22 March 2022

Kape Technologies plc

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

FULL YEAR RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2021

Kape Technologies plc (AIM: KAPE), the digital security and privacy software business, announces its audited results for the twelve months ended 31 December 2021.

Financial highlights

·      A strong financial performance driven by positive market dynamics coupled with Kape's market-leading product stack and organic user acquisition expertise

o  Revenues exceeded management expectations¹, increasing 89.0% to $230.7 million (2020: $122.2 million), or 20.7% on a proforma basis

o  Significant growth in recurring revenue contribution to 92% of total revenue on a proforma basis (2020: c. 87%)

o  Pro Forma Adjusted EBITDA^{2, 3} up 100% to $78.0 million (2020: $39.0 million) with Adjusted EBITDA margin increasing to 33.8% (2020: 31.9%)

o  Increase of 71.1% in Fully Diluted Adjusted Earnings Per Share⁴ to 23.1 cents (2020: 13.5 cents)

o  Strong cash generation; adjusted operating cashflow increased by 116% to $44.1 million (2020: $20.4 million) 

·      Raised $351.0 million (£258.3 million), before transactions costs, in additional growth capital through an oversubscribed placing and retail offer in October 2021 to finance the acquisition of ExpressVPN.

·      Entered into a new senior secured debt facility agreement in December 2021 of up to $290 million, comprising a $120 million senior secured term facility, a $80 million revolving credit facility and a $90 million uncommitted acquisition facility

Operational highlights

·      In December 2021, completed the acquisition of ExpressVPN, one of the world's most recognised brands in the digital privacy space, for a total consideration of $925.8 million, the Group's largest acquisition to date

o  Acquisition has created a premium digital privacy and security player best positioned to capitalise on the growth in the digital privacy market and is already providing significant operational benefits to Kape, as well as earnings accretion, cost savings and ongoing synergies 

·      In March 2021, acquired Webselenese, the digital platform which provides independent and highly valued consumer privacy and security content, for $155.1 million, the integration of which has bolstered Kape's go-to-market and product development strategy

o  Highly strategic, providing Kape with one of the broadest audiences for consumer digital privacy and security, with over 100 million readers

·      Significant increase of 161% in subscriber base to 6.5 million (2020: 2.5 million) whilst maintaining a high retention rate of 81% (31 December 2020: 83%)

o  3 million subscribers were acquired as part of the ExpressVPN acquisition with an organic increase of 20%

·      Delivered on the Group's product development roadmap launching a Privacy First Anti-Virus solution for PC as well as a password manager and improving server reach and infrastructure

Post period-end and Outlook

·      In January 2022, announced the appointment of Oded Baskind, who has today joined the board as Chief Financial Officer

·      The Group has extremely limited exposure operationally to Russia and Ukraine with under 1% of revenues generated in these countries

·      Ongoing global uncertainty continues to result in an increasing awareness from individuals of the requirement to protect their digital profiles

·      The Group has traded strongly in the year to-date and management is confident that the Group will achieve revenues of between $610-624 million and Adjusted EBITDA of between $166-172 million in the year-ending 31 December 2022, the forecasts outlined at the time of the ExpressVPN acquisition

·      Operationally, the focus for 2022 will be on the ongoing integration of ExpressVPN, including fully realising potential cost-savings initiatives, as well as executing on a number of material opportunities

Ido Erlichman, Chief Executive Officer of Kape, commented:

"We are immensely proud of our progress in 2021, having delivered both a record financial performance and completed the most ambitious acquisition programme in our history. The culmination of these collective efforts has been the creation of a truly market leading global digital security and privacy enterprise that is now a trailblazer in how consumers protect their digital lives. I would personally like to thank our outstanding and highly talented team who continue to deliver exceptional results across our business.

"In 2021, we achieved record customer growth, providing further evidence that our products remain both compelling and highly innovative, and, more importantly, our customers continue to utilise our services for many years.

"Pleasingly, we have carried this positive momentum into 2022 and remain extremely positive about Kape's prospects. Whilst we remain ever vigilant of the broader macro-economic outlook, we firmly believe our products fit at the heart of the broader cybersecurity arena, which has increased importance to the global community."

