Annual Report 2018 Avast Annual Report 2018 Strategic Report Governance Statements
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Protecting your digital life Avast annual report 2018 Avast annual report 2018 Strategic report Governance Statements In this report: We delivered growth Strategic report Introducing Avast 1 and high profi tability Chairman’s statement 8 Markets & threat landscape 10 Business model 16 Company 2018 milestones 20 CEO’s strategic review 22 Our technology 28 CFO's review 34 Risk management 46 Adjusted Billings1 Adjusted Revenue1 People and corporate social responsibility 49 $846.7m $811.5m Governance +8.6%2 +8.3%2 Board biographies 58 Corporate governance statement 60 Adjusted EBITDA Adjusted Net Income Audit and Risk Committee report 64 Nomination Committee report 70 Directors’ remuneration report 72 $447.7m $270.8m Directors’ report 92 +6.7% +6.2% Unlevered Free Cash Flow Net Debt/LTM Adjusted Financial statements Cash EBITDA Independent Auditor’s Report 98 $394.0m Consolidated fi nancial statements 106 +14.0% 2.4x Notes to the consolidated fi nancial statements 113 1 Excluding Discontinued Business. Company fi nancial statements 157 2 Excluding FX and Discontinued Business. Notes to the company fi nancial statements 159 Glossary 163 Statutory Revenue Statutory Net Income $808.3m $241.2m +23.8% +Fav%3 3 "Fav" in change % represents a favourable growth rate fi gure over 100 per cent. Note: To enable a better understanding of the business performance, this report contains certain alternative performance measures not defi ned under IFRS. The items are more fully explained in the section Presentation of Results and Defi nitions. Avast annual report 2018 01 Introducing Avast Keeping people safe and private online is what we do Faster connections, mobile apps, online services and the growth of connected homes mean the internet is increasingly central to our lives. However, most consumers are not technology experts and they don't always look after their devices... until something goes wrong. That's why improving the safety and quality of digital lives is such an important job. At Avast, our products are designed to deliver industry-leading consumer security, privacy and performance to more than 435 million users globally. To fi nd out how this works, see our 16 business model description 02 Avast annual report 2018 Strategic report Governance Statements Introducing Avast Avast is one of the world’s largest consumer cybersecurity companies 435m+ users worldwide1 Avast protects 35% of the world’s PCs outside China2 68 countries have 1m or more Avast users 1 User is defi ned as a unique device that has one or more Avast free or paid products installed and has been in contact with our servers in the last 30 days. 2 Source: based on Company products on PCs globally and Gartner Research for number of PC customers by total PC penetration outside China, “Forecast: PCs, Ultramobiles and Mobile Phones, Worldwide, 2016-2022, 4Q 18 Update" published by Gartner, 20 December 2018. Avast annual report 2018 03 Industry leading, independent testers choose us for Our strong product excellence. ™ Dezember investment in R&D 2018 results in award- GUT winning products 50% of our employees are in research and development roles contributing to the strength of our products. Avast was recognised in the PwC 2018 Global Innovation 1000 Report for its high level of R&D investment We reach our global market through highly recognised product brands: 04 Avast annual report 2018 Strategic report Governance Statements Introducing Avast We have delivered on our fi nancial commitments We fully delivered on FY18 Adjusted Revenue $m1 Adjusted EBITDA %3 guidance of high single- +8.3%2 +33bps digit revenue growth 811.5 and increased EBITDA 741.0 54.1 margin percentage 53.8 2017 2018 2017 2018 £2.4bn fl otation valuation The largest software IPO in the history of the London Stock Exchange4 1 Excluding Discontinued Business. 3 Adjusted EBITDA divided by Adjusted Revenue 4 Source: Dealogic. 2 Excluding FX and Discontinued Business. including Discontinued Business. Avast annual report 2018 05 We are the most profi table publicly traded software 1 company A profi table Cleaning platform model Improve Our platform strategy underpins performance our sustainable growth. We make money by up-selling and cross-selling our Avast, AVG and CCleaner paid products and services to our massive free user base. Industry-leading margins1, Increase strong and predictable VPN privacy cash fl ow and a robust Free balance sheet antivirus Subscription model drives high revenue visibility. User acquisition, Expand protection support and servicing are low A high level of automation Smart ensures effi ciencies. home 1 Study presented to Company by external fi nancial adviser in February 2019 comparing expected 2019 EBITDA margins of 87 publicly traded software companies using market data and consensus estimates as at 22 February 2019. 