship and user base	Other	In progress	Total
Cost at 31 December 2017	250.5	164.1	40.0	246.6	15.0	2.0	718.2
Additions	-	-	-	-	2.4	1.0	3.4
Transfers	-	-	-	-	1.5	(1.5)	-
Net foreign currency exchange difference	-	-	-	-	(0.1)	-	(0.1)
Cost at 31 December 2018	250.5	164.1	40.0	246.6	18.8	1.5	721.5
Business combination	-	-	-	-	13.5	-	13.5
Additions	-	-	-	-	2.3	1.3	3.6
Transfers	-	-	-	-	-	-	-
Net foreign currency exchange difference	-	-	-	-	-	-	-
Cost at 31 December 2019	250.5	164.1	40.0	246.6	34.6	2.8	738.6
�	�	�	�	�	�	�	�
($ 'm)	Developed Technology	Trade marks	Software	Customer relationship and user base	Other	In progress	Total
Acc. amortisation at 31 December 2017	(177.2)	(18.7)	(14.2)	(105.7)	(8.1)	-	(323.9)
Amortisation	(51.5)	(15.0)	(8.1)	(52.6)	(3.1)	-	(130.3)
Acc. amortisation at 31 December 2018	(228.7)	(33.7)	(22.3)	(158.3)	(11.2)	-	(454.2)
Amortisation	(16.7)	(15.2)	(5.0)	(50.1)	(4.1)	-	(91.1)
Acc. amortisation at 31 December 2019	(245.4)	(48.9)	(27.3)	(208.4)	(15.3)	-	(545.3)
�	�	�	�	�	�	�	�
NBV at 31 December 2018	21.8	130.4	17.7	88.3	7.6	1.5	267.3
NBV at 31 December 2019	5.1	115.2	12.7	38.2	19.3	2.8	193.3

�

The Group assess that the Avast trademark, with a carrying value of $70.3 million, has an indefinite useful life, as it is a well established brand. Avast is a core brand and is expected to be a core brand for the foreseeable future, as the Group constantly invests into brand development and brand awareness.

�

The AVG trademark, with a carrying value of $40.9 million, has a remaining useful life of 2.7 years as of 31 December 2019. The Piriform trademark, with a carrying value of $2.8 million, has a remaining useful life of 7.5 years as of 31 December 2019.

�

AVG developed technology, with a carrying value of $5.1 million, has a remaining useful life of 0.7 years as of 31 December 2019.

�

AVG customer relationship, with a carrying value of $37.0 million, has a remaining useful life of 0.7 years as of 31 December 2019.

�

Piriform and FileHippo software, with a gross value of $12.7 million, has a remaining useful life of 2.5 years as of 31 December 2019.

�

For information about intangible assets pledged as securities, refer to Note 0.

�

The Group has not capitalised development costs in the year ended 31 December 2019 (2018: nil) as the Company believe the criteria set out in IAS 38 has not been met. See Note 2.

�

�

23. Goodwill and impairment

�

($ 'm)	�	31 December 2019		31 December 2018
1 January	�	1,993.7		1,986.7
Acquisitions (Note 15) Disposals (Note 16)	�		8.6 (11.0)	7.0 -
31 December	�		1,991.3	1,993.7
�	�	�	�	�

�

Goodwill was calculated as the difference between the acquisition date fair value of consideration transferred less the fair value of acquired net assets. See Notes 15 and 16 for further details of the allocation to individual business segments.

�

Goodwill & Intangible assets impairment tests

�

Goodwill and intangible assets with an indefinite useful life are tested annually for impairment. The impairment test as of 31 December 2019 is performed on the basis of two groups of cash generating units that correspond to the two operating segments as below:

�

($'m)	31 December 2019	31 December 2018
Consumer	1,978.4	1,969.8
SMB	12.9	23.9
Total goodwill	1,991.3	1,993.7

�

In determining the value in use as of 31 December 2019, the Group used the following parameters:

�

�	Projected 2020-2022 free cash flows based on the most current financial plan of the Group;
�	The perpetuity growth rate of 2% p.a. after 2022 is allocated to individual operating segments based on the management's expectation of the operating segments' performance; and
�	An after-tax discount interest rate of 11.2% representing the WACC of the Group (pre-tax discount interest rate of 12.9%). The WACC was calculated from the cost of equity and cost of debt at a ratio typical for an industry of 70% equity and 30% debt.

�

The recoverable amount of tested assets exceeds their carrying value. As the Group's management is not aware of any other indications of impairment and given the results of the impairment tests, no impairment was recorded.

�

No reasonable possible change in the calculation assumptions would lead to an impairment.

24. Trade payables and other liabilities

�($ 'm)	31 December 2019		31 December 2018
Trade payables	2.6	8.5
Accruals	28.5	30.5
Amounts owed to employees	22.0	19.3
Social security and other taxes	2.0	1.5
Other payables and liabilities	10.0	4.2
Total trade payables and other liabilities	65.1	64.0
�	�	�	�

25. Provisions

The movements in the provision accounts were as follows:

�($ 'm)	Accrued vacation provision	Provision for restructuring	Other	Total
As at 31 December 2017	2.0	4.2	1.2	7.4
Additions	1.4	5.6	2.8	9.8
Utilisation	(2.0)	(4.2)	(1.0)	(7.2)
As at 31 December 2018	1.4	5.6	3.0	10.0
Additions	1.7	-	7.8	9.5
Utilisation	(1.4)	(3.0)	(2.6)	(7.0)
As at 31 December 2019	1.7	2.6	8.2	12.5

�

�

As at 31 December 2018

Total current	1.4	4.9	2.8	9.1
Total non-current	-	0.7	0.2	0.9

�

�As at 31 December 2019

Total current	1.7	1.9	8.0	11.6
Total non-current	-	0.7	0.2	0.9

26. Deferred revenue

�

The Group sells consumer and corporate antivirus products for periods of 12, 24 or 36 months with payment received at the beginning of the licence term. Revenues are recognised ratably over the subscription period covered by the agreement. Deferred revenue materially represents the transaction price relating to sales of software licences that is allocated to future performance obligations.

�

The movements in the deferred revenue were as follows:

�

($ 'm)	31 December 2019	31 December 2018
1 January	435.5	378.8
Additions - billings	911.0	862.2
Business combination	0.3	-
Deductions - revenue	(871.1)	(808.3)
Disposal of a business operation	(0.9)	-
Translation and other adjustments	-	2.8
31 December	474.8	435.5

�

Current	�	420.5	384.3
Non-current	�	54.3	51.2
Total	�	474.8	435.5

�

Prior year current deferred revenue is recogised as revenue in the current period.

27. Term loan

Term loan balance is as follows:
�

�($ 'm)	�	31 December 2019	31 December 2018
Current term loan	�	58.2	73.4
Long-term term loan	�	969.5	1,318.1
Total term loans	�	1,027.7	1,391.5
�	�	�	�
($ 'm)	�	31 December 2019	31 December 2018
USD tranche principal	�	336.5	864.7
EUR tranche principal	�	699.8	545.8
Total principal	�	1,036.3	1,410.5

�

In March 2019, the Group upsized the EUR tranche by �177.5 million ($202.6 million) and paid down the USD tranche by $400 million. This resulted in the partial derecognition of arrangement fees of $8.7 million through interest expense.