Kape's management team will be hosting a live webcast today at 1.00 p.m., which can be joined as follows:

To register and to join the stream on the day, please click the link below:

https://webcasting.brrmedia.co.uk/broadcast/622f60a061bd9a4d102904ea 

¹ Previous guidance given was for expectations of revenues between US$197-202 million and Adjusted EBITDA of between US$73-$76 million for the year ended 31 December 2021

² Adjusted EBITDA is a non GAAP measure and a company specific measure which excludes other operating income and expenses which are considered to be one off and non-recurring in nature.

³Proforma Adjusted EBITDA is a non GAAP measure, it's the Company Adjusted EBITDA after adding back deferred contracts costs fair value accounting adjustment following ExpressVPN consolidation.

⁴Adjusted EPS is calculated from earnings per share adding back, share-based payments and non-recurring costs 

Enquiries:

About Kape

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

Kape has over 6.5 million paying subscribers, supported by a team of over 850 people across ten locations worldwide. Kape has a proven track record of revenue and EBITDA growth, underpinned by a strong business model which leverages our digital marketing expertise.

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

www.kape.com

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Chairman's statement

The progress that Kape has achieved across 2021 has transformed the Group into a truly global leader in the digital privacy and security space. Our management have successfully delivered against the Group's mission to not only create a business capable of capitalising on an ever-growing digital privacy and security market opportunity but to now shape our own industry. This is a significant achievement and provides further validation that Kape is ideally positioned for the future.

In addition to significant operational momentum, the Group delivered substantial financial progress, underpinned by both organic and acquisitive growth. In the year ended 31 December 2021, Kape generated revenues of $230.7 million (2020: $122.2 million). Pro Forma Adjusted EBITDA² increased 100% to $78.0 million (2020: $39.0 million), with Pro Forma Adjusted EBITDA² margin growing to 33.8% (2020: 31.9%).

Notably, the Group completed two sizable acquisitions during the year, building on its strong M&A track record. In March 2021, the Group acquired Webselenese, the consumer privacy and security content platform, the integration of which has underpinned Kape's go-to-market strategy and therefore its customer acquisition roadmap. In December 2021, Kape completed the acquisition of ExpressVPN for $925.8 million, the Group's largest transaction to-date. ExpressVPN is one of the world's most reputable VPN brands and is already providing significant operational benefits to Kape, as well as earnings accretion, cost savings and ongoing synergies.

Environmental Social and Governance

Corporate responsibility has always been a strong guiding value at Kape. We believe that businesses hold responsibility to the communities in which they operate, and to the health and sustainability of the planet. We also hold ourselves accountable to our broad stakeholder base, to build a strong, profitable, and sustainable business.

We are pleased to launch our corporate environmental, social, and governance ('ESG') framework, which follows a transformational period for the Group, as we have significantly increased our scale and global reach.

Our first step in this process was an assessment to identify critical ESG priorities, opportunities, and risks and we will seek to replicate this process on a bi-annual basis.

This year we have formed an ESG board committee and created an internal ESG task force. We have also contracted an external party to conduct an ESG overview to identify and establish programmes and develop policies to support the effective management of the risks to, and opportunities for, our business which emerge. We are also launching our inaugural ESG report with a section to appear in the Group's 2021 Annual Report. 

Kape's corporate responsibility strategy is based on our values, convictions and a high level of commitment across the Group. We are keen to be a responsible company that mobilises all its stakeholders to help create a more sustainable world. 

As part of our review, we have conducted a materiality assessment and we have identified the following key areas where we will focus our efforts: data privacy and cybersecurity; human capital management; diversity, equity and inclusion; and energy management and usage.

Board changes

Post period-end, in January 2022, the Company announced that, following nine years with Kape, five as Group CFO during what was a transformational period for the Group, Moran Laufer was stepping down from the board to pursue other interests as part of an anticipated relocation to Israel. Oded Baskind has been appointed Chief Financial Officer and joined the Board of Kape. Oded has been Kape's VP of Finance since January 2019 and has held numerous key finance roles since joining Kape in 2014, including supporting the Group's admission to AIM in September 2014 and its six subsequent acquisitions.

