TIDMKRM
RNS Number : 3330S
KRM22 PLC
16 March 2021
KRM22 plc
("KRM22", the "Group" and the "Company")
AUDITED RESULTS STATEMENT FOR THE YEARED 31 DECEMBER 2020
KRM22 plc (AIM: KRM.L), the technology and software company
focused on risk management in capital markets, announces its
audited results for the year ended 31 December 2020 ("2020", the
"Year").
Financial highlights
-- Total revenue recognised of GBP4.6m (2019: GBP4.1m)
-- A significantly improved adjusted EBITDA loss(1) of GBP0.2m (2019: GBP3.1m)
-- Annualised Recurring Revenue (ARR)(2) as at 31 December 2020
of GBP4.3m (2019: GBP4.3m) at the 2020 constant rate (GBP4.1m at
current rates)
o New contracted ARR in the year ended 31 December 2020 of
GBP0.8m
-- Gain on extinguishment of debt (net) of GBP0.7m
-- Impairment of intangibles of GBP3.0m (2019: GBP2.3m)
-- Loss before tax of GBP5.7m (2019: loss of GBP7.3m)
-- Group Cash at 31 December 2020 of GBP2.0m (2019: GBP1.1m)
-- Net increase in cash and cash equivalents of GBP0.9m (2019: outflow of GBP2.3m)
-- Completed two capital raises in the year
o An equity fundraise in May 2020 raising gross proceeds of
GBP1.3m through a placement and subscription for new ordinary
shares
o Replacement of the Harbert GBP10.0m loan facility, of which we
had drawn down GBP1.0m in 2019, with a new GBP3.0m convertible loan
facility with Kestrel Partners in September 2020
Operational highlights
-- Acquisition of remaining 40% shareholding in KRM22 Market Surveillance in April 2020
-- Managing the impact of COVID-19 with KRM22 with the Company
being fully operational, globally, from home as a result of
internal infrastructure and process implemented from launch
-- Group restructure, with annual cost savings of GBP0.7m
-- Soc 2 accreditation approved in March 2021
Keith Todd, Chief Executive Officer and Chairman of KRM22 plc,
commented:
"2020 was a challenging year but we made good progress with new
customer wins, improved quality of the customer base, the expansion
of the Global Risk Platform (GRP) and a significant reduction in
the Adjusted EBITDA loss. We now have a strong sales pipeline and
suite of risk products on the GRP that will be the springboard for
our future growth and delivery of the market expectations."
(1) Adjusted EBITDA is the reported loss for the year, adjusted
for recurring non-monetary costs including depreciation,
amortisation gain on extinguishment of debt, unrealised foreign
exchange loss, deferred salary bonus accrual write back and
share-based payment charges and non-recurring costs including
profit/(loss) on tangible/intangible assets, impairment charges,
reorganisation costs and acquisition and funding costs.
(2) Annualised Recurring Revenue (ARR) is the value of
contracted Software-as-a-Service (SaaS) revenue normalised to a one
year period and excludes one-time fees.
For further information please contact:
KRM22 plc
InvestorRelations@krm22.com
Keith Todd CBE, Executive Chairman and CEO
Kim Suter, CFO
finnCap Ltd (Nominated Adviser and Sole Broker) +44 (0)20 7220
0500
Carl Holmes / Kate Bannatyne / Matthew Radley
Alice Lane / Sunila de Silva (ECM)
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014.
About KRM22 plc
KRM22 is a closed-ended investment company which listed on AIM
on 30 April 2018. The Company has been established with the
objective of creating value for its investors through the
investment in, and subsequent growth and development of, target
companies in the technology and software sector, with a focus on
risk management in capital markets.
Through its investments and the Global Risk Platform, KRM22
helps capital market companies reduce the cost and complexity of
risk management. The Global Risk Platform provides applications to
help address firms' market, compliance operations and technology
risk challenges and to manage their entire enterprise risk
profile.
Capital markets companies' partner with KRM22 to optimise risk
management systems and processes, improving profitability and
expanding opportunities to increase portfolio returns by leveraging
risk as alpha.
KRM22 plc is quoted on AIM and the Group is headquartered in
London, with offices in several of the world's major financial
centres.
See more about KRM22 at KRM22.com .
CHAIRMAN'S STATEMENT
KRM22 continued to make good progress in 2020, winning top tier
institutions and broadening its product offerings delivered through
the Global Risk Platform. We are creating a powerful platform to
help capital markets participants manage risk. The Company reported
a small, adjusted EBITDA loss for the year of GBP0.2m compared with
an adjusted EBITDA loss of GBP3.1m in 2019 on revenue of GBP4.6m
(2019: GBP4.1m).
We completed one equity capital and one debt capital raise in
2020 to provide working capital and strengthen the balance sheet.
This, together with the improving financial performance, provides
KRM22 with a strong financial base for 2021.
When we started 2020, we did not envisage the dramatic impact
the pandemic would have on the operating environment. In April
2020, we implemented cost cutting actions through a voluntary
salary waiver that all team members participated in and general
overhead reductions. In June 2020, we made some roles redundant as
we continued to adjust to a slowing business climate. Travel was
suspended and all team members operated from home from March 2020.
There was little impact on our operating effectiveness as a result
of the infrastructure and processes that we implemented from launch
in 2018.