In April 2019, the Group applied for the margin reduction of 0.25% p.a. on both tranches due to favorable leverage ratio results. The repricing of the margin to market terms, which is allowed for in the terms of the loan, was a change in contractual variable payments to be accounted for by altering prospectively the effective interest rate, consistent with the requirements for floating rate loans (see Note 3).

�

In October 2019, the Group paid down the USD tranche by an additional $100 million. Repayment resulted in the partial derecognition of arrangement fees of $2.7 million. Further, the Group reduced the margin on the EUR tranche by 0.25% p.a.

The Group re-financed its bank loan from the primary proceeds arising from the IPO on 16 May 2018, reducing the USD tranche by $300 million and reducing the margin on both the USD and EUR tranche by 0.25% p.a. The fees for the reduction and repricing were $3.1 million. The Group allocated the drawing fees as of the repricing date between the $300 million repaid amount and the balance of the loan. The portion of unamortized issue costs allocated to the repaid loan of $6.9 million was released into the Consolidated Statement of Profit and Loss as a non-cash interest expenses. Avast Software B.V. may voluntarily prepay term loans in whole or in part without premium or penalty.

Under the Repricing agreement, the following terms apply to the bank loans:

Facility	Interest	Floor	Margin 31 December 2019	Margin������������������� 31 December 2018
USD Tranche	3-month USD LIBOR	1.00% p.a.	2.25% p.a.	2.50% p.a.
EUR Tranche	3-month EURIBOR	0.00% p.a.	2.25% p.a.	2.75% p.a.

�

Both facilities are repayable in full at the end of the 84-month term on 30 September 2023. The margin payable on both facilities is dependent upon the ratio of the Group's net debt to adjusted EBITDA as defined in the facility agreement.

The Credit Agreement ("CA") requires the following mandatory repayments in addition to the quarterly amortisation payments: Excess Cash Flow Payment Amount ("ECF Payment Amount", defined in the CA as the consolidated net increase in cash and cash equivalents of Avast plc for the period adjusted for potential future business combinations and the results of Jumpshot, Inc., Jumpshot s.r.o. and Avast plc and other adjustments) - 50% of Excess Cash Flow (as defined, and subject to certain reductions and to the extent where ECF Payment Amount exceeds $40 million), with a reduction to 25% and elimination based upon the achievement of Total Net First Lien Leverage Ratios (?Net debt ratio") not exceeding 3.5:1 and 3.0:1, respectively. The Net debt ratio is defined as the nominal value of debt less cash on hand as of the relevant date divided by adjusted operating profit for the preceding four calendar quarters. The operating profit is adjusted for amortisation and depreciation, non-cash expenses such as Share-based payments, the effects of business combination accounting and other non-cash items. The Net debt ratio was 1.9:1 as of 31 December 2019 so no mandatory repayment was required.

The following pledge agreements existed as of the date of issuance of these consolidated financial statements:.

���� Avast Software B.V. pledged its 100% share in Avast Software s.r.o. and 100% share in Avast Operations B.V.

���� Avast Software B.V. pledged its receivables

���� Avast Software B.V. pledged its securities

���� Avast Holding B.V. pledged its 100% share in Avast Software B.V.

���� Avast Operations B.V. pledged its receivables from intragroup loan agreements

Avast Software s.r.o. pledged its receivables from bank accounts, trade receivables, receivables from insurance policies, trademarks, receivables from intragroup loan agreements, its movable assets, domain names, source codes and virus databases. Since Avast Software s.r.o. forms a substantial portion of the Group, the estimated value of the pledged assets exceeds the total value of the term loan.�

�

Term loan balance reconciliation

�

The table below reconciles the movements of the balance of the Term loan with the information on above and the statement of cash flows.

�

($ 'm)		�	31 December 2019	31 December 2018
Term loan balance at beginning of period		�	1,391.5	1,781.3
Additional loan drawn (gross of fees)		�	202.6	-
Drawing fees		�	(0.9)	(3.1)
Interest expense		�	56.4	85.8
Interest paid		�	(45.1)	(67.6)
Loan repayment		�	(562.9)	(378.5)
Unrealised foreign exchange loss/(gain)		�	(13.9)	(26.4)
Total	�		1,027.7	1,391.5
�	�	�	�	�

�

Revolving facility

Avast Software B.V. also obtained a revolving credit facility of $85.0 million for operational purposes which has not been drawn as of the date of these consolidated financial statements. It is valid up to 30 September 2022. The Credit Agreement includes a financial covenant that is triggered if at any time $35.0 million or more is outstanding under the revolving credit agreement as of 31 December 2019. If the revolving credit facility exceeds this threshold, then the Group must maintain, on a consolidated basis, a�leverage ratio of less than 6.5:1. This covenant is tested quarterly at such time as it is in effect.

28. Derivatives

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

�

($ 'm)		�		Type		31 December 2019		31 December 2018		�	�
Type of derivative			�	�	�	Assets	Liabilities	Assets	Liabilities
�	Interest rate Cap			Level 3	�	-	2.0	-	1.0
�	�			�	�	-	2.0	-	1.0
Classified as				�	�	�	�	�	�
�	Non-current financial liability			�	�	-	2.1	-	1.0
�	Total			�	�	-	2.1	-	1.0
�	�	�	�	�	�	�	�	�	�	�	�

�

The Group has not designated the derivatives as hedging instruments, and therefore changes in the fair value during the period are recorded in the Consolidated Statement of Profit and Loss.

�

Interest rate cap

On 20 February 2017, Avast Software B.V. entered into an interest rate cap with an effective date from 31 March 2017 until 31 March 2021 ("Cap"). As of 31 December 2019, the 3-month USD LIBOR is capped at 2.75% p.a. for a notional amount of $753.8 million. The capped notional amount will gradually decrease to $709.0 million by 31 March 2021. The fee for the cap is $1.6 million annualy paid in quarterly installments.

�

During the reporting period ended 31 December 2019 there were no transfers between the Level 2 and Level 3 fair value measurements.

�

The movement in fair value of the derivatives was as follows:

�

($ 'm)	�	Interest rate Cap		�
31 December 2017	�	3.2		�
Change in fair value through profit and loss	�		(2.2)
31 December 2018	�	1.0		�
Change in fair value through profit and loss	�	1.1		�
31 December 2019	�	2.1		�
�	�	�	�	�

29. Redemption obligation

In connection with the sale of 35% fully diluted shares of Jumpshot Inc. to Ascential Investor (see Note 34), the stockholders' agreement dated 30 August 2019 gave Ascential Investor the right (the put option) to sell back the shares.

�

Due to subsequent decision to close Jumpshot business in January 2020 as decribed in the Note 39, the put option is rendered void subsequent to the year end. However, at the end of the period, conditions below existed.

�

The put option can be exercised after 30 June 2022 (end of lock-up period), only if following events happens:

�

�	Jumpshot fails to reach certain growth target by January 2022 (and Ascential do not deem it to be met); and
�	Avast and Ascential Investor pursuant to negotiations fail to agree on extension of the lock-up period for reaching the growth target.

�

With respect to above, Avast recognised a redemption obligation at the present value of the exercise price ($61.6 million) discounted by the estimated Avast annual borrowing rate of 3.6%, with a corresponding entry in equity. The exercise price was the higher of original cost and fair value of the shares at the time of exercise.

Below was the estimate of the present value of the redemption liability:

($ 'm)	�
At 1 January 2019	-
Initial recognition of redemption obligation	55.7
Unwinding of discount	0.6
At 31 December 2019	56.3

�

30. Financial risk management

The Group's classes of financial instruments correspond with the line items presented in the Consolidated Statement of Financial Position.