Retention of key team members

The Company's previous long term incentive award programme for executive directors expired at the end of 2020. Since that time, the Company has completed the major acquisitions of Webselenese and Express VPN, substantially increasing the Company's scale. More recently, Moran Laufer stepped down as CFO of the Company after 5 years in that role and Oded Baskind has been appointed as CFO in his place. In light of the above, the Remuneration Committee has determined that new long term incentive awards should be made to the senior executive management team of the Company, including both executive directors, to incentivise them in delivering the next phase of long-term value creation for shareholders. The Remuneration Committee has consulted the Company's largest shareholder, who is supportive of the share awards. The awards will take the form of jointly owned equity awards, similar in form to those made by the Company in 2018 ("JOE Awards"). Share awards of 3.4 million shares will be made to Ido Erlichman and 600,000 to Oded Baskind. The share awards will vest equally over a period of four years, subject to the achievement of detailed performance conditions covering the same criteria as the original JOE awards (Adjusted EPS, SaaS Revenue & G&A). It anticipated that the grant of the share awards, when made, will constitute a related party transaction.

Summary & Outlook

The Group has made a strong start to 2022 and the board and management team are confident of the Group achieving the forecasts as announced at the time of the ExpressVPN acquisition of 2022 revenues of between $610-624 million and Pro Forma Adjusted EBITDA of between $166-172 million, supported by Kape's operational scale and a proven track record of delivering growth.

The Group has limited operational and financial exposure to both Ukraine and Russia and despite the uncertain macroeconomic backdrop which the ongoing conflict is creating, the board believes it is unlikely to have a negative impact on Group performance.

Operationally, the focus for 2022 will be on the ongoing integration of ExpressVPN including fully realising potential cost-savings initiatives as well as executing on several go-to-market opportunities. Product development remains a key focus area with management keen to ensure Kape remains at the forefront of the digital privacy and security arena.

On behalf of the board of directors of Kape, I would like to thank every Kape employee across the Group for their unwavering commitment during 2021, which was a year not without challenges at a macro level. The significant progress that was delivered during 2021 has provided Kape with the solid foundations to further extend our reach across the digital privacy and security market in 2022 and beyond.

Don Elgie

Non-Executive Chair

21 March 2022

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

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

Chief Executive Officer's review

Introduction

2021 was a monumental year for our business, culminating in over 6.5 million customers globally now customers of Kape's brands, an increase of c.161%.  Pleasingly, we generated revenues of $230.7 million in the year, which was significantly ahead of management expectations, and in 2022 this is expected to reach between $610-624 million. We also transformed our operations, expanding to 10 locations globally with over 850 employees. We achieved all of this progress through a combination of organic growth and two pivotal acquisitions.

Kape is now one of the most prominent platforms in digital security and privacy globally and this has been achieved in a period where new digital threats continue to emerge and the demand for reliable mitigation solutions has never been higher.

Across 2021, management remained focused on scaling the business, facilitated by the highly strategic acquisitions of Webselenese and, more recently, ExpressVPN. Concurrently, we continued to expand our marketing channels, as well as ramping-up our cross-sell and up-sell activities across Kape's existing user base, with R&D a focus to ensure the development of our industry-leading products. Our digital privacy segment continued to deliver consistent growth with our digital security segment returning to double digit growth in the year, following the Group's concerted focus in the category and management now have a refreshed vision for this business segment.

In the year ended 31 December 2021, Kape delivered an excellent performance, generating revenue of $230.7 million (2020: $122.2 million), up 89% year-on-year with recurring revenue contributing 92% (2020: c. 87%) on a proforma basis. Pro Forma Adjusted EBITDA² increased by 100% to $78.0 million (2020: $39.0 million), whilst Pro Forma Adjusted EBITDA² margin grew to 33.8% (2020: 31.9%).

We have seen significant growth in demand for our solutions with organic customer growth of 20% and an overall 260% increase in paying subscribers during the year to 6.5 million (2020: 2.5 million). Kape now has a significant presence across the digital privacy arena, supported by a number of strong brands including Private Internet Access, CyberGhost, ExpressVPN and Intego. As one of the sole players wholly focused on digital privacy, and without any monetisation from any customer data, Kape remains ideally placed to maintain its outstanding track record of growth.

Despite the resurgence of Covid-19 globally in the last year, at Kape we have been able to support business as usual with a mix of remote working and selected office attendance across our various locations. The effect on the business was minimal with a slight uptick in demand for Kape's products as a result.