Our customers and prospects were however significantly impacted.
Across the board the high volume of trading in March 2020 and April
2020, at a time when they were implementing home working for the
first time, meant that there was no time for new initiatives and
therefore consideration of our products was not an immediate
priority. Whilst trading activity had evened out by the middle of
the third quarter, adjustments to normal business practices had to
be absorbed to support prospect and customer engagement through
remote channels versus in person visits. The consequence of this
was significant delays in new customer signings. However, despite
this new contract wins in the year included the sale of new risk
products to existing customers and the signing of a new contract
for a suite of risk products with a major London based brokerage
firm, with the customer seeing the benefits of our ability to
simplify the cost and complexity of risk through technology
delivered on one platform as a one-stop service. This impacted the
carrying value of our intangibles, including goodwill, asset base
too. We experienced an unprecedented impact of churn in the year as
traders withdrew from trading while the trading pits were closed or
suspended as well as some customer retrenching and reducing
external spend. While some churn in 2021 can be expected as part of
any market, we anticipate the level of churn going back to more
normalised levels.
Market
As we enter 2021, we are seeing strong engagement from prospects
and existing customers.
Regulators are moving to an enforcement phase with increasing
fines and threats of fines covering a plethora of regulatory areas.
The pressure on cost efficiency, alongside regulatory compliance is
top of the agenda.
Vision and mission
Our vision 'A world in which organisations operate at their
optimal threshold of risk to drive increased returns' and mission
'To bring increased visibility and lower cost risk management to
capital market organisations' have not changed since our
inception.
Our ability to offer integrated functionality as a technology
service significantly reduces the cost and complexity of managing
risk for our customers. Most organisations are, in today's market,
tackling the challenges of an increase in costs added to
historically costly infrastructure leading to a motivation to
reduce cost. We are however on a journey with our customers to help
them optimise business performance and thus deliver superior
returns to their shareholders. We do this by providing cost
effective risk tools as a service that eliminate multiple distinct
applications that demand separate infrastructure and data sources.
The replacement solution is one holistic Global Risk Platform that
operates a series of risk based business processes, increasingly
supported by AI tools, that operate on one single data source. As
our journey progresses, and with customer agreement, we will be
able to create risk benchmarks and indices that will fundamentally
change how the industry measures itself. It is a truly exciting
journey we are on.
What we sell
We position our product offerings within five domains of risk
Enterprise, Market, Compliance, Operations and Technology. They are
delivered through our single Global Risk Platform.
The Global Risk Platform is not sold as a separate product, it
comes with any functional offering and includes the ability to
receive news feeds, raise support questions and provides insight to
other integrated risk offerings that are not currently used by the
customer. The Global Risk Platform provides the unifying glue
between the offerings, reduces integration costs and provides a
platform for our growth. Our product offerings are supported by
experienced subject matter experts which prospects and customers
leverage to help define and manage risk on new instruments, respond
to regulatory changes and build the ultimate risk platform tailored
for each customer.
Our 'Risk Cockpit' offering has a full range of functionality to
support real time enterprise risk as well as other department use
cases. We have found that the application of what we know as the
Risk Cockpit to have specific use cases within operations,
compliance as well as others such as people and culture risk. The
structured accountability framework, along with integrated risk
functionality and dashboards, provides customers with a holistic
view of a risk area and the ability to track and improve risk
management. We are now exploring the use of AI to help predict risk
events. This will become an add on sale to the core Risk
Cockpit.
Our Market Risk offerings cover the life cycle of risk:
Pre-trade, At-trade and Post-trade risk. The offerings are used
across the spectrum of customers from Tier one banks to
traders.
Our Compliance offerings cover a full range of regulatory
requirements, the anchor of which is surveillance but extends
across market abuse online training, digital on boarding (Know Your
Customer) as well as regulatory reporting, enhanced individual due
diligence and senior management regime. Our Compliance offering
includes many partner products which expand what we can do for
customers and leverages the partners investment in offerings as
well as subject matter expertise.
We launched our People and Culture Risk offering in February
2021 in conjunction with Kintail Consulting as part of our
Operations offering. This will leverage the Risk Cockpit
functionality and online training partnerships and specifically
addresses one of the industries key risk areas as identified by the
Regulators - people and culture.
How we sell
We have a clear focus for increasing sales, starting with
expanding sales to current customers and then targeting people we
know and who are within our addressable market. We are increasing
our online marketing presence as we are no longer able to attend
physical industry conferences due to the pandemic. We specifically
target a range of buying points within a customer organisation so
that we can benefit from the master services agreement we have and
internal cross referencing about the positive KRM22 experience.
Strategy
Our strategy consists of six core pillars that ensure we build a
successful company.
'Foundation of the business' 'Driving Growth'
Technology as a service Organic growth
Business automation Acquisitions
Team effectiveness Partnerships
Technology as a service
At the heart of our philosophy is the concept of reducing the
cost and complexity of risk management for customers through
technology delivered on an open platform, while driving increased
business margins for investors.
Organic growth
Organic growth is the central tenant of our business approach.
In 2020 we secured GBP0.8m of new business however this organic
growth was offset by an unprecedented level of existing customer
churn in the year. We have implemented a sophisticated customer
relationship management system that provides visibility and allows
us to manage and track sales activities through completion of sales
opportunities. We have a very strong pipeline of prospects across
Enterprise, Market, Compliance and Operations risk.