The management of the Group identifies the financial risks that may have an adverse impact on the business objectives and through active risk management mitigates these risks to an acceptable level.

The specific risks related to the Group's financial assets and liabilities and sales and expenses are interest rate risk, credit risk and exposure to the fluctuations of foreign currency.

Credit risk

The outstanding balances of trade and other receivables are monitored on a regular basis, and the aim of management is to minimize exposure of credit risk to any single counterparty or group of similar counterparties. The credit quality of larger customers is assessed based on the credit rating and individual credit limits are defined in accordance with the assessment.

The Group did not issue any guarantees or credit derivatives. The ageing of receivables is regularly monitored by Group management. The Group does not consider the credit risk related to cash balances held with banks to be material.

A significant portion of sales is realized through the Group's online resellers, mainly Digital River. From 2018, the Group manages its credit exposure by receiving advance payments from Digital River.

The Group evaluates the concentration of risk with respect to accounts receivable as medium, due to the relatively low balance of trade receivables that is past due. The risk is reduced by the fact that its customers are located in several jurisdictions and operate in largely independent markets and the exposure to its largest individual distributors is also medium. Sales to customers are required to be settled upfront by credit card or cash, thus further mitigating the risk.

Foreign currency risk�

�

Foreign currency risk is the risk that the fair value of future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group's exposure to the risk of changes in foreign exchange rates relates primarily to the Group's operating activities (when revenue or expense is denominated in foreign currency).

At the parent company level, the functional and presentation currency is the US dollar and the Group's revenue and costs are reported in US dollars. The Group is exposed to translation risk resulting from the international sales and costs denominated in currencies other than US dollars and the resulting foreign currency balances held on the balance sheet. The Group is exposed to material transaction and translation currency risk from fluctuations in currency rates between USD, GBP, CZK and EUR.

�

The following table shows payments for the Group's products and services by end users (either directly to Group or paid to an e-commerce service provider) in individual currencies. Based on agreements with the Group,
e-commerce service providers may convert billings collected on behalf of the Group in specific currencies to a remittance currency (usually USD and EUR) at the existing market rates which does not remove the underlying foreign exchange risk. The table below shows the original currency composition of payments made by end users to illustrate the foreign exchange risk to billings.

�

�	�	Year-ended 31 December 2019	Year-ended 31 December 2018
USD	�	49%	49%
EUR	�	22%	22%
GBP	�	8%	9%
Other	�	21%	20%
Total	�	100%	100%

�

As the majority of revenues represent sales of software licences, the revenues are recognized 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 2019	31 December 2018
USD*	�	(290.1)	(644.0)
EUR*	�	(714.4)	(518.8)
CZK	�	(34.3)	(32.6)
GBP	�	89.9	53.3
Other	�	25.6	44.0
Total	�	(923.3)	(1,098.1)

�� *The fluctuation in the currencies are mainly caused by the term loan restructuring as further described in Note 27.

�

Financial assets and liabilities include cash and cash equivalents, trade and other receivables and trade and other payables, term loan, lease liabilities, other current liabilities and non-current financial assets and liabilities.

�

The table below presents the sensitivity of the profit before tax to a hypothetical change in EUR, CZK and other currencies and the impact on financial assets and liabilities of the Group. The sensitivity analysis is prepared under the assumption that the other variables are constant. The analysis against USD is based solely on the net balance of cash and cash equivalents, trade and other receivables, trade and other payables and term loan.

�

($ 'm)	% change	�	31 December 2019	31 December 2018
EUR	+/-10%	�	(71.4)/71.4	(51.9)/51.9
CZK	+/-10%	�	(3.4)/3.4	(3.3)/3.3
GBP	+/-10%	�	9.0/(9.0)	5.3/(5.3)
Other	+/-10%	�	2.6/(2.6)	4.4/(4.4)

�

The sensitivity analysis above is based on the consolidated assets and liabilities, i.e. excluding intercompany receivables and payables. However, Avast Software s.r.o. has a significant intercompany loan from Avast Operations B.V. denominated in USD. As the functional currency of Avast Software s.r.o. is 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 Operations B.V. is not exposed to any similar volatilities as its functional and tax currency is the USD.

�

Interest rate risk

Cash held by the Group is not subject to any material interest. The only liabilities held by the Group subject to interest rate risk are the loan and derivatives described in Note 27 and 28. Other liabilities and provisions themselves are not subject to interest rate risk. The�Group keeps all its available cash in current bank accounts or term deposit contracts (see Note 17) with a fixed interest rate and original maturity not exceeding three months.

As at 31 December 2019, the Group has a term loan with an interest rate of 3-month USD LIBOR plus a 2.25% p.a. mark-up for USD tranche and 3-month EURIBOR plus a 2.25% p.a. mark-up for EUR tranche. The 3-month USD LIBOR and 3-month EURIBOR is subject to a 1% interest rate floor and 0% interest rate floor, respectively. As of 31 December 2019, the 3-month USD LIBOR was 2.10% p.a. and 3-months EURIBOR was -0.41%.

To reduce the interest rate risk, Avast Software B.V. entered into an interest rate cap ("Cap") with certain counterparties on 20 February 2017 effective from 31 March 2017. Under the Cap, 3 month USD LIBOR is limited to 2.75% p.a. for a notional amount of $844 million at the beginning to $709 million through 31 March 2021.

Interest rate sensitivity

A change of 100 basis points in market interest rates would have increased/(decreased) equity and profit and loss before tax by the amounts shown below:

�

�	�	Year-ended 31 December 2019	Year-ended 31 December 2018
Increase in interest rates	�	(10.4)	(14.1)
Decrease in interest rates	�	10.4	14.1

�

Liquidity risk

�

The Group performs regular monitoring of its liquidity position to maintain sufficient financial sources to settle its liabilities and commitments. The Group is dependent on a long-term credit facility and so it must ensure that it is compliant with its terms. As it generates positive cash flow from operating activities, the Group is able to cover the normal operating expenditures, pay outstanding short-term liabilities as they fall due without requiring additional financing and has sufficient funds to make meet the capital expenditure requirement. The Group considers the impact on liquidity each time it makes an acquisition in order to ensure it does not adversely affect its ability to meet the financial obligation as they fall due.

�

As at 31 December 2019 and 2018, the Group's current ratio (current assets divided by current liabilities including the current portion of deferred revenue) was 0.65 and 0.71. The ratio is significantly impacted by the high current deferred revenue balance due to the sales model, where subscription revenue is collected in advance from end users and deferred over the licence period. The Group's current ratio excluding deferred revenue was 2.57 and 2.15 as at 31 December 2019 and 2018, respectively.

�

In 2019, Avast's credit ratings were upgraded to Ba2 from Ba3 with Moody's and to BB from BB- with Standard & Poor's driven mainly by the voluntary debt repayment. The credit ratings are subject to regular review by the credit rating agencies and may change in response to economic and commercial developments.

The following table shows the ageing structure of financial liabilities as of 31 December 2019:

($ '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	14.5	43.6	978.2	-	1,036.3
Interest payment	7.5	21.5	69.7	-	98.7
Trade payables and other liabilities	54.4	8.7	-	-	63.1
Derivative financial instruments	0.4	1.6	-	-	2.0
Other non-current liabilities	-	-	1.6	-	1.6
Lease liability	2.4	6.9	32.7	42.1	84.1
Redemption obligation	-	-	61.6	-	61.6
Total	79.2	82.3	1,143.8	42.1	1,347.4

�

While the redemption liability as per Note 29 is correctly treated as a non-current liability at the year-end, the original transaction was reversed subsequent to the year end because of the repayment to Ascential described further in Note 39. This impacts the overall liquidity position after the year end.

