TIDMKRM
RNS Number : 0240E
KRM22 PLC
27 June 2023
KRM22 plc
("KRM22", the "Group" and the "Company")
AUDITED RESULTS STATEMENT FOR THE YEARED 31 DECEMBER 2022
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 2022 ("2022", the
"Year").
Financial highlights
-- Annualised Recurring Revenue (ARR) ([1]) as at 31 December
2022 of GBP4.8m (2021: GBP3.8m) - growth of 26.3%
o New contracted ARR in 2022 of GBP1.3m (2021: GBP0.7m) - growth
of 85.7%
-- Total revenue recognised of GBP4.3m (2021: GBP4.1m) - growth of 4.9%
-- Adjusted EBITDA loss ([2]) of GBP1.7m (2021: GBP0.7m)
-- An improved loss before tax of GBP3.0m (2021: loss of GBP3.4m)
-- Gross cash as at 31 December 2022 of GBP1.9m (2021: GBP5.4m)
Operational highlights
-- More than 20 new ARR contracts signed in the year with 11 new customers
-- Launch of "Limits Manager" and "Risk Manager", the first
products with Trading Technologies International, Inc ("TT")
following the distribution agreement signed in 2021
-- Conversion of additional sales opportunities generated by the TT relationship
-- Significant reduction in unplanned churn to GBP0.1m (2021: GBP0.7m)
-- Ambition to target 20%+ annual growth of ARR
Post year-end events
-- Replacement of existing Kestrel debt facility with a new GBP5.0m facility provided by TT
-- Growth in ARR to GBP4.9m as at the date of this report
Keith Todd CBE, Executive Chairman of KRM22, commented:
"Since we launched KRM22 in April 2018, it has been five
turbulent years with the UK exiting the European Union, Covid
disruption and significant political turmoil globally as well as
locally in the UK. Despite these challenges, KRM22 has been
established as a credible name in capital markets with many leading
institutions as current customers and many more in the immediate
pipeline. 2022 was a year of transition for KRM22, with Stephen
Casner taking over as CEO placing it back on the growth path and
driving positive ARR growth."
For further information please contact:
KRM22 plc
InvestorRelations@krm22.com
Keith Todd CBE, Executive Chairman
Stephen Casner, CEO
Kim Suter, CFO
finnCap Ltd (Nominated Adviser and Broker) +44 (0)20 7220
0500
Carl Holmes / George Dollemore
Alice Lane / Sunila de Silva (ECM)
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the Company's obligations under Article 17 of MAR.
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' trading and corporate 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 listed 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
2022 was a year of transition for KRM22, placing it back on the
growth path. Stephen Casner took over as CEO of KRM22 as I
transitioned to running Trading Technologies International, Inc.
("TT"), the Company's major shareholder. He and the KRM22 team have
refocused the business and driven Annualised Recurring Revenue
("ARR") growth to GBP4.8m at 31 December 2022, up from GBP3.8m at
December 2021, and a credible 26% growth year on year.
Since we launched KRM22 in April 2018, it has been five
turbulent years with the UK exiting the European Union, Covid
disruption and significant political turmoil globally as well as
locally in the UK. Despite these challenges, KRM22 has been
established as a credible name in capital markets with many leading
institutions as current customers but many more in the immediate
pipeline.
At the beginning of 2022, we announced the TT partnership, and
we are pleased to say that we have made excellent progress to date.
This includes integrating the KRM22 software into the TT platform
within the TT firewalls, signing new customers as well as
establishing a very strong 2023 sales pipeline including many tier
one banks.
Outside of the TT partnership, the KRM22 team has refocused the
product offering, as well as restructured and strengthened the
sales team providing a platform for growth, demonstrated by the
growth in ARR through direct sales channels.
We were pleased to have recently concluded a debt financing
facility with TT for GBP5.0m after a competitive process, providing
the Company with access to capital to continue its growth. The
terms include a higher convertibility threshold compared to the
previous debt facility and lower interest cost compared to
alternative debt financing arrangements.