Business automation
We have implemented extensive business automation to ensure we
have a scalable operational foundation covering customer
acquisition, service delivery and through to financial control and
administration. This will ensure that as we increase margin, we
will also improve the bottom line performance.
Acquisitions and commercial partnerships
We have been clear from the start of KRM22 that we build,
acquire and partner to bring products to the Global Risk Platform
and therefore to our customers and prospects. We have established
partnerships to complement our existing portfolio across Market,
Compliance and Operations risk. We had to hold back on acquisitions
and further partnerships in 2020 but we look to reignite these
initiatives in 2021.
Team effectiveness
The investment in the team we have recruited and acquired is at
the heart of our business. Team members know their roles and that
KRM22 operates under the philosophy that business is a team game.
The Board and I would like to thank the team for their commitment
and work during a difficult year.
We are fully committed to our stakeholders including the
communities in which we work. The Executive team and Board will
take further action to establish a more comprehensive
Environmental, Social and Governance ("ESG") programme in 2021.
Outlook
After a challenging 2020, we have entered the new financial year
stronger than last year. A higher quality of customers that can
grow with us and an extensive sale opportunities and prospects
list, together with vaccines helping to bring the pandemic under
control, we are confident of continuing our growth and delivering
market expectations.
Keith Todd CBE
Executive Chairman and CEO
FINANCIAL REVIEW
Despite the challenging trading conditions in the year due to
the COVID-19 pandemic, total revenue recognised for the year was
GBP4.6m, an increase of 11% on 2019 and adjusted EBITDA loss for
the year was GBP0.2m, a significant reduction on 2019 when the
Company reported an adjusted EBITDA loss of GBP3.1m. The reduction
in adjusted EBITDA loss was a result of the continued tight control
of the cost base, the full year effect of company reorganisations
completed in 2019, together with a further reorganisation in 2020,
and short-term cost savings through temporary salary sacrifices
accepted by all staff in 2020.
Scope of financial results
This financial review focuses on the twelve month period ending
31 December 2020, whilst the prior year comparatives include the
seven months of revenue and costs for the Object+ group of
companies from the date of acquisition on 30 May 2019 and full year
revenue and costs for all other KRM22 group companies.
Profit and Loss
Total revenue
Revenue recognised for the year to 31 December 2020 was GBP4.6m
(2019: GBP4.1m), an increase of 11% compared with the prior year,
with 91% (2019: 91%) of total revenue generated from recurring
customer contracts. Non-recurring revenue the year ended 31
December 2020 totalled GBP0.4m (2019: GBP0.3m) and related
principally to customer implementations and proof of concept
work.
Recurring revenue
A key revenue metric for KRM22 is ARR (Annualised Recurring
Revenue) and as at 31 December 2020, ARR was GBP4.1m at the year
end FX rate or GBP4.3m at the FY20 average FX rate. KRM22 signed
new contracted ARR in 2020 of GBP0.8m (2019: GBP0.7m) with GBP0.1m
generated from Enterprise Risk products, GBP0.5m from Market Risk
products and GBP0.2m from Compliance Risk products. The increase in
ARR was offset by an increased level of churn and also impacted by
the increased strengthening of Sterling against the US dollar.
Gross profit
Gross profit for the year to 31 December 2020 was GBP4.2m (2019:
GBP3.7m) and the consistent gross profit margin of 90% continues to
demonstrate the operating leverage of the business and indicates
how the cost base can be covered efficiently as new recurring
revenue contracts are signed.
Capitalised research and development
A total of GBP1.0m (2019: GBP1.5m) of research and development
was capitalised in the year to 31 December 2020. Capitalised
research and development is amortised over three years.
Impairment
In the year ended 31 December 2020, impairment costs of GBP2.7m
were recognised in connection with the recoverability of goodwill
associated with the acquisition of KRM22 Market Surveillance, KRM22
ProOpticus and Object+ and impairment on account of trademarks at
GBP0.3m. The impairment reflects the uncertain economic conditions
in 2020 and in year revenue growth which was less than initial
forecasts. The impairment does not reflect a change in the overall
Group's strategic outlook.
Reorganisation costs
In response to delays in new customer contract signatures and
general economic uncertainty as a result of COVID-19, a total or 8
FTE roles were made redundant and our Spanish operations were
closed. As a result of the staff redundancies made in the year, a
total of GBP0.4m (2019: GBP0.5m) of company reorganisation costs
has been recognised in the year ended 31 December 2020.
Extinguishment of debt
On 16 April 2020, the Group acquired the remaining 40% minority
interest in KRM22 Market Surveillance Limited ("KRM22 Market
Surveillance") from Cinnober Financial Technology AB ("Cinnober").
Under the terms of the transaction, a total of GBP2.9m in debt due
to KRM22 and Cinnober (together the "Parent Companies") together
with GBP0.3m of other liabilities due to the Parent Companies was
converted into ordinary shares in KRM22 Market Surveillance
immediately prior to KRM22 consolidating its ownership of KRM22
Market Surveillance.