The following table shows the ageing structure of financial liabilities as of 31 December 2018:

($ 'm)	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	18.3	55.0	1,337.2	-	1,410.5
Interest payment	14.9	44.8	195.3	-	255.0
Trade payables and other liabilities	53.1	9.4	-	-	62.5
Derivative financial instruments	0.4	0.6	-	-	1.0
Other non-current liabilities	-	-	4.1	0.2	4.3
Lease liability	0.1	0.3	2.2	0.3	2.9
Total	86.8	110.1	1,538.8	0.5	1,736.2

�

Fair values

�

The fair values of financial assets and liabilities are included at the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the end of the reporting period. The following methods and assumptions are used to estimate the fair values:

�

�

������ Cash and cash equivalents - approximates to the carrying amount

������ Term loans - approximates to the carrying amount

������ Receivables and payables - approximates to the carrying amount

������ Lease liabilities - approximates to the carrying amount

�

Financial assets and liabilites that are recognised at fair value subsequent to initial recognition are grouped into Levels 1 to 3 based on the degree to which the fair value is observable. The three levels are defined in Note 2.

�

In connection with the 2nd Put/Call option (further described in Note 34), the Group recognised redemption obligation of $61.6 million measured at the present value of the redemption exercise price through profit or loss. The Group classifies the redemption liability as Level 3 liability. The fair value of the 2nd Put/Call option itself (as opposed to the gross exercise price) is immaterial. Similarly, the fair value of the 1st Put/Call and 3rd call options are immaterial (see Note 34).

�

At 31 December 2019, the Group had forward foreign exchange contracts which were measured at Level 2 fair value subsequent to initial recognition. The fair value of the liability in respect of foreign exchange contracts was $0.1 million at 31 December 2019 (2018: liability of $0.2 million).

�

In addition, the Group had derivatives which were measured at Level 3 fair value. See Note 28 for further information.

�

Capital management

�

For the purpose of the Group's capital management, capital includes issued capital, share premium and all other equity reserves attributable to the equity holders of parent. The primary objective of the Group's capital management is to maximise the shareholder value.

�

The Group manages its capital structure and makes adjustments to it in the light of changes in circumstances, including economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.�The Group currently expects to maintain dividend payments of approximately 40% of Group's levered free cash flow in the short to medium term.�

�

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 2019	31 December 2018
Current and non-current liabilities*	�	1,685.2	2,004.4
Less: cash and short - term deposits	�	(216.6)	(272.3)
Net liability position	�	1,468.6	1,732.1
Equity*	�	1,172.6	900.4
Gearing ratio	�	55.6%	65.8%

��� *The Group excluded redemption obligation of $56.3 million from current and non-current liabilities in line with debt covenant calculation and corresponding recognition of put liability of $55.7 from equity.

31. Share capital and share premium

Shares issued and fully paid:	Number of shares	Share Capital ($ 'm)	Share Premium �($ 'm)
Share capital at 31 December 20171	95,514,902	371.7	0.9
Issuance of shares under share-based payment plans	5,345	-	-
Share capital immediately prior to IPO	95,520,247	371.7	0.9
Converted at IPO2	844,058,216	371.7	0.9
Net exercise of options at IPO2	49,603,491	-	7.4
Initial public offering3	58,977,478	8.0	191.8
Share issue expenses3	-	-	(4.0)
Group re-organisation4	-	(250.8)	(0.9)
Capital reduction5	-	-	(180.6)
Issuance of shares under share-based payment plans	799,114	0.1	0.8
Share capital at 31 December 2018 (Ordinary shares of �0.10 each)	953,438,299	129.0	15.4
Issuance of shares under share-based payment plans	54,581,736	7.0	40.2
Share capital at 31 December 2019 (Ordinary shares of �0.10 each)	1,008,020,035	136.0	55.6

�

¹ Share capital at 31 December 2017 represented 52,377,659 common and 43,137,243 preferred shares. The nominal value of the 51,264,275 class A common shares is $6.24 per share with a share premium of $0.044 and nominal value of the 1,113,384 class B common shares is $1.57 with a nil share premium. The nominal value of the 43,136,243 preferred shares is $1.16 with a share premium of $0.044 and nominal value of the 1,000 management preferred shares is $6.24 per share with a share premium of $104.76 per share.

^�

² Avast plc listed its shares on the London Stock exchange on 10 May 2018. As part of the IPO, holders of equity instruments in Avast Holding received 844,058,216 shares in Avast plc. In addition, holders of options in Avast Holding net-exercised at the IPO 49,603,491 shares in Avast plc and 58,977,478 new shares were issued, bringing the total amount of shares outstanding on Admission to 952,639,185. The net exercise of options resulted in the Group recording a share premium of $7.4 million.

�

³ The increase in share capital and share premium of $195.8 million represents the net proceeds from the IPO, less direct share issue expenses of $4 million.

�

⁴ $250.8 million was reclassified from share capital and $0.9 million from share premium into other reserves to reflect the nominal value of 10 pence per outstanding share.

^�

⁵ On 6 November 2018, the High Court of Justice in England and Wales has made an order con?rming the reduction of the share premium account by �138 million ($180.6 million) and the cancellation of the subscriber share of the company under section 648 Companies Act 2006. The Company now will be able to apply the distributable reserves arising from the capital reduction and the subscriber share cancellation towards the payment of dividends in line with the Company's dividend policy and for the purposes of future share buybacks.

�

32. Other reserves

�

The movements in the other reserves were as follows:

�

($ 'm)	�	2019		2018
Other reserves at 1 January	�	260.5		2.4
Group re-organisation (see Note 31)	�		-	251.7
Net exercise of options (see Note 31)	�		-	(7.4)
Redemption obligation reserve (see Note 29)	�		(55.7)	-
Share-based payments1	�		20.1	13.8
Other movements	�		0.2	�
Other reserves at 31 December	�		225.1	260.5
�	�	�	�	�

¹ The fair value of share awards granted to employees is recorded over the vesting periods of individual options granted as a personnel expense with a corresponding entry to other reserves. Refer to Note 35 for further details of share-based payments.

33. Dividends made and proposed

($ 'm)	2019	2018
Final dividend for the period 15 May 2018 to 31 December 2018 at $8.6 cents per share	83.7	-
Interim dividend for the period ended 30 June 2019 at $4.4 cents per share	43.2	-
Total cash dividend paid	127.0	-

�

Dividend Proposed

�

The Directors propose to pay a final dividend of�10.3 cents per share in respect of the year ending 31 December 2019 (total payment of $104.6m). Combined with the interim dividend of 4.4 cents per share paid in October 2019 (total payment of $43.2m), gives a total dividend for the financial year of 14.7 cents�(total payment of $147.8m), which represents 40% of the Group's levered free cash flow for the period in accordance with the Company's dividend policy. Subject to shareholder approval, the final dividend will be paid in US dollars on 24 June 2020 to shareholders on the register on 22 May 2020. There will be an option for shareholders to elect to receive the dividend in pounds sterling and such an election should be made no later than 8 June 2020. The foreign exchange rate at which dividends declared in US dollars will be converted into pounds sterling will be calculated based on the average exchange rate over the five business days prior to 11 June 2020 and announced shortly thereafter.