The Board and I wish to thank not just the customers and
investors but the KRM22 team for the continued commitment for
delivering high quality products and services to the capital
markets risk community. We look forward to seeing continued growth
in 2023 and beyond as well as crossing the cash generation
line.
Keith Todd CBE
Executive Chairman
CEO'S REPORT
2022 saw KRM22 advance all of its key initiatives and solidly
place the Company on track to meet our goal of moving towards a
GBP10.0m Annualised Recurring Revenue ("ARR") business by 2026 with
positive EBITDA performance and cash flow and an ambition to grow
ARR by 20% year on year.
We are doing this through four key initiatives:
(1) generating revenue from the relationship with Trading
Technologies International, Inc. ("TT");
(2) growing ARR, through direct sales and the TT
partnership;
(3) reducing the level of customer churn as experienced in
previous years, whilst improving the success and adoption rate of
the Risk Cockpit; and
(4) reorganisation of the workforce to help grow the business
and support other initiatives.
I am pleased to report that KRM22 has found success in each of
these endeavours .
In addition to these initiatives, the Company has secured a new
GBP5.0m secured debt facility from TT, our largest shareholder, to
replace a GBP3.0m secured debt facility that was due to mature in
September 2023.
As you review the progress made in the year, I would like to
highlight how we stand on the key initiatives we embarked on at the
start of 2022 and will continue in 2023.
Creating revenue from TT's customer base
Our relationship with TT was one of the keys to our success in
2022. We signed our first sales contract from the TT sales channel
in June 2022. This contract allows us to leverage our Pre-Trade
Limit Manager product to be used as a custom limit system for a
major European commodity exchange. This three-year contract
provides GBP0.1m of ARR to KRM22 in addition to GBP0.2m of one-off
non-recurring revenue.
We announced in 2022 the two key products that TT will
distribute for KRM22, Limits Manager and Risk Manager. A major
component of the announcement was that these products would operate
on TT's technical platform. This allows TT customers to contract
for the KRM22 services under their existing TT license agreement
conforming to technical audits and without migrating data to a
different environment. We jointly decided to make this investment
to reduce the amount of "friction" TT would experience in selling
KRM22's products.
This is a direct response to how our core market has changed the
way they acquire software products, allowing them to test and use
the applications before making a financial commitment.
We are impressed with how KRM22 and TT worked collaboratively on
our first product. By the end Q3 of 2022, the KRM22 Limits Manager
product had been successfully integrated into the TT platform.
This allowed us to commence TT's sales campaign for KRM22's
Limits Manager in Q4 2022 which has resulted in creating an
impressive pipeline of sale opportunities for the Limits Manager
product in 2023 which has already resulted in a product sale to one
of the world's largest financial institutions.
The power of the TT sales channel became evident as the
financial institution in question was able to go live on the Limits
Manager product in less than two weeks after signing a sales order
with TT - a process that would ordinarily take months of effort to
accomplish if it were a direct sales opportunity.
A second KRM22 product, Risk Manager, has been launched on the
TT platform and another major global financial institution has
begun testing and evaluating this new product. We expect revenue
from this product to come forward in the second half of 2023 and be
a significant contributor to achieving our revenue goals.
Revenue growth
While our relationship with TT is important, we must also
demonstrate that we can directly sell our products to new customers
and expand the use of our products by our existing customers. I am
pleased to report our 2022 selling initiatives have been successful
and our new sales team is being led by the Company's Chief Revenue
Officer, Billy Murray.
As of the date of this report, our ARR is GBP4.9m up from
GBP3.8m at 31 December 2021, an increase of approximately 29% which
we are pleased with. In 2022 the Company signed 22 new contracts
totalling GBP1.3m - 11 with new customers, including a Tier One
bank, and 11 with existing customers for new products and
extensions of existing products.
Whilst we have had strong performance generating new contractual
ARR, we have been less successful in delivering non-recurring
revenue which would have improved the underlying financial position
for 2022. We expect a renewed focus on non-recurring revenue in
2023 resulting in a significant improvement to adjusted EBITDA
performance in 2023.