On completion of the debt to equity conversion in KRM22 Market
Surveillance, KRM22 immediately acquired the remaining 40% stake in
KRM22 Market Surveillance for a total consideration of GBP0.6m
payable to Cinnober by way of a convertible loan note (CLN)
provided by KRM22 to Cinnober. The CLN was for a one-year term and
could be satisfied by either the allotment and issue of ordinary
shares by no later than 31 July 2020 or settled by cash at any
point in the CLN term, at the Company's sole discretion. On 28 June
2020, the CLN was converted into 1,454,434 new ordinary shares at
38.4p per share in the Company and therefore no cash consideration
was paid as part of the acquisition. The settlement of GBP1.3m of
debt due to Cinnober, through the issue of the CLN, resulted in a
gain on extinguishment of debt of GBP0.7m which has been recognised
in the consolidated income statement for the year ended 31 December
2020.
Adjusted EBITDA
Adjusted EBITDA is the key metric that the Company considers in
order to understand the cash-profitability of the business. This is
due in particular to the non-cash items that impact the Income
Statement under IFRS accounting, such as non-cash share-based
costs.
Adjusted EBITDA for the year to 31 December 2020 was a GBP0.2m
loss (2019: loss of GBP3.1m) and was in line market forecasts and a
significant reduction on prior year. The reduction in Adjusted
EBITDA loss was driven by new sales, tight management of the
underlying cost base of the business, the full year impact of cost
savings plans and company reorganisations implemented in 2019, a
further company reorganisation implemented in June 2020 and reduced
salaries paid in the year due to the voluntary temporary salary
sacrifice scheme. A reconciliation of Adjusted EBITDA loss to the
reported operating loss is provided as follows:
2020 2019
GBP'm GBP'm
Adjusted EBITDA loss (0.2) (3.1)
Depreciation and amortisation (1.7) (1.3)
Unrealised FX losses (0.2) -
Impairment of intangible assets (3.0) (2.3)
Contingent consideration write back 0.3 1.5
Acquisition and debt expenses (0.4) (0.4)
Gain on extinguishment of debt (net) 0.7 -
Group restructuring costs (0.4) (0.5)
Deferred salary bonus accrual write back 0.4 -
Shared-based payment expense (0.9) (1.0)
------- -------
Operating loss (5.4) (7.1)
------- -------
Finance charges
Net finance expense in the year was GBP0.3m (2019: GBP0.2m) and
includes:
-- Interest paid of GBP0.1m (2019: GBP0.1m), inclusive of early
repayment charges of 5%, on the Harbert debt facility;
-- Interest accrued/paid on the Kestrel Convertible Loan Facility of GBP0.1m; and
-- IFRS16 lease liability interest of GBP0.1m (2019: GBP0.1m).
Taxation
The tax credit in the year was GBP0.2m (2019: credit of GBP0.8m)
which includes GBP0.1m (2019: GBP0.6m) R&D tax credit
received.
Reported operating loss
Reported operating loss for the year to 31 December 2020 was
GBP5.5m (2019: loss of GBP6.5m).
Financial position
Assets
The cash balance as at 31 December 2020 was GBP2.0m (2019:
GBP1.1m).
Current assets at 31 December 2020 include trade and other
receivables of GBP1.4m (2019: GBP1.4m).
Non-current assets were GBP9.2m (2019: GBP13.1m) relating
principally to: GBP6.7m for goodwill and assets acquired (2019:
GBP10.4m), GBP1.0m for right of use assets recognised under IFRS16
(2019: GBP1.6m) and GBP1.3m (2019: GBP0.8m) for capitalised
development costs.
Liabilities
As at 31 December 2020, our principal liabilities were:
-- GBP3.0m Convertible Loan owed to Kestrel Partners LLP. The
interest rate payable on the loan is 9.5% payable in cash quarterly
in arears. The loan can be converted into new Ordinary Shares in
the Company at any time at a conversion price of 38p and the
conversion can be requested by Kestrel Partners at any time. The
Company has the right to request conversion eighteen months
following the date of the agreement, subject to certain conditions
regarding the Company's share price at that time.
-- GBP0.8m (US$1.1m) discounted contingent consideration
(GBP1.1m (US$1.6m) undiscounted) for earn out payments for the
acquisition of Object+. The contingent consideration can be
satisfied in either cash or Company or ordinary shares at the
Company's discretion. The undiscounted contingent consideration of
US$1.6m was reduced by US$0.5m, reflecting re-appraisal of expected
cash outflows given probable conditions at the statement of
financial position date and this adjustment has been included in
the discounted liability of GBP0.8m recognised at the statement of
financial position date.
-- GBP1.0m for the right of use of assets relating to all future
payments of leased-office rentals under IFRS16 'Leases' whereby
such lease payments are provided for at today's value. In practice,
these rental payments will be spread over the next few years. As a
result, GBP0.5m of the related liability is shown in current
liabilities as it relates to lease payments that will be paid in
2021, with the balance for periods greater than one year.
-- GBP1.5m of deferred revenue; contracted and paid services
that will be released in a future period.
As a result of acquiring the remaining 40% shareholding in KRM22
Market Surveillance, by way of a Convertible Loan Note ("CLN") and
the subsequent conversion of the CLN into ordinary shares in the
Company, a total of GBP1.3m in debt was removed from the statement
of financial position in the year ended 31 December 2020.
Investors
As an AIM-listed business, a large proportion of KRM22's
shareholders are professional investment funds. In addition, the
Directors together owned 3,701,389 shares at the year end.