34. Non-controlling interest

In July 2019, Avast entered into an agreeement with WGSN, Inc., a wholly-owned subsidiary of Ascential plc. ("Ascential"), based on which on 30 August 2019 Avast sold 35% of fully diluted shares of Jumpshot Inc. to Ascential for a consideration of USD 58.8 million (net of $2.8 million Avast transaction fees), while retaining control of Jumpshot. Pursuant to the agreement, both Avast and Ascential also made capital contributions to Jumpshot Inc. of USD 4.8 million and USD 3.2 million, respectively. In addition, as part of the agreement, Avast made a capital contribution to Jumpshot Inc. of USD 6.8 million which was used by Jumpshot Inc. to repurchase a portion of the vested share options held by employees.

Due to the decision to wind down Jumpshot in January 2020, as described in Note 39, the below listed arrangement from the stockholder's agreement were rendered void and cash was repaid to Ascential plc to fulfil the redemption obligation subsequent to the year end. However, at the end of the period, the following rights and obligations existed:

The stockholder's agreement states that Ascential Investors intended to obtain majority control over Jumpshot Inc. The agreement gives the following rights to Ascential Investors and Avast:

�	1st Put/Call option: From 1 January 2021 until 30 June 2021, Avast had a right to sell and Ascential Investors had a right to buy additional 16% of fully diluted share capital of Jumpshot, provided that certain growth targets was reached (or Ascential Investors deem that the target was reached). The agreement specifies how the transaction prices will be determined, and is deemed to approximate the fair value of the shares at that time.
�	2nd Put/Call option: Provided certain conditions are met, at the earliest after 30 June 2022 Ascential Investors had a right to sell and Avast had a right to buy back the original 35% of fully diluted share capital of Jumpshot. This option gave rise to a redemption obligation described in detail in Note 29.
�	3rd Call option: At the earliest of 30 June 2022 (or two years after the 1st Put/Call was exercised) Avast could at its discretion give Ascential a right to buy (a call option) all remaining Avast's shares in Jumpshot Inc. at fair value.

No asset or liability was recognized in connection with the 1st Put/Call option, as the Group considered that the defined transaction price would represent fair value of the shares at the time of transaction. No asset or liability was recognized in connection with 3rd Call option, as no option rights were currently granted.

Changes in the shareholding of Jumpshot Inc. as a result of the agreement and the transaction close are shown in the table below:

�	Pre-close Undiluted	Pre-close Diluted	Post-close Undiluted	Post-close Diluted
Avast	97.0%	82.8%	58.0%	52.2%
Ascential - non-controlling interest	-	-	39.3%	35.3%
Other - non-controlling interest	3.0%	2.6%	2.7%	2.5%
Optionholders	-	14.6%	-	10.0%
Total	100.0%	100.0%	100.0%	100.0%

�

Below is the shareholding of Jumpshot Inc. as of 31 December 2019:

�	Undiluted	Diluted
Avast	58.2%	52.5%
Ascential - non-controlling interest	39.3%	35.4%
Other - non-controlling interest	2.5%	2.3%
Optionholders	-	9.8%
Total	100.0%	100.0%

�

The Group accounted for this transaction as a transaction with non-controlling interest while retaining control, with net proceeds from the transaction as increase in total equity. The Group initially measured the non-controlling interest as proportionate amount of net assets. As a result, the impact on Group's equity is as follows:

�

($ 'm)	31 December 2019
Equity consideration	61.6
Less: Transaction fees	(2.8)
Consideration received	58.8
Ascential contribution	3.2
Option repurchase	(6.8)
Other transaction fees	(0.9)
Net proceeds from the transaction	54.3
Change in the non-controlling interest	(5.7)
Increase in shareholder's equity	48.6

�

The change in the non-controlling interest are as follows:

($ 'm)	2019	2018
At 1 January 2019	1.0	0.8
Sale of 35% of Jumpshot Inc.	5.7	-
Share-based payments	0.6	0.2
Net profit allocated to non-controlling interest	0.2	-
At 31 December 2019	7.5	1.0

35. Share-based payments

Existing Employee Share plan (formerly known as Avast Holding 2014 Share Option Plan "Avast Option Plan")

�

The Avast Option Plan was the primary share option plan of the Group prior to the IPO under which certain employees and Directors were granted options over A-Ordinary and / or B-Ordinary Shares of Avast Holding. Following the IPO, the Avast Option Plan was adjusted such that the options granted under the plan ceased to be options over shares of Avast Holdings and, instead, became options over shares of the Company of equivalent value.

�

No new options have been granted under the Avast Option Plan since the IPO. Furthermore, the Company does not intend to grant any further options under the Avast Option Plan.

�

Options generally vest over a four-year period in four equal installments. Some of the options granted to the key management personnel are performance-based. The contractual life of all options is 10 years.

�

Avast plc, 2018 Long Term Incentive Plan ("LTIP")

�

Following the IPO, the Company has adopted the LTIP for employees and Executive directors. The purpose of the LTIP is to incentivise employees and Executive Directors whose contributions are essential to the continued growth and success of the business of the Company, in order to strengthen their commitment to the Company and, in turn, further the growth, development and success of the Company. The following types of awards can be granted:

�

Performance Stock Units ("PSUs")

PSUs will be granted to Executive Directors and members of the Executive Management Team.�Each PSU entitles a participant to receive a share in the Company upon the attainment, over a three year performance period, of challenging performance conditions determined by the Remuneration Committee.

�

Restricted Stock Units ("RSUs")

RSUs will be granted to key employees of the Group who are not Executive Directors or members of the Executive Management Team. Each RSU entitles a participant to receive a share in the Company upon vesting of the RSU. Each award of RSUs will ordinarily vest either in three equal proportions over a three year period or on the third anniversary of grant or over such other period as the Committee may determine, provided the participant remains in service.

�

Stock Options ("Options")

Options may be granted to key employees of the Group who are not Executive Directors or members of the Executive Management Team.�Each option entitles a participant to the right to acquire a share of the Company upon vesting of the option.�Each option will ordinarily become exercisable either in three equal proportions over a three year period or on the third anniversary of the grant, or over such other period as the Remuneration Committee may determine.

�

Share Matching Plan ("SMP")

�

The Company has adopted the Avast Share Matching Plan ("SMP") for employees and Executive Directors of the Group.The purpose of the SMP is to encourage and enable employees and Executive Directors to acquire a significant stake in the Company so that they can share in the future growth, development and success of the Company. Under this plan, the employees will be granted one matched share for every three purchased shares after a two-year period.

�

Deferred Bonus Plan ("DBP")

�

The Company has adopted the Deferred Bonus Plan for only Executive Directors. Where a participant is required to defer a portion of their annual bonus into shares under the terms of the Company's annual bonus arrangements, the Remuneration Committee may grant an award to acquire shares under the DBP in order to facilitate such deferral. Awards will ordinarily vest on the second anniversary of the date of grant. No award under DBP was granted in 2019.

�

Jumpshot Inc., 2015 Share Option Plan ("Jumpshot Option Plan")

�

The Jumpshot Option Plan was designed in order to grant options to purchase shares of common stock of Jumpshot Inc. to certain employees and directors of Jumpshot Inc. The purpose of the Jumpshot Option Plan is to provide employees with an opportunity to participate directly in the growth of the value of Jumpshot by receiving options for shares.