Retention of customers and making the Risk Cockpit
successful
The level of customer attrition the Company experienced in prior
years, with total churn of GBP1.4m notified to us in 2021, covering
contract terminations in 2021 and the first two months of 2022, was
unprecedented and not sustainable. The churn was from legacy
customers on old deployed software that did not want to migrate to
SaaS delivered services. Whilst some level of customer churn is
expected, we needed to implement a plan to mitigate and reduce the
level of churn to a more acceptable level.
We embarked upon a defined customer retention plan led by our
Customer Services team which resulted in the prevention of
"surprise" churn in the customer base in 2022. Throughout the whole
of 2022 we only had one customer contract that we did not
anticipate terminating, with ARR of GBP0.1m, and this was a
Belarusian customer with the termination driven by the
Russia/Ukraine geopolitical crisis.
A highlight of our retention plan included the roll out of a
series of "KRM22 health dashboards" to our customers. This
initiative highlights how many transactions we process for our
customers each day, gives our customers a direct and instantaneous
view of open and closed support tickets as well as the availability
of future product updates and associated new features and
functions. These dashboards, in combination with our monthly
newsletter program, has significantly extended our daily customer
touch points and improved the value we deliver to each of our
customers every day.
Another key part of our customer retention plan was to deliver
the integrated benefit of KRM22's Global Risk Platform to our
Showcase Global Risk Platform Customer, and we delivered excellent
progress in the period. The Global Risk Platform is now fully
operational for Trading and Corporate risk at our Showcase Global
Risk Platform Customer with the Risk Cockpit product being utilised
into production to support a key risk evaluation parameter for
them. We expect to "package" this success to begin accelerating
revenue from the Risk Cockpit in 2023.
We have been disappointed in the historical rate of adoption of
the Risk Cockpit product since the product was developed and
launched in 2019. We have created a new plan with new resources to
help us make that change by further tailoring the product for the
Capital Markets industry and helping existing customers with their
alignment to FCA requirements, e.g. ICARA. The results of our
efforts are now evident at our showcase customer.
Reorganise the workforce
At the start of 2022, and following my appointment as CEO of
KRM22, we restructured KRM22's internal teams and their
responsibilities, as this is key to the Company's future success.
The senior leadership team was streamlined and refocused into four
distinct areas: Revenue, Customer Services, Technology and
Finance/HR/Legal. We completed a successful search for a new Chief
Revenue Officer, Billy Murray, who joined in September 2022. Dan
Carter was promoted to run Customer Services, Viliam Dzupin's
Technology responsibilities were extended to cover Product, whilst
Kim Suter's responsibilities were extended to cover legal contracts
and administration.
This new leadership team has brought clarity and efficiency to
the organisation and, together with the teams that they manage, is
a primary reason for the Company's success in 2022.
Outlook
Overall, we are on the right path to achieve the objectives and
internal KPI's set out at the start of 2022. These provide a strong
foundation on which to build in 2023.
We have defined a goal to get to GBP10.0m of ARR by 2026 through
delivering 20% compounded ARR growth each year while achieving
positive EBITDA and cash flow and we have the right foundations in
place to achieve this goal. Notwithstanding a backdrop of
challenging market conditions, which we do not expect to materially
change in the near term, we will continue to consistently drive the
acceleration of revenue through each of our sales channels. We also
will continue to manage the underlying cost base of the business to
ensure we have sufficient cash to give us the runway to achieve our
goal.
Whilst we have defined our goal of growing KRM22 to a GBP10.0m
ARR business, the amount of variables we have in our revenue plan
still inhibit us from publishing market forecasts. We believe that
by remaining diligently focused on growing ARR, retaining customers
and managing costs, the time frame for our success will begin to
come into focus in our subsequent reporting periods.
As always, we thank you for your support and look forward to
continuing to build one of the capital markets best risk management
companies.