With regards to the effect of recent events in the Ukraine on Kape's business, in the last year Kape had less than 1% of its business generated from Russia and has no operations. In addition, in Ukraine, Kape has a handful of contractors all of which we have offered to relocate.

Market dynamics

The demand for privacy is growing at c. 17% per annum⁶ with this demand mainly driven by the ongoing increasing awareness of digital privacy concerns, as well a willingness of consumers to pay for more premium software services. The number of devices per person has also increased, as well as the proliferation in use of IOT devices, further supporting the growth in the market.

Alongside this growth in demand, individuals are increasingly looking for a higher quality of service with brand equity and brand trust providing a competitive advantage for Kape, as its premium brands are well-placed within the market. The privacy market is also driven primarily by young consumers with 70% of the market under the age of 45.

Acquisition and integration of Webselenese

In March 2021, Kape completed the acquisition of Webselenese, an independent consumer digital privacy and security content provider, that has transformed Kape's go-to-market and product development capabilities.

Webselenese has already significantly contributed to Kape's organic growth not only in accelerating customer acquisition but also enabling the ongoing reduction of the Group's average Customer Acquisition Cost ('CAC') by increasing the visibility of Kape's brands. In addition, Webselenese has provided the wider group with a 'brain trust' from which knowledge transfer has already begun to support Kape's ongoing product development initiatives, with team members contributing across the business to optimise Kape's global digital operations.

Furthermore, in 2021 while Webselenese was under Kape's ownership, its revenues increased 52.5% on a yearly proforma basis, as it benefitted from Kape's infrastructure and central functions with traction also being seen in additional verticals beyond digital privacy, providing a further potential growth strand for the Group going forward.

Acquisition of ExpressVPN and financing

In December 2021, we completed the acquisition of ExpressVPN, one of the world's leading brands in the digital privacy space. The transaction was transformational for Kape, positioning the Group at the forefront of the digital privacy space, adding the premium brand in the space, a robust infrastructure, an incredible international team, and the addition of over three million customers in our key markets.

The transaction also provided Kape with a number of strategic benefits, including access to ExpressVPN's extensive distribution network, which includes HP and Philips. Kape's management team believes that both significant go to market synergies, as well as cross sell revenue opportunities exist across the Group's enlarged platform, with an improvement in lifetime value ("LTV") versus customer acquisition cost ("CAC") ratios anticipated in the future.

The acquisition provides a number of potential synergies with c. $30 million expected to be realised on an annualised basis by 2023. With the process now well underway we have been able to progress the integration faster than anticipated with the Group already benefiting from significant economies of scale, and we expect operational cost savings to exceed expectations for the year.

To fund the acquisition, Kape raised $351.0 million (£258.3 million), before transactions costs, in fresh equity through a multiple-times oversubscribed placing and retail offer, a clear indication of the market's confidence in the rationale behind the transaction and further reinforcing Kape's overarching future growth strategy. In addition, Kape's lender group, comprised of Bank of Ireland, Barclays Bank PLC, Citi Bank, Citizens Bank, BNP Paribas and Leumi Bank, gave its consent to the acquisition, extending their revolving credit facility to Kape from $10 million to $80 million, providing the Group with debt facilities in aggregate of up to $220 million.

Key Performance Indicators

Kape once again delivered very strongly across its KPIs during 2021, which the Group reports against to track the ongoing progress of its SaaS business model, which in-turn underpins the profitability, earnings predictability and growth potential of the Group.

Product development and cross-promotion

R&D continues to be a key growth initiative to ensure Kape remains at the forefront of the digital-privacy sphere by both augmenting existing services and launching additional products, alongside adding products through M&A. Development highlights during the year included the launch in May 2021 of a privacy-first antivirus solution, an all-encompassing security coverage product, one of the first of its kind; and a B2B2C agreement secured in July 2021 for Kape to provide 'Three Hong Kong' customers with the opportunity to purchase the Private Internet Access VPN.

Kape also significantly expanded its R&D capabilities with 49% of Kape's core employees⁵ in R&D functions, which, in the medium- to long-term, will ensure Kape will be able to continue to innovate in developing the best-in-class products to provide enhanced digital privacy and security to consumers globally.