Each option converts into one ordinary share of Jumpshot Inc. on exercise. Options that are forfeited are available to be granted again. Options generally vest over a four-year period in four equal installments. Some of the options granted to the key management are performance-based. The contractual life of all options is 10 years.

�

Share-based payment expense

�

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

�

($ 'm)	�	Year-ended 31 December 2019	Year-ended 31 December 2018
Avast Option Plan	�	5.8	8.5
LTIP	�	14.2	5.3
Jumpshot Option Plan	�	0.6	0.1
SMP	�	0.1	-
Total share-based payment expense	�	20.7	13.9

�

The Group also recognised additional $4.2 million of employer's costs related to the share-based payments exercise included in operating costs. Total costs related to share-based payments adjusted out from the operating profit amounted to $24.9 million.

Share Options�

�

The fair value of equity-settled share options granted is determined, based on the several assumptions, on the date of the grant award using the Black-Scholes option valuation model. The following table illustrates the weighted average inputs into the Black-Scholes model in the year:

�

Avast Option Plan	Year-ended 31 December 2019	Year-ended 31 December 2018
Number granted in year	-	1,810,000
Weighted average grant date fair value (in $/per share)	-	6.77
Weighted average exercise price (in $)	-	26.98
Expected volatility	-	31.58%
Weighted average expected lives (years)	-	6.25
Risk free interest rate	-	2.67%
Expected dividends	-	Nil

�

Jumpshot Option Plan	Year-ended 31 December 2019	Year-ended 31 December 2018
Number granted in year	1,864,061	1,049,289
Weighted average grant date fair value (in $/per share)	1.80	0.35
Weighted average exercise price (in $)	4.19	0.86
Expected volatility	42.18%	44.88%
Weighted average expected lives (years)	7.34	6.92
Risk free interest rate	1.54%	2.71%
Expected dividends	Nil	Nil

�

Expected volatility was determined by calculating the historical share price volatility of comparable listed companies over the expected life of the options. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. An increase in the expected volatility will increase the estimated fair value. The expected life is the average expected period to exercise.

�

The number and weighted average exercise prices of, and movements in, share options of Avast Option Plan in the year is set out below:

�

�	Year-ended 31 December 2019		Year-ended 31 December 2018
�	Number of shares	Weighted average exercise ($)	Number of shares	Weighted average exercise ($)
Outstanding - 1 January	68,941,832	1.60	9,383,398	8.99
Granted	-	�	1,810,000	26.98
Forfeited	-	�	(74,750)	9.32
Exercised	-	�	-	-
Outstanding on Admission	-	�	11,118,648	12.13
Converted on Admission	-	�	69,905,909	1.69
Forfeited	(3,055,422)	3.24	(234,963)	1.23
Exercised	(41,129,176)	1.07	(729,114)	1.14
Outstanding - 31 December	24,757,234	2.27	68,941,832	1.60
Vested and exercisable - 31 December	13,968,428	1.52	26,685,849	0.98

�

The weighted average share price for options exercised during the year was � pence 367.94 (2018: � pence 225.88).

�

Options outstanding at the end of the year had the following range of exercise prices and weighted average remaining contractual life:

�

�	�		31 December 2019		31 December 2018
� � Exercise price:	�	�	Number of shares outstanding	Weighted average remaining life (years)	Number of shares outstanding	Weighted average remaining life (years)
$0.77 - $0.88	�	�	2,171,117	4.70	23,736,711	6.14
$1.12 - $1.84	�	�	12,006,156	7.34	31,141,544	8.21
$2.72 - $3.39	�	�	10,579,961	8.22	14,063,577	9.22
Outstanding - 31 December	�	�	24,757,234	7.49	68,941,832	7.61

�

Replacement options

�

�	Year-ended 31 December 2019		Year-ended 31 December 2018
�	Number of shares	Weighted average exercise ($)	Number of shares	Weighted average exercise ($)
Outstanding - 1 January	12,266,682	0.19	7,717,640	1.57
Exercised	-	�	(1,118,729)	1.57
Outstanding on Admission	-	-	6,598,911	1.57
Converted on Admission	-	-	12,336,682	0.20
Exercised	(11,683,247)	0.19	(70,000)	0.18
Outstanding - 31 December	583,435	0.18	12,266,682	0.19
Vested and exercisable - 31 December	583,435	0.18	12,266,682	0.19

�

The following table summarises share option activity of Jumpshot Option Plan:

�

�	�		Year-ended 31 December 2019		Year-ended 31 December 2018
�	�	�	Number of shares	Weighted average exercise ($)	Number of shares	Weighted average exercise ($)
Outstanding - 1 January	�	�	6,572,291	0.40	6,815,525	0.34
Granted	�	�	1,864,061	4.19	1,049,289	0.86
Repurchased	�	�	(1,615,513)	0.33	-	-
Forfeited	�	�	(290,001)	0.68	(1,154,152)	0.50
Exercised	�	�	(962,113)	0.31	(138,371)	0.35
Outstanding - 31 December	�	�	5,568,725	1.70	6,572,291	0.40
Vested and exercisable - 31 December	�	�	2,125,858	0.37	3,766,538	0.31

�

Options outstanding of Jumpshot Option Plan at the end of the year had the following range of exercise prices and weighted average remaining contractual life:

�

�	�		31 December 2019		31 December 2018
Exercise price:	�	�	Number of shares outstanding	Weighted average remaining life (years)	Number of shares outstanding	Weighted average remaining life (years)
$0.30	�	�	2,383,225	5.18	4,653,252	6.18
$0.36	�	�	301,525	6.45	583,500	7.45
$0.56	�	�	187,813	7.58	358,750	8.45
$0.86	�	�	831,476	8.54	976,789	9.55
$1.79	�	�	232,709	9.20	-	-
$4.53	�	�	1,631,977	9.77	-	-
Outstanding - 31 December	�	�	5,568,725	7.35	6,572,291	6.92

�

Restricted Share units�

�

The following table illustrates the number and weighted average share price on date of award, and movements in, restricted share units granted under the LTIP:

�����������

�	�		Year-ended 31 December 2019		Year-ended 31 December 2018
�	�	�	Number of shares	Weighted average share price (� pence)	Number of shares	Weighted average share price (� pence)
Outstanding - 1 January	�	�	4,927,332	234.97	-	-
Granted	�	�	6,130,302	354.05	5,188,917	234.94
Forfeited	�	�	(1,329,900)	260.99	(261,585)	234.29
Vested	�	�	(1,567,385)	237.21	-	-
Outstanding - 31 December	�	�	8,160,349	319.76	4,927,332	234.97

�

The fair value of RSUs granted is measured as at date of grant using Black-Scholes model, the outcome of which is a weighted average fair value of RSUs granted during the year was � pence 324.93 (2018: � pence 219.07). Future dividends have been taken into account based on expected cash flow and dividend policy.

�

Performance Share Units

�

The following table illustrates the number and weighted average share price on date of award, and movements in, performance share units granted under the LTIP:

�

�	�		Year-ended 31 December 2019		Year-ended 31 December 2018
�	�	�	Number of shares	Weighted average share price (� pence)	Number of shares	Weighted average share price (� pence)
Outstanding - 1 January	�	�	6,309,881	219.60	-	-
Granted	�	�	1,458,494	303.01	6,309,881	219.60
Forfeited	�	�	(2,410,338)	219.60	-	-
Vested	�	�	-	-	-	-
Outstanding - 31 December	�	�	5,358,037	242.30	6,309,881	219.60

�

The vesting of the awards under LTIP is subject to the attainment of performance conditions as described in the directors' renumeration 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 303.01 (2018: � pence 219.60).