06 Avast annual report 2018 Strategic report Governance Statements Introducing Avast Our global user base and next generation technology gives us a competitive advantage Huge amounts of threat data are needed In addition to the requirement for such to successfully identify vulnerabilities a considerable amount of data being and anticipate focused attacks that an obstacle for new entrants, building could otherwise be missed. We use a profi table distribution model to 'next-generation' machine learning and consumers is even more diffi cult. artifi cial intelligence to process our data This is why so few others are successful at lightning speed to protect all of our in our market. A massive user base is users in real-time once a new threat a signifi cant, sustainable competitive is detected. advantage for Avast. We protect millions Number of websites Monthly attacks of users from scanned each month prevented by Avast billions of attacks To fi nd out how we do this, 28 200bn 1.5bn see section on our technology Avast annual report 2018 07 Attracting more users with stronger protection User base 435m+ global active users of our security, privacy and performance products. Support per 2¢ year More users service cost for each PC user The reach of our free products has given us a M large base of potential o d r customers to target via e n s cross-selling and up-selling. a e m c e u r d i t y e r d o a M t a Best Antivirus #1 More trust brand and Editor’s Choice Machine learning Avast is highly regarded among Each month, we analyse: infl uential personal technology experts; we are consistently one of the most recommended antivirus brands. 200bn URLs 300m new fi les 08 Avast annual report 2018 Strategic report Governance Statements Chairman’s statement Your Board is committed to ensuring an attractive return on investment Dear Shareholder It is a pleasure to introduce Avast’s fi rst annual report, following the Group’s entry to the public markets in May 2018. Our stock market debut in London was one of the largest from the technology sector in 2018 and attracted global institutional investors to our shareholder base. The confi dence shown in Avast by new and existing shareholders alike has been very gratifying. Avast made its debut by developing the fi rst antivirus programmes in order to guard data and personal computer security. The Company has grown into a global enterprise that helps protect the digital experience of over 435 million users worldwide, always striving for excellence with the customer as the focus of our endeavour. Since the IPO, the Executive Team, led by CEO Vince Steckler and President, Consumer, Ondrej Vlcek, has been executing on the strategy presented to investors, producing innovative products, ensuring operational predictability and making continuous improvement across the business. This dedication has resulted in another year of strong growth and profi tability, and further consolidated Avast’s leadership position in cybersecurity. Avast annual report 2018 09 “ Our stock market debut in London was one of the largest from the technology sector in 2018 and attracted global institutional investors.” John Schwarz Chairman of the Board Dividend Capital structure During the year, we launched a new Share The Board is committed to ensuring Matching Plan that off ers employees attractive returns on the investment the opportunity to participate in Avast’s 8.6 success going forward. It has been very of capital. The Group has a strong balance sheet and has excellent and well received. US cents predictable free cash fl ow generation. I take this opportunity also to thank With a clear strategy for sustainable Vince Steckler, who after 10 successful and profi table growth, the Board will years as our CEO, has decided to retire per share continually stress core business growth, eff ective 30 June 2019. He leaves behind For the post-IPO period 15 May 2018 targeting new adjacent markets by a company that is immeasurably stronger to 31 December 2018 value-enhancing acquisitions and a than the one he joined. Ondrej Vlcek, focus on shareholder returns. the Board’s unanimous choice to succeed Mr. Steckler and a member of our Governance Shareholder returns executive team for many years, will be As part of the IPO process, our governance In accordance with the policy affi rmed taking on a business that is positioned structure has evolved to meet the needs at IPO to make dividend payments of well for continued success. of a public company. In preparation approximately 40 percent of levered for working under the UK Corporate free cash fl ow, the Board recommends Looking forward Governance Code, we established an a maiden dividend of 8.6 cents per As we continue our growth into new and Audit and Risk Committee, a Nomination share, to cover the period since listing existing markets, I am confi dent we will Committee, a Remuneration Committee on 15 May 2018 to the end of the fi nancial continue to create value and opportunity for and a Disclosure Committee.