In addition, Kape is increasingly focusing resources on cross-promotion, investing in targeted campaigns to engage existing customers who already trust Kape. As of 31 December 2021, 20% of new Intego users and 12% of new CyberGhost customers purchased more than one product from the Group, signposting great potential to grow that uplift as well as offering further complementary products across the ExpressVPN user base. With the significant expansion of the Group's user base during 2021, management believes that cross-promotion will become an ever more important growth driver for Kape.

Growth drivers

Following the significant strategic progress that Kape has delivered in recent years, we have established a tier one global premium digital privacy player, providing us with a significant opportunity to leverage the following and capitalise on the market opportunity to deliver future growth:

·    Reach: over 6.5 million subscribers globally provide significant leverage to realise cross-sell initiatives

·    Go-to-market capabilities: with the leading brands in the space and multiple channels including Webselenese, this provides Kape with a strong network to optimise CAC and retention rates

·    Strong product portfolio: trusted solutions with high levels of recurring revenues alongside potential to accelerate product development potential

·    M&A: building on its strong track-record, management continues to selectively evaluate certain strategic opportunities

Outlook

2021 was another landmark year for our business and we look forward to further expanding our offering, continuously improving our products and growing our reach to serve more people around the world. Looking ahead, Kape is focused on harnessing its operational footprint as well as its world-class go-to-market capabilities, deepened by the acquisitions of ExpressVPN and Webselenese, to capitalise on strong market tailwinds.

Despite the ongoing global macroeconomic uncertainty, largely as a result of the ongoing conflict in Ukraine, management is very confident in achieving revenues for the year ending 31 December 2022 of between $610- 624 million and Proforma Adjusted EBITDA² of between $166-172 million.

I would like to thank all of our team for their sustained efforts and achievements throughout the year. Kape's employees are the backbone of our business, and the loyalty of our fast-growing customer base speaks volumes to the first-rate service and advanced digital protection Kape's dedicated workforce and solutions continue to provide.

We have ambitious plans for 2022, but based on our success to-date, the board and management team of Kape are highly optimistic for Kape's growth prospects in the current year and beyond.

Ido Erlichman

Chief Executive Officer

21 March 2022

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

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

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

⁴Adjusted operating cash flow attributable to current year is calculated as Adjusted operating cash flow excluding change in deferred contract costs.

⁵Excluding support functions

⁶Based on study commissioned by Kape in March 2022

Chief Financial Officer's review

Overview

Revenues for the year to 31 December 2021 increased by 89% to $230.7 million (2020: $122.2 million), or 20.7% on a proforma basis. The increase in revenues is a result of an increase in Kape's legacy subscriptions revenue of 21.2% to $128.9 million (2020: $106.4 million), as well ten months' contribution from Webselenese. Pro Forma Adjusted EBITDA increased by 100% to $78.0 million (2020: $39.0 million). Operating profit increased by 257% to $38.2 million (2020: $10.7 million).

Adjusted cash flow from operations attributable to the current financial period was $78.1 million (2020: $43.6 million), which represents cash conversion of 91% (2020: 112%). In addition, during the period, $33.9 million was reinvested in user acquisition costs that will be expensed in future periods (2020: $23.2 million). After including this investment, adjusted cash flow from operations was $44.1 million (2020: $20.4 million). As 31 December 2021, the Group's cash balance was $27.0 million (31 December 2020: $49.9 million) and net debt was $457.5 million.

On 5 March 2021, the Group acquired 100% of the share capital of Uma Capital Ltd and Ani Ariel Ltd, the owners of Webselenese, a digital platform which provides independent and highly valued consumer privacy and security content to millions of users globally via market leading review sites. The total consideration was $155.1 million (the "Consideration") satisfied by a combination of $119.2 million in cash and $28.6 million in new shares, amounting to 12.1 million Kape Ordinary Shares and deferred and contingent consideration of $7.4 million.

To fund the transaction, the Group drew down $85 million from a $120 million Bridge Loan by TS Next Level Investments Limited ("TSNLI"). The Bridge Loan carried a fixed coupon of 6.0% per annum payable on funds drawn and an arrangement fee of 1.0%. TSNLI is an affiliated company of Unikmind Holdings Limited, Kape's largest shareholder.