�

Share Matching Plan

�

During 2019, the Group has issued 201,928 shares to the employees under Share-matching Plan and additional 66,914 will be issued after matching period (which is two years). The cost of the additional 66,914 shares is to be recognized against the other reserves over the matching period and amounted to $0.2�million in total for all tranches as of�31 December�2019. The weighted average fair value of additional shares was � pence 289.78 for the year ended 31 December 2019.

36. Related party disclosures

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

�

Compensation of key management personnel (including Directors)

�

($ 'm)	�			Year-ended 31 December 2019		Year-ended 31 December 2018
�	�		�	Key management personnel	Other related parties	Key management personnel	Other related parties
Short term employee benefits (including salaries)		�	�	11.9	0.1	12.7	0.1
Termination benefits		�	�	1.2	-	0.5	-
Share-based payments		�	�	10.0	-	9.3	-
Total	�		�	23.1	0.1	22.5	0.1
�	�	�	�	�	�	�	�

�

The amounts in the table above includes, in addition to the compensation of key management personnel of the Group, the remuneration of employees of the Group that are considered related parties under IAS 24 Related party disclosures.

As a part of the IPO and Reorganisation in 2018, share transactions occurred between Avast plc and key management personnel and significant shareholders, including Sybil Holdings S.a r.l.

Other Related Parties

Nada?n� fond AVAST ("AVAST Foundation")

The foundation was established by Avast Software s.r.o. and it distributes the gifts to other charities and foundations in the Czech Republic. The foundation is considered to be a related party as the spouses of Messrs. Ku?era and Baudi� are members of the management board of the foundation.

On 13 March 2018, the Board approved that the donation for 2018 will be CZK�100�million ($5.0 million). The donation is paid in quarterly installments during the year.

During the twelve months ended 31 December 2019, Avast Software s.r.o. made donations of CZK 100.0 million ($4.4 million) [2018: CZK 68.4 million ($3.1 million)] to the Foundation. As of 31 December 2019, the Company recorded an accrual of CZK 56.6 million ($2.5 million) [2018: CZK 41.8 million ($1.9 million)].

�

Enterprise Office Center

On 15 November 2016, Enterprise Office Center (owned by Erste Group Immorent) where Avast Software s.r.o. resides was sold by a third party to a group of investors including co-founders of Avast Group, Eduard Ku?era and Pavel Baudi� for $119.5 million (ca. �110 million). The term of lease ends in August 2024 and offers two options to extend for another 24 months under the same conditions. The annual rent is �3.3 million ($3.7 million).

37. Commitments

�

There were no significant commitments in 2019.

�

Operating lease commitments - 2018

�

The Group leased office space which incurred $12.4 million of the lease expense for the year ended 31 December 2018. The minimum future rentals on operating leases are as follows as of 31 December 2018:

($ 'm)	Less than 1 year	1 to 5 years	> 5 years	Total
Lease	9.5	33.6	44.6	87.7
Sublease income	(0.9)	(2.2)	-	(3.1)
Net lease	8.6	31.4	44.6	84.6

�

38. Principal exchange rates

�

�		�	Year-ended 31 December 2019	Year-ended 31 December 2018
Translation of Czech crown into US dollar ($:CZK1.00)		�	�	�
Average Closing		�	0.0437 0.0442	0.0461 0.0445
�		�	�	�
Translation of Sterling into US dollar ($:�1.00)		�	�	�
Average Closing		�	1.2757 1.3203	1.3357 1.2882
�		�	�	�
Translation of Euro into US dollar ($:�1.00)		�	�	�
Average		�	1.1212	1.1814
Closing		�	1.1233	1.1451
�	�		�	�
�	�	�	�	�

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39. Subsequent events

On 30 January 2020, the Group decided to wind down the operation of its subsidiary Jumpshot Inc. The Group expects to incur a one-time exceptional cash cost in the range of $15m-$25m in the current financial year to cover closure costs, asset writedowns and employee restructuring. As part of the termination arrangements, Avast has returned the investments made by Ascential plc into the business, along with associated exit costs, in the amount of $73.0 million. Because of the repayment, the original transaction was reversed subsequent to the year end.

In light of recent press speculation and as part of the process to effect an orderly wind-down of Jumpshot, Avast is in communication with relevant regulators and authorities in respect of certain data protection matters and is cooperating fully in respect of all regulatory enquiries. Avast expects further communications with the regulators from time to time and recognizes that there may be possible future investigations, disputes, claims and liabilities associated with the wind-down of the business which at this time cannot be quantified.

This represents a non-adjusting subsequent event, therefore it is disclosed but otherwise without impact on financial results for the year ended 31 December 2019. Specifically, the Redemption Obligation (Note 29) and Non-controlling interest (Note 34) are accounted in line with conditions and information that existed as of the year end.

Responsibility statement of the Directors in respect of the Annual Financial report (Page 106 2019 Annual Report)

The Annual Report & Accounts for the year ended 31 December 2019 includes the following responsibility statement.

The directors confirm, to the best of the their knowledge, that:

������ the Group financial statements, prepared in accordance with IFRS as adopted by the European Union and in accordance with applicable law, give a true and fair view of the assets, liabilities, financial,� position and profit of the Company and the undertakings included in the consolidation taken as a whole; and
�

������ the Strategic Report and Directors' Report includes 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.

�

On�behalf of the Board

�

�

�

Ondrej Vlcek

Chief Executive Officer

25 February 2019

�

�

40. Full list of subsidiaries as of 31 december 2019

Country of incorporation	Registered office	Registered address	Class of shares held	Percentage of share held	�
� � Netherlands	Avast Holding B.V.	Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands	Ordinary	100%	�
	Avast Software B.V.	Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands	Ordinary	100%	�
	Avast Operations B.V.***	Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands	Ordinary	100%	�
	Avast Corporate Services B.V.*** � Norman Data Defense Systems B.V.*** � AVG Ecommerce CY BV	Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands Schiphol Boulevard 369, Tower F, 7th floor, 1118BJ Schiphol, the Netherlands	Ordinary � Ordinary � Ordinary	100% � 100% � 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	58%	�
	FileHippo s.r.o.	Pikrtova 1737/1a, 140 00 Prague 4, Czech Republic	Ordinary	100%	�
Germany �	Avast Deutschland GmbH	Otto-Lilienthal-Stra�e 6, 88046 Friedrichshafen, Germany	Ordinary	100%	�
� � � United Kingdom	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%	�
� � � � � USA � � � � �	AVAST Software, Inc.	2625 Broadway Street, Redwood City, County of San Mateo, CA 94063, USA	Ordinary	100%	�
	Remotium Inc.	2625 Broadway Street, Redwood City, County of San Mateo, CA 94063, USA	Ordinary	100%	�
	TrackOFF, Inc.	3700 O'Donnell St, Baltimore, MD 21224	Ordinary	100%	�
	Emerald Cactus Ventures, Inc.	1700 7th Ave STE 116 #212 Seattle, WA 98101	Ordinary	100%	�
	Sybil Software LLC	Corporation Service Company 251 Little Falls Drive, Wilmington, DE 19808, USA	Ordinary	100%	�
	Jumpshot, Inc.	329 Bryant Street, Suite 3C San Francisco, CA 94107, USA �	Ordinary	58%	�
	AVG Technologies USA, LLC	1313 N. Market Street, Suite 1500 Wilmington, DE 19801, USA	Ordinary	100%	�
	Location Labs, LLC	2100 Powell St, Emeryville, CA 94608, USA	Ordinary	100%	�
	Piriform Inc.	Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, USA	Ordinary	100%	�
Hong Kong	AVAST Software (Asia) Limited	10/F, Guangdong Investment Tower, 148 Connaught Road Central, Hong Kong	Ordinary	100%	�
Israel	AVG Mobile Technologies Ltd*	2 HaShlosha Street, Tel Aviv Yaffo 6706054, Israel (PO BOX 9244)	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	Level 7, 122 Arthur Street, 2060 Sydney - North Sydney, New South Wales, Australia	Ordinary	100%	�
Brasil	AVG Distribuidora de Tecnologias do Brasil Ltda.	Conj 38, R. Amazonas, 669 - Santa Paula, S�o Caetano do Sul - SP, 09520-070, Brasil	Ordinary	100%	�
Norway	AVG Technologies Norway AS	Lysaker Torg 5, 1366 Lysaker, B�rum, Norway	Ordinary	100%	�
Slovak Republic	INLOOPX s.r.o.	Ve?k� Okru�n� 26A, 010 01 �ilina, Slovakia	Ordinary	100%	�
Switzerland	Avast Switzerland AG	M�nchensteinerstr. 43, 4052 Basel, Switzerland	Ordinary	100%	�
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%	�

* in liquidation

** AVG Technologies UK Limited and Piriform Software Ltd will take advantage of the audit exemption set out within section�479A of the Companies Act 2006 for the year ended 31 December 2019.

*** As of 1 January 2020, Avast Operations B.V., Avast Corporate Services B.V. and Norman Data Defense Systems B.V. merged into Avast Software B.V.

�The Company's directly held subsidiary is Avast Holding B.V.� All other subsidiaries are indirectly held.

GLOSSARY

�

Adjusted Billings	Adjusted Billings represents the Group's reported billings.
Adjusted Revenue	Adjusted Revenue represents the Group's reported revenue adjusted for the Deferred Revenue Haircut Reversal, the Gross-Up Adjustment. These historical adjustments are negligible from 2019. A reconciliation is included in the "PRESENTATION OF RESULTS AND DEFINITIONS".
Adjusted Billings/Revenue excluding FX	Growth rate excluding exchange rate impact calculated by restating 2019 actuals to 2018 FX rates. Deferred revenue is translated to USD at date of invoice and is therefore excluded when calculating the impact of FX on revenue. For the FX rates applied, see "Principal exchange rates applied".
Adjusted Cash EBITDA	Adjusted earnings before interest, taxation, depreciation and amortisation ("Adjusted EBITDA") is defined as the Group's operating profit/loss before depreciation, amortisation of non-acquisition intangible assets, share-based payments, exceptional items, amortisation of acquisition intangible assets, the Deferred Revenue Haircut Reversal and the COGS Deferral Adjustments. 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, exceptional items, COGS deferral adjustment and the gross-up adjustment. 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 acquisition intangible assets, share-based payments, exceptional items, amortisation of acquisition intangible assets, the Deferred Revenue Haircut Reversal and the COGS Deferral Adjustments. A full reconciliation is included in the "PRESENTATION OF RESULTS AND DEFINITIONS".
Adjusted EBITDA margin	Adjusted EBITDA as a percentage of Adjusted Revenue.
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 the Deferred Revenue Haircut Reversal, share-based payments, exceptional items, amortisation of acquisition intangible assets, unrealised foreign exchange gain/loss on the EUR tranche of the bank loan, the COGS Deferral Adjustments, the tax impact from the unrealised exchange differences on intercompany loans and the tax impact of the foregoing adjusting items and IP transfers. For the reconciliation see "PRESENTATION OF RESULTS AND DEFINITIONS" section.
Amortisation of acquisition intangibles	Represents the amortisation of intangible assets acquired through business combinations which does not reflect the ongoing normal level of amortisation in the business.
Average Products Per Customer (APPC)	APPC defined as the Consumer Direct Desktop simple average valid licences or subscriptions for the financial period presented divided by the simple average number of Customers during the same period. See "Consumer Direct Desktop Operational KPIs".
Average Revenue Per Customer (ARPC)	ARPC defined as the Consumer Direct Desktop revenue for the financial period divided by the average number of Customers during the same period. See "Consumer Direct Desktop Operational KPIs".
Cash conversion	Unlevered Free Cash Flow as a percentage of Adjusted Cash EBITDA. See "Cash flow" section of "FINANCIAL REVIEW".
COGS Deferral Adjustments	There was no deferred cost of goods sold ("COGS") balance consolidated by the Group in the acquisition balance sheet of AVG in 2016 and thus no subsequent expense was recorded as the revenue in respect of pre-acquisition date billings was recognised. The "COGS Deferral Adjustments" refers to an adjustment to reflect the recognition of deferred cost of goods sold expenses that would have been recorded in 2016 and 2017 in respect of pre-acquisition date AVG billings, had the AVG and the Group's businesses always been combined and had AVG always been deferring cost of goods sold. See "PRESENTATION OF RESULTS AND DEFINITIONS".
Deferred Revenue Haircut Reversal	Under IFRS 3, Business Combinations, an acquirer must recognise assets acquired and liabilities assumed at fair value as of the acquisition date. The process of determining the fair value of deferred revenues acquired often results in a significant downward adjustment to the target's book value of deferred revenues. The reversal of the downward adjustment to the book value of deferred revenues of companies the Group has acquired during the periods under review is referred to as the "Deferred Revenue Haircut Reversal". See "PRESENTATION OF RESULTS AND DEFINITIONS".
Discontinued Business	As the company is exiting its toolbar-related search distribution business, which had previously been an important contributor to AVG's revenues (referred throughout the Full Year Report, with the Group's browser clean-up business, as "Discontinued Business"), the growth figures for Adjusted Revenues and Adjusted Billings exclude Discontinued Business, which is negligible from 2019. The Discontinued Business does not represent a discontinued operation as defined by IFRS 5 since it has not been disposed of but rather it is being continuously scaled down and is considered to be neither a separate major line of business, nor geographical area of operations.
Exceptional items	Exceptional items are material and non-recurring items of income and expense which Group believes should be separately disclosed to show the underlying business performance of the Group more accurately. For details see "Exceptional items" of "FINANCIAL REVIEW" and "Note 6".
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".
Gross-Up Adjustment	The "Gross-Up Adjustment" refers to the estimated impact of the additional amount of 2015 and 2016 revenue and expenses and their deferral that would have been recognised by Avast had the contractual arrangements with certain customers qualified to have been recognised on a gross rather than a net basis prior to 2017 (AVG had historically recognised Billings and revenues on a gross basis, whereas Avast recognised them on a net basis). See "PRESENTATION OF RESULTS AND DEFINITIONS".
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 Desktop subscription (or license) 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 revenue of acquisitions until the first anniversary of their consolidation.
Unlevered Free Cash Flow	Represents Adjusted Cash EBITDA less capex, plus cash flows in relation to changes in working capital (excluding change in deferred revenue and change in deferred cost of goods sold as these are already included in Adjusted Cash EBITDA) and taxation. Changes in working capital and taxation are as per the cash flow statement on an unadjusted historical basis and unadjusted for exceptional items. See "Cash flow" section of "FINANCIAL REVIEW" for reconciliation.
Unrealized 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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