Stephen Casner
CEO
CFO'S REPORT
Following a challenging couple of years with the COVID-19
pandemic, impacting KRM22 through extended sales cycles and
significant customer churn, 2022, against a backdrop of increasing
global economic uncertainty, saw an increase in total revenue
recognised, a significant increase in its ARR and a reduction in
customer churn compared with prior years. Whilst total revenue
recognised in the year saw an increase of 4.9% to GBP4.3m from
GBP4.1m, the Company's ARR at year end saw a net increase of 26.3%
to GBP4.8m from GBP3.8m at 31 December 2021.
Profit and Loss
Total revenue
Revenue recognised for the year to 31 December 2022 was GBP4.3m
(2021: GBP4.1m), an increase of 4.9% compared with the prior year,
with 92% (2021: 96%) of total revenue generated from recurring
customer contracts. Non-recurring revenue for the year ended 31
December 2022 totalled GBP0.3m (2021: GBP0.2m) and related
principally to customer implementations and proof of concept
work.
Recurring revenue
ARR ("Annualised Recurring Revenue") is a key metric for KRM22
and as at 31 December 2022, ARR had increased by 26.3% to GBP4.8m
(2021: GBP3.8m), a net increase of GBP1.0m (2021: net decrease of
GBP0.3m). New contracted ARR in the year totalled GBP1.3m (2021:
GBP0.7m) of which GBP0.7m (2021: GBP0.3m) was from new customers
and GBP0.6m (2021: GBP0.4m) was generated from existing
customers.
Total churn in the year was GBP0.6m (2021: GBP0.9m), of which
GBP0.1m was from the termination of one customer in the year and
which was unexpected, however this was from a Belarusian customer
with the termination driven by the Russia/Ukraine geopolitical
situation, and GBP0.5m which terminated in early 2022 and which
KRM22 had been notified of in 2021.
Gross profit
Gross profit for the year to 31 December 2022 was GBP3.3m (2021:
GBP3.5m). The reduction in gross profit margin to 77% this compared
to the prior year margin of 84% was due to additional hosting
capacity required to service the increase in customer numbers and
this was further compounded by the volatility and adverse movement
in foreign currency rates, with a significant proportion of the
Company's cost of sales being Amazon Web Services server costs
which are invoiced in US dollars. In addition, KRM22 generates
revenue through partner products and services, primarily through
data and news feeds with minimal margin to KRM22, and this
accounted for 6% of recurring revenue recognised in the year ended
31 December 2022 (2021: 4%) which contributed to the reduction in
gross profit margin.
Capitalised development
A total of GBP0.8m (2021: GBP0.7m) of development was
capitalised in the year to 31 December 2022. Capitalised
development is amortised over three years.
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
payment charges.
Adjusted EBITDA for the year to 31 December 2022 was a GBP1.7m
loss (2021: loss of GBP0.7m). Following the investment from Trading
Technologies International, Inc ("TT") in December 2021 of GBP4.7m,
the Company completed an internal reorganisation of the business to
help drive business growth, including investing in additional
resource, and this contributed to the increase in adjusted EBITDA
loss however this investment, and ultimately the increase in the
cost base of the business in the year, is generating a return for
the business, evident by the growth in ARR in the year.
The increase in the Company's adjusted EBITDA loss was also on
the back of two years of trying to grow the business through
cost-cutting during the COVID-19 pandemic, together with the added
benefit in 2021 of a GBP0.2m (US$0.3m) Payback Protection Program
("PPP") loan, converted to a grant under the rules of the PPP
scheme, and recognised as Other operating income.
A reconciliation of adjusted EBITDA loss to the reported
operating loss is provided as follows:
2022 2021
GBP'm GBP'm
Adjusted EBITDA loss (1.7) (0.7)
Depreciation and amortisation (1.6) (1.7)
Unrealised FX gain/(losses) 0.8 (0.1)
Contingent consideration charge - (0.1)
Shared-based payment expense (0.1) (0.4)
------- -------
Operating loss (2.6) (3.0)
------- -------
Operating loss
Reported operating loss for the year to 31 December 2022 was
GBP2.6m (2020: loss of GBP3.0m).