On 28 May 2021, the Company agreed with Bank of Ireland, Barclays Bank PLC, Citi Bank, Citizens Bank, BNP Paribas and Leumi Bank (together, "the Banks"), to repay the TSNLI bridge loan in full and replace its existing term facility and RCF with new senior secured bank facilities of up to $220 million ("New Debt Facilities"). The New Debt Facilities comprise a $120 million senior secured term facility, a $10 million revolving credit facility and a $90 million uncommitted acquisition facility.

On 15 December 2021, the Group acquired certain assets, liabilities and service entities together comprising the ExpressVPN business ("ExpressVPN") from Access Global Limited and its subsidiaries ("Access Global"), ExpressVPN is one of the most recognised brands in the digital privacy space and its acquisition created a premium digital privacy and security player best-positioned to serve the growing demand for digital privacy. The total consideration was $925.8 million (the "Consideration") to be satisfied by a combination of $334.5 million in cash upon closing, $20 million in cash on the six months anniversary, two deferred cash consideration of $172.5 million (fair value of $339.2 million) to be satisfied on the 1^st and 2^nd anniversaries and $232.1 million in new shares, amounting to 47.8 million Kape Ordinary Shares.

The initial cash consideration was funded through an equity placing of $351.0 million (£258.3 million), before transactions costs, which completed on 1 October 2021. To secure the USD value of the equity placing, the Group entered into a forward sale of the GBP receipts from the placement. On 15 December 2021 the Banks, gave their consent to the ExpressVPN Acquisition and increased their committed facilities to Kape to $290 million, including an $80 million RCF.

It is the Board's intention that the Deferred Consideration will be funded from its operational cashflow and by using the extended revolving credit facility provided to Kape by the existing lender group. TS Next Level Investments Limited, has entered into binding commitment letters with the Group, subject to limited conditions, to make available to the Group, if required, loan facilities of up to $345 million in aggregate in connection with Kape's obligation to pay ExpressVPN's deferred consideration.

Segment Result

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

During the period, the Digital Privacy segment saw continued growth with a 30.3% increase in revenue to $117.0 million (2020: $89.8 million) and a 40.9% increase in segment result to $74.5 million (2020: $52.8 million). Following the acquisition of ExpressVPN in December 2021, ExpressVPN contributed $20.5 million to revenues and $18.9 million to segment results. Revenue growth was driven by Kape's legacy subscriber base growth of 14.3%.

During the year, revenue from the Digital Security segment returned to growth with an increase of 17.5% to $38.0 million (2020: $32.4 million). The increase was driven by a 20.0% growth in revenue from Intego's Endpoint security products. In addition, revenue from the Company's PC performance products has increased by 16.8% but with a lower margin of 25.9% (2020: 29.4%) following an increase in advertising cost.

Digital Content represents Webselenese which was acquired on 5 March 2021. From the acquisition date to year end the digital content segment revenue was $75.6 million and segment results were $38.2 million. On a proforma basis, excluding revenue that was generated from Kape, revenue year over year grew significantly by 52.5% to $88.3 million (2020: $57.9 million). The growth has been driven by an increase in traffic from both organic and acquired sources.

Adjusted EBITDA

Adjusted EBITDA for the year to 31 December 2021 was $86.0 million (2020: $39.0 million). Adjusted EBITDA is a non-GAAP company specific measure which is considered to be a key performance indicator of the Group's financial performance. Adjusted EBITDA is calculated as operating profit before depreciation (including right-to-use assets amortisation), amortisation, exceptional or non-recurring costs, other operating expenses, deferred contracts fair value adjustment and employee share-based payment. Proforma Adjusted EBITDA is calculated by adding the Proforma Deferred contract costs expenses adjustment related to ExpressVPN acquisition. As these are non-GAAP measures, they should not be considered as replacements for IFRS measures. The Group's definition of these non-GAAP measures may not be comparable to other similarly titled measures reported by other companies. Such amounts are excluded from the following analysis:

The Increase in Direct and Indirect sales and marketing costs is mainly due to a respective $37.3 million and $8.5 million contribution from Webselenese in the period.

Operating profit

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

Increase in Depreciation and amortisation is driven by a $11.2 million (2020: $Nil) amortisation charge of Webselenese and ExpressVPN acquired intangibles assets.