Funding
On 13 May 2020, the Company raised GBP1.3m gross proceeds in
equity funding through a subscription and placement of 4,266,664
new shares at 30 pence per share.
On 15 September 2020, KRM22 entered into an agreement for a new
three year GBP3.0m convertible loan facility (the "Convertible
Loan") with Kestrel Partners LLP ("Kestrel"), the Company's largest
shareholder following the fundraise completed on 13 May 2020. The
proceeds of the Convertible Loan were used to replace the Company's
existing debt facility (the "Debt Facility") provided Harbert
European Growth Capital Fund II ("Harbert"). The outstanding
balance of the Debt Facility, inclusive of loan principal, accrued
interest and early repayment charges of 5%, was GBP0.8m.
In conjunction with the Debt Facility, the Company issued
warrants over 495,049 new ordinary shares in the Company to Harbert
with an exercise price of GBP1.01 per ordinary share. Whilst the
balance of the Debt Facility was settled, the warrants remain in
place and are exercisable by Harbert until 29 April 2029.
The interest rate payable on the Convertible Loan is 9.5% per
annum, which compares favourably to the 11% per annum interest rate
on the Harbert Debt Facility, and is paid quarterly in arrears.
Kestrel can convert the Convertible Loan into new ordinary shares
in the Company at any time at a conversion price of 38p. The
Company has the right to request conversion 18 months following the
date of the agreement, subject to certain conditions regarding the
Company's share price at that time. Kestrel has the right to
prevent any conversion which would trigger a Rule 9 event under the
Takeover Code.
The Convertible Loan is secured on certain KRM22 assets and
includes covenants based on the Group's financial performance,
based on ARR, solvency and profitability.
COVID-19 reinforced the principle that companies need access to
greater to liquidity to address uncertainties, extended sales
cycles and provide potential customers with confidence in the
financial strength of the Group. In addition, the Convertible Loan
strengthened the financial position of the Company and provides
access to working capital and growth capital.
Use of cash in the year
Our net cash inflow in the year was GBP0.9m, which included the
GBP3.0m Kestrel Convertible Loan receipt, of which GBP1.0m was used
for capitalised research and development, GBP0.9m was used to
settle the Harbert Debt Facility and the balance was used to
provide working capital for KRM22.
Going concern
Analysis of KRM22's going concern position is detailed in note 2
(notes to the financial information).
Shareholdings and Earnings per share
As at 31 December 2020, KRM22 had 26,719,127 shares in issue.
The undiluted weighted average number of shares for the period to
31 December 2020 was 24,414,093. The difference in the two numbers
results from the timing of shares issued for the equity fundraise
completed on 13 May 2020 and the conversion of the Cinnober
Convertible Loan Note on 28 June 2020.
The resulting Earning per Share ("EPS") is a 24.1p loss per
share (2019: loss of 30.4p) on a weighted average number of shares
basis (equivalent to 24,414,093 on the shares in issue at year
end). Due to the loss made, diluted EPS is the same as EPS.
Dividend
We aim to deliver capital growth for shareholders to generate an
attractive total return. However we do not recommend a dividend for
the year, but may choose to do so in future years.
Conclusion
Whilst 2020 has been challenging in terms of time taken to
convert the sales pipeline and increased customer churn, adjusted
EBITDA loss has reduced to GBP0.2m from GBP3.1m in 2019 and total
recognised revenue has increased to GBP4.6m from GBP4.1m in 2019.
The Kestrel Convertible Loan has helped strengthen the financial
position of KRM22 and this, together with the sales pipeline
opportunities, means that KRM22 is well placed for growth in
2021.
Kim Suter
CFO
Consolidated income statement and statement of comprehensive
income
for the year ended 31 December 2020
2020 2019
Note GBP'000 GBP'000
-------------------------------------------------- -------- -------- -----------
Revenue 3 4,594 4,143
Cost of sales (440) (434)
-------------------------------------------------- -------- -------- -----------
Gross profit 4,154 3,709
Administrative expenses (9,570) (10,830)
Operating loss before interest, taxation, depreciation,
amortisation, share based payment and exceptional
items ('Adjusted EBITDA') (167) (3,072)
Depreciation and amortisation (1,688) (1,259)
Impairment of assets (3,022) (2,344)
(Loss)/profit and loss on disposal of tangible/intangible
assets (63) 22
Contingent consideration write back 342 1,493
Gain on extinguishment of debt (net) 677 -
Unrealised foreign exchange loss (160) -
Acquisition and debt related expenses (401) (413)
Company reorganisation costs (430) (527)
Deferred salary bonus accrual write back 381 -
Share based payment expense (885) (1,021)
------------------------------------------------------------ -------- ---------
Operating loss (5,416) (7,121)
------------------------------------------------------------ -------- ---------
Finance charge (net) (324) (196)
Loss before taxation (5,740) (7,317)
Taxation 246 792
------------------------------------------------------------ -------- -----------
Loss for the year (5,494) (6,525)
Loss for the year attributable to:
Equity shareholders of the parent (5,879) (5,648)
Non-controlling interest 385 (877)
------------------------------------------------------------ -------- -----------
(5,494) (6,525)
------------------------------------------------------------ -------- -----------
Other comprehensive income Item that may be reclassified
to subsequently to profit and loss;
Exchange (loss)/gain on translation of foreign
operations (117) 33
------------------------------------------------------------ -------- -----------
Total comprehensive loss for the year (5,611) (6,492)