Finance charges
Net finance expense in the year was GBP0.6m (2021: GBP0.4m) and
includes:
-- Loan interest of GBP0.3m (2021: GBP0.3m);
-- IFRS16 lease liability interest of GBP0.1m (2021: GBP0.1m); and
-- Derivative financial instrument fair value adjustment of GBP0.2m (2021: GBP0.0).
Taxation
The tax credit in the year was GBP0.2m (2021: credit of GBP0.1m)
which includes GBP0.1m (2021: GBPnil) R&D tax credit
received.
Financial position
Assets
The cash balance as at 31 December 2022 was GBP1.9m (2021:
GBP5.4m).
Current assets at 31 December 2022 include trade and other
receivables of GBP1.5m (2021: GBP0.7m).
Non-current assets were GBP7.8m (2021: GBP8.1m) relating
principally to: GBP6.1m for goodwill and assets acquired (2021:
GBP6.1m), GBP0.4m for right of use assets recognised under IFRS16
(2021: GBP0.6m) and GBP1.3m (2021: GBP1.3m) for capitalised
development costs.
Liabilities
As at 31 December 2022, 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 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 at any time after eighteen months
following the date of the agreement, 15 September 2020, subject to
certain conditions regarding the Company's share price at that
time.
-- GBP1.0m (US$1.1m) deferred consideration for earn out
payments for the acquisition of Object+. The deferred consideration
can be satisfied in either cash or Company ordinary shares at the
Company's discretion.
-- GBP0.6m for the right of use 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
2023, with the balance for periods greater than one year.
-- GBP1.8m of deferred revenue; contracted and paid services
that will be released in a future period.
Investors
As an AIM quoted business, a large proportion of KRM22's
shareholders are professional investment funds. In addition, the
Directors together owned 3,764,958 shares at the year end,
representing 10.6% of the Company's issued share capital.
Funding
The Company has a GBP3.0m convertible loan (the "Kestrel
Convertible Loan") with Kestrel Partners LLP ("Kestrel"). The
interest rate payable on the Kestrel Convertible Loan is 9.5% per
annum and is paid quarterly in arrears. Kestrel can convert the
Kestrel 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 at any time after the 18 months following the
date of the agreement, 15 September 2020, 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 Kestrel Convertible Loan is secured on certain KRM22 assets
and includes covenants based on the Group's financial
performance.
Since the year end the Company has secured a new GBP5.0m
convertible loan facility with TT (the "TT Convertible Loan") to
replace the existing Kestrel Convertible Loan. Further detail on
the TT Convertible Loan is detailed in note 6 .
Use of cash in the year
Our net cash outflow in the year was GBP3.5m, of which GBP0.7m
was used for capitalised development, GBP0.3m was used to pay
interest on the Kestrel Convertible Loan 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 2022, KRM22 had 35,666,336 shares in issue and
this was also the undiluted weighted average number of shares for
the period. The resulting Earning per Share ("EPS") is a 8.7p loss
per share (2021: loss of 12.4p). Due to the loss made by the
Company in the year, the 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
In 2022, KRM22 has utilised the funds received from the TT
investment in December 2021 to grow the business through new
customer sales and reducing the level of customer churn, with net
growth in ARR of 26.3%. The Company now has the foundations in
place for this momentum to continue into 2023 and beyond, with
significant sales pipeline opportunities, both from direct selling
opportunities and through the TT distribution agreement, to
increase ARR and improve the adjusted EBITDA position.