Exceptional or non-recurring costs in 2021 are comprised of non-recurring staff costs of $6.0 million which comprise of $4.4 million one-off bonus award to the management team for the acquisition of ExpressVPN, $0.9 million employer cost related to management share options exercise, $0.6 million employees onerous contract termination costs and $3.9 million (2020: $0.2 million) professional services and other business combinations related costs.

Profit before tax from continuing operations

Profit before tax from continuing operations was $32.6 million (2020: $7.3 million). Finance costs of $11.2 million comprised mainly of $4.9 million of interest on debt facilities (2020: $2.0 million), $3.6 million of commitment fees on the TSNLI revolving facility related to the ExpressVPN acquisition. Finance income of $5.6 million comprised from currency exchange forward deal placed to hedge the proceeds from the share issuance executed in October.

Profit after tax from continuing operations

Profit from continuing operations was $23.3 million (2020: $29.7 million). Tax expenses of $9.2 million comprised from $4.9 million current tax expenses, $5.0 million deferred tax expenses and previous year's tax income of $0.7 million. The increase of tax expenses is attributable mainly to reversal of $25.8 million deferred tax liability in the year ended 31 December 2020 following a share buy back from the PIA's founders that changed the tax structure of the acquisition and increased the tax basis of the acquired intangible assets.

The Group recognised a deferred tax asset of $0.8 million (2020: $6.2 million) in respect of tax losses accumulated in previous years.

Cash flow

Cash flow from operations was $35.5 million (2020: $15.2 million). Adjusted cash flows from operations, after adding back payments that are one-off in nature was $44.1 million (2020: $20.4 million). This represents a cash conversion of 51% of Adjusted EBITDA (2020: 52%). The increase in operating cash flow is due to an increase in revenues from renewals of existing subscribers and Webselenese acquisition. The Company invested $33.9 million (2020: $23.2 million) in user acquisition that is attributable to revenue that will be expensed in future periods. Excluding this investment, adjusted operating cash flow attributable to the current financial period increased to $78.1 million (2020: $43.6 million), which represents a cash conversion of 91% (2020: 112%).

Tax paid net of refunds in the period was $3.3 million (2020: $0.7 million). The increase was mainly due to tax refunds receipts in 2020 and prepayments that were paid in 2021 Israel by Group subsidiaries.

Cash outflow from investing activities of $465.9 million (2020: $9.1 million) mainly comprises $334 million for the acquisition of ExpressVPN, $119.5 million for the acquisition of Webselenese, $10.7 million for the acquisition of PIA (2020: $5.8 million), $5.3 million (2020: $2.5 million) capitalised development costs and $2.4 million (2020: $0.5 million) purchase of fixed assets.

Cash outflow from financing activities of $410.7 million (2020: $35.8 million outflow) included a drawdown of $85 million shareholder bridging loan and full repayment of the principal, and $2.1 million interest and arrangement fees related to the that loan. The repayment was funded by a $87.9 million increase of long-term bank debt and RCF, net of issuance costs. In addition, $11.8 million (2020: $3.6 million) has been paid for long term loan principal and $1.9 million for interest (2020: 0.7 million), see Note 7. Arrangement fees of $7.1 million paid to the company main shareholder for Facility revolver of $345 million, see Note 12.

In October, the Group raised a net amount of $348.4 million by a way of share placing used for the initial cash consideration for the acquisition of ExpressVPN. In addition, $0.9 million (2020: $2.4 million) has been received following the exercise of employee share options and $3.9 million (2020: $19.8 million) has been paid for purchase of treasury shares in the period.

Financial position

At 31 December 2021, the Company had cash of $27.0 million (31 December 2020: $49.9 million), net assets of $863.1 million (31 December 2020: $228.8 million) and net debt of $457.5 million (2020: net cash of $11.1 million). At 31 December 2021, trade receivables were $42.1 million (31 December 2020: $4.0 million).

In December, the club of banks extended their revolving credit facility to Kape from $10 million to $80 million.

Following the acquisition of Webselenese, ExpressVPN and an increase of the bank loan, the adjusted leverage (as defined in Note 12) of the group is c. x2.88. It is our intention to further decrease the leverage by the end of 2022 and maintain a moderate level of financial indebtedness going forward. It is Kape's intention to use the expected cash flow from operation and the bank facility revolver to pay the deferred cash consideration related to ExpressVPN acquisition.

Oded Baskind

Chief Financial Officer

21 March 2022