------------------------------------------------------------ -------- -----------
Total comprehensive loss for the year attributable
to:
Equity shareholders of the parent (5,996) (5,615)
Non-controlling interest 385 (877)
------------------------------------------------------------ -------- -----------
(5,611) (6,492)
------------------------------------------------------------ -------- -----------
Loss per ordinary share
Basic earnings per share 4 (24.1p) (30.4p)
Diluted earnings per share 4 (24.1p) (30.4p)
------------------------------------------------------------ -------- -----------
Consolidated statement of financial position
at 31 December 2020
2020 2019
Note GBP'000 GBP'000
--------------------------------- -------- --------
Non-current assets
Goodwill 5 4,937 7,667
Other intangible assets 5 3,065 3,562
Property, plant and equipment 136 233
Right of use assets 1,041 1,642
Other receivables - 42
--------------------------------- -------- --------
9,179 13,146
Current assets
Trade and other receivables 1,434 1,358
Cash and cash equivalents 1,974 1,076
--------------------------------- -------- --------
3,408 2,434
--------------------------------- -------- --------
Total assets 12,587 15,580
--------------------------------- -------- --------
Current liabilities
Trade and other payables 2,539 2,954
Lease liabilities 456 488
Loans and borrowings 97 388
Derivative financial liability 45 45
3,137 3,875
Net current assets/(liabilities) 271 (1,441)
Non-current liabilities
Trade and other payables 882 1,179
Lease liabilities 549 988
Loans and borrowings 2,664 1,597
Deferred tax liability 405 536
--------------------------------- -------- --------
4,500 4,300
--------------------------------- -------- --------
Total liabilities 7,637 8,175
--------------------------------- -------- --------
Net assets 4,950 7,405
--------------------------------- -------- --------
Equity
Share capital 2,672 2,100
Share premium 16,676 15,435
Merger reserve (190) (190)
Convertible debt reserve 224 -
Foreign exchange reserve 108 (9)
Share-based payment reserve 2,563 1,678
Retained earnings (17,103) (10,871)
--------------------------------- -------- --------
4,950 8,143
Non-controlling interest - (738)
--------------------------------- -------- --------
Total equity 4,950 7,405
--------------------------------- -------- --------
Consolidated statement of cash flows
for the year ended 31 December 2020
2020 2019
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Cash flows from operating activities
Loss for the year (5,494) (6,525)
Adjustments for:
Tax credit (246) (792)
Net fi nance expense 324 196
Amortisation of intangible assets 1,018 672
Depreciation of property, plant and equipment
and right of use assets 670 587
Impairment of intangible assets 3,022 2,344
Loss/(profit) on disposal of tangible/intangible
assets 63 (22)
Write back of contingent consideration (342) (1,493)
Gain on extinguishment of debt (net) (677) -
Unrealised foreign exchange loss 160 85
Deferred salary bonus accrual write back (381) -
Equity-settled Share-based payment expense 885 1,021
Bad debt provision 340 -
Income taxes received 121 562
(537) (3,428)
(Increase)/decrease in trade and other receivables (76) 98
(Decrease)/increase in trade and other payables (329) 71
----------------------------------------------------- -------- --------
(405) 169
----------------------------------------------------- -------- --------
Net cash flows used in operating activities (942) (3,259)
Cash flows from investing activities
Acquisition of subsidiary undertakings (net of
cash acquired) - (379)
Purchase of intangible assets (959) (1,599)
Purchase of property, plant and equipment (2) (16)
----------------------------------------------------- -------- --------
Net cash used in investing activities (961) (1,994)
Cash flows from financing activities
Proceeds from issue of shares 1,280 2,787
Costs of issue of shares (25) (65)
Lease payments principal (458) (559)
Lease payments interest (84) (93)
Receipts from borrowings 3,000 1,056
Repayments of borrowings (874) (203)
----------------------------------------------------- -------- --------
Net cash from financing activities 2,839 2,923
----------------------------------------------------- -------- --------
Net increase/(decrease) in cash and cash equivalents 936 (2,330)
Cash and cash equivalents at beginning of year 1,076 3,355
Bank overdraft - 22
Effect of foreign exchange rate changes (38) 29
----------------------------------------------------- -------- --------
Cash and cash equivalents at end of year 1,974 1,076
----------------------------------------------------- -------- --------
Consolidated statement of changes in equity
for the year ended 31 December 2020
Share
Convertible Foreign based Non-
Ordinary Share Merger debt exchange payment Retained controlling Total
shares premium reserve reserve reserve reserve losses interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ----------- ------------- ------- ------------ --------- --------- -------- ----------- ----------
At 1 January
2019 1,638 12,659 (190) - 24 657 (5,223) 139 9,704
---------------- ----------- ------------- ------- ------------ --------- --------- -------- ----------- ----------
Loss for the
year - - - - - - (5,648) (877) (6,525)
Other
comprehensive
income - - - - (33) - - - (33)
---------------- ----------- ------------- ------- ------------ --------- --------- -------- ----------- ----------
Total
comprehensive
loss - - - - (33) - (5,648) (877) (6,558)
Allotment
of share
capital 462 2,776 - - - - - - 3,238
Share-based
payments - - - - - 1,021 - - 1,021
At 31 December
2019 2,100 15,435 (190) - (9) 1,678 (10,871) (738) 7,405
---------------- ----------- ------------- ------- ------------ --------- --------- -------- ----------- ----------
Loss for the
year - - - - - - (5,879) 385 (5,494)
Other
comprehensive
loss - - - - 117 - - - 117
---------------- ----------- ------------- ------- ------------ --------- --------- -------- ----------- ----------
Total
comprehensive
loss - - - - 117 - (5,879) 385 (5,377)
Non-controlling
interest - - - - - - 385 (385) -
Convertible
debt option - - - 224 - - - - 224
Allotment
of share
capital 572 1,241 - - - - - - 1,813
Share-based
payments - - - - - 885 - - 885
At 31 December
2020 2,672 16,676 (190) 224 108 2,563 (17,103) - 4,950
---------------- ----------- ------------- ------- ------------ --------- --------- -------- ----------- ----------
Notes to the financial information
1. Accounting basis
The financial information set out in this document does not
constitute the Group's statutory accounts for the years ended 31
December 2019 or 2020. Statutory accounts for the years ended 31
December 2019 and 31 December 2020, which were approved by the
directors on 15 March 2021, have been reported on by the
Independent Auditors. The Independent Auditor's Reports on the
Annual Report and Financial Statements for each of 2019 and 2020
were unqualified, did draw attention to a matter by way of
emphasis, being going concern and did not contain a statement under
498(2) or 498(3) of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2019 have been
filed with the Registrar of Companies. The statutory accounts for
the year ended 31 December 2020 will be delivered to the Registrar
of Companies in due course and will be posted to shareholders
shortly, and thereafter will be available from the Company's
registered office at 5 Ireland Yard, London, England, EC4V 5EH and
from the Company's website:
https://krm22.com/investor-relations
The financial information set out in these results has been
prepared using the recognition and measurement principles of
International Accounting Standards, International Financial
Reporting Standards and Interpretations in conformity with the
requirements of the Companies Act 2006. The accounting policies
adopted in these results have been consistently applied to all the
years presented and are consistent with the policies used in the
preparation of the financial statements for the year ended 31
December 2019, except for those that relate to new standards and
interpretations effective for the first time for periods beginning
on (or after) 1 January 2019. There are deemed to be no new
standards, amendments and interpretations to existing standards,
which have been adopted by the Group, that have had a material
impact on the financial statements.
The Group's financial information has been presented in Pounds
Sterling (GBP). Amounts are rounded to the nearest thousand, unless
otherwise stated.
2. Going concern
The Group's financial statements have been prepared on the going
concern basis. The Directors have reviewed KRM22's going concern
position taking into account of its current business activities,
budgeted performance and the factors likely to affect its future
development, which are set out in this Annual Report, and include
KRM22's objectives, policies and processes for managing its
capital, its financial risk management objectives and its exposure
to credit and liquidity risks.
The Group meets its day-to-day working capital requirements
through cash generated from the capital it has raised on AIM, and a
Convertible Loan facility with Kestrel Partners LLP ("Kestrel"). On
15 September 2020 KRM22 signed a three-year convertible loan
agreement with Kestrel for GBP3.0m with some proceeds of the loan
being used to settle the existing Debt Facility with. At 31
December 2020 KRM22 had GBP2.0m of cash at bank and debt due to
Kestrel of GBP3.0m (gross).
The Directors have undertaken a significant assessment of the
cashflow forecasts covering a period of at least twelve months from
the date of approval of the financial statements. Cashflow
forecasts have been prepared based on a range of scenarios
including, but not limited to, existing customer churn at different
churn rates, no new contracted sales revenue, delayed sales, cost
reductions and a combination of these different scenarios.
Having assessed the sensitivity analysis on cashflows, the key
risks to KRM22 remaining a going concern without implementing
extensive cost reduction measures is, existing customers paying on
payment terms and within 45 days of invoice, customer churn of up
to 10%, conversion of some of the sales opportunities that are
currently at contract negotiation stage and maintaining control of
the cost base.
If the forecasts are achieved, KRM22 will be able to operate
within its existing facilities. However, the time to close new
customers and the value of each customer, which are deemed
individually as high value and low volume, is key. As such, there
is a risk that KRM22's working capital may prove insufficient to
cover both operating activities and the repayment of its debt
facility. In such circumstances, KRM22 would be obliged to seek
additional funding, through a placement of shares or other source
of funding. There is no certainty that such funds could be
raised.
The Directors have concluded that the circumstances set forth
above represent a material uncertainty, which may cast significant
doubt about KRM22's ability to continue as a going concern. However
the Directors expect to be able to raise funds through a placement
of shares or other source of funding and believe that taken as a
whole, the factors described above enable KRM22 to continue as a
going concern for the foreseeable future, being twelve months from
their signing of their financial statements. The financial
statements do not include the adjustments that would be required if
the Group were unable to continue as a going concern.
3. Segmental reporting
The Board of Directors, as the chief operating decision maker in
accordance with IFRS 8 Operating Segments, has determined that
KRM22 have identified five risk domains as operating segments,
however for reporting purposes into a single global business unit
and operates as a single operating segment, as the nature of
services delivered are common.
The internal management accounting information has been prepared
in accordance with IFRS but has a non-GAAP 'Adjusted EBITDA' as a
profit measure for the overall group. This amount is reported on
the face of the income statement.
KRM22's revenue from external customers and information about
its non-current assets, excluding deferred tax, by geography is
detailed below:
Non-current Non-current
Revenue assets Revenue assets
2020 2020 2019 2019
GBP'000 GBP'000 GBP'000 GBP'000
UK 990 3,973 422 5,151
Europe 763 1,911 798 2,463
USA 2,383 3,294 2,489 5,531
Rest of world 458 1 434 1
--------------- ---------- ------------ ---------- ------------
Total 4,594 9,179 4,143 13,146
--------------- ---------- ------------ ---------- ------------
The Directors consider that the business has five risk domains:
Enterprise, Market, Compliance, Operations and Technology as is
described in Strategic Report. Within these five risk domains,
there are three revenue streams with different characteristics,
which are generated from the same assets and cost base.
For the years ended 31 December 2020 and 2019, no customer
generated more than 10% of total revenue.
Non-current assets include goodwill and intangible assets
recognised on consolidation and are classified by reference to the
geographical location of the KRM22 group company which initially
acquired the acquiree.
Recurring revenue is recognised over the period of time and
non-recurring revenue is recognised at a point in time. Other
revenue comprises miscellaneous revenue that is not part of KRM22's
core business.
2020 2019
GBP'000 GBP'000
Recurring revenue 4,193 3,753
Non-recurring revenue 401 305
Other revenue - 85
----------------------- -------- --------
Total revenue 4,594 4,143
----------------------- -------- --------
2020 2019
GBP'000 GBP'000
Enterprise 420 81
Market 2,476 2,447
Compliance 1,673 1,530
Other 25 85
------------ -------- --------
Total 4,594 4,143
------------ -------- --------
4. Loss per share
Basic earnings per share is calculated by dividing the loss
attributable to the equity holders of KRM22 by the weighted average
number of shares in issue during the year.
KRM22 has dilutive ordinary shares, this being warrants,
restricted stock awards and share options granted to employees. As
KRM22 has incurred a loss in the year, the diluted loss per share
is the same as the basic earnings per share as the loss has an
anti-dilutive effect.
2020 2019
GBP'000 GBP'000
-------------------------------------------- ----------- -----------
Loss for the year attributable to equity
holders of the parent (5,879) (5,648)
Basic weighted average number of shares in
issue 24,414,093 18,552,176
Diluted weighted average number of shares
in issue 33,256,848 25,933,265
-------------------------------------------- ----------- -----------
Basic and diluted loss per share (24.1p) (30.4p)
-------------------------------------------- ----------- -----------
5. Intangible assets
Acquired Capitalised
Goodwill software Trademarks development
on & & licenses costs Total
consolidation related assets GBP'000 GBP'000 GBP'000
GBP'000 GBP'000
Cost
At 1 January 2020 7,667 2,856 704 3,320 14,547
Additions - - - 959 959
Disposals - - (169) - (169)
Foreign exchange
movements (11) (4) (19) (2) (36)
-------------------------- ---------------- ---------------- ------------- ------------- ----------
At 31 December 2020 7,656 2,852 516 4,277 15,301
-------------------------- ---------------- ---------------- ------------- ------------- ----------
Accumulated amortisation
At 1 January 2020 - 640 180 2,498 3,318
Amortisation for
the year - 451 80 487 1,018
Impairment charge 2,719 - 303 - 3,022
Disposals - - (38) - (38)
Foreign exchange
movements - (6) (9) (6) (21)
-------------------------- ---------------- ---------------- ------------- ------------- ----------
At 31 December 2020 2,719 1,085 516 2,979 7,299
-------------------------- ---------------- ---------------- ------------- ------------- ----------
At 31 December 2019 7,667 2,216 524 822 11,229
-------------------------- ---------------- ---------------- ------------- ------------- ----------
At 31 December 2020 4,937 1,767 - 1,298 8,002
-------------------------- ---------------- ---------------- ------------- ------------- ----------
6. Events after the reporting date
On 4 March 2021, the Company signed an addendum (the "Addendum")
to the Object+ Share Purchase Agreement dated 29 May 2019. Under
the terms of the Addendum, the undiscounted deferred consideration
of US$1.6m (GBP1.2m) associated with the third performance
milestone was reduced by US$0.5m (GBP0.4m) to US$1.1m (GBP0.8m) in
return for a cash payment of US$0.1m (GBP0.1m) to the Seller of
Object+ and the Company waiving the US$0.1m (GBP0.1m) promissory
loan note due from the Seller to the Company. As of the statement
of financial position date the Director's expectation was that such
a position was probable taking account of the performance of the
Group and engagement with the seller.
7. Cautionary statement
This document contains certain forward-looking statements
relating to KRM22 plc (the "Group"). The Group considers any
statements that are not historical facts as "forward-looking
statements". They relate to events and trends that are subject to
risk and uncertainty that may cause actual results and the
financial performance of the Company to differ materially from
those contained in any forward-looking statement. These statements
are made by the Directors in good faith based on information
available to them and such statements should be treated with
caution due to the inherent uncertainties, including both economic
and business risk factors, underlying any such forward-looking
information.
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END
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