Kim Suter
CFO
Consolidated income statement and statement of comprehensive
income
for the year ended 31 December 2022
2022 2021
Note GBP'000 GBP'000
------------------------------------------------- ------- -------- ----------
Revenue 3 4,273 4,128
Cost of sales (955) (676)
------------------------------------------------- ------- -------- ----------
Gross profit 3,318 3,452
Other operating income 131 259
Administrative expenses (6,077) (6,695)
Operating loss before interest, taxation, depreciation,
amortisation, share based payment and exceptional
items ('Adjusted EBITDA') (1,684) (687)
Depreciation and amortisation (1,637) (1,696)
Profit on disposal of tangible/intangible assets 14 6
Contingent consideration charge - (126)
Unrealised foreign exchange gain/(loss) 812 (112)
Acquisition, funding and debt related expenses - (20)
Share based payment expense (133) (349)
---------------------------------------------------------- -------- --------
Operating loss (2,628) (2,984)
---------------------------------------------------------- -------- --------
Finance charge (net) (641) (438)
Loss before taxation (3,269) (3,422)
Taxation credit 168 92
---------------------------------------------------------- -------- ----------
Loss for the year (3,101) (3,330)
---------------------------------------------------------- -------- ----------
Loss for the year attributable to:
Equity shareholders of the parent (3,101) (3,330)
---------------------------------------------------------- -------- ----------
(3,101) (3,330)
---------------------------------------------------------- -------- ----------
Other comprehensive income
Item that may be reclassified subsequently to
profit and loss:
Exchange loss on translation of foreign operations (563) (7)
---------------------------------------------------------- -------- ----------
Total comprehensive loss for the year (3,664) (3,337)
---------------------------------------------------------- -------- ----------
Total comprehensive loss for the year attributable
to:
Equity shareholders of the parent (3,664) (3,337)
(3,664) (3,337)
---------------------------------------------------------- -------- ----------
Loss per ordinary share
Basic losses per share 4 (8.7p) (12.4p)
Diluted losses per share 4 (8.7p) (12.4p)
---------------------------------------------------------- -------- ----------
Consolidated statement of financial position
at 31 December 2022
2022 2021
Note GBP'000 GBP'000
--------------------------------- -------- --------
Non-current assets
Goodwill 5 5,167 4,841
Other intangible assets 5 2,244 2,573
Property, plant and equipment 11 54
Right of use assets 369 632
7,791 8,100
Current assets
Trade and other receivables 1,462 741
Cash and cash equivalents 1,900 5,362
--------------------------------- -------- --------
3,362 6,103
--------------------------------- -------- --------
Total assets 11,153 14,203
--------------------------------- -------- --------
Current liabilities
Trade and other payables 3,853 3,436
Lease liabilities 493 483
Loans and borrowings 2,974 97
Derivative financial liability 255 45
7,575 4,061
Net current (liabilities)/assets (4,213) 2,042
Non-current liabilities
Trade and other payables 30 45
Lease liabilities 122 321
Loans and borrowings - 2,763
Deferred tax liability 245 301
--------------------------------- -------- --------
397 3,430
--------------------------------- -------- --------
Total liabilities 7,972 7,491
--------------------------------- -------- --------
Net assets 3,181 6,712
--------------------------------- -------- --------
Equity
Share capital 3,567 3,567
Share premium 20,517 20,517
Merger reserve (190) (190)
Convertible debt reserve 224 224
Foreign exchange reserve (448) 115
Share-based payment reserve 3,045 2,912
Retained deficit (23,534) (20,433)
--------------------------------- -------- --------
Total equity 3,181 6,712
--------------------------------- -------- --------
Consolidated statement of cash flows
for the year ended 31 December 2022
2022 2021
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Cash flows from operating activities
Loss for the year (3,101) (3,330)
Adjustments for:
Tax credit (168) (92)
Net fi nance expense 641 438
Amortisation of intangible assets 1,324 1,201
Depreciation of property, plant and equipment
and right of use assets 313 495
Profit on disposal of tangible/intangible assets (14) (6)
Contingent consideration charge - 126
Unrealised (gain)/loss on non-GBP denominated
loans (812) 112
Equity-settled Share-based payment expense 133 349
Bad debt provision - 127
Income taxes received 97 -
(1,587) (580)
(Increase)/decrease in trade and other receivables (721) 566
Increase/(decrease) in trade and other payables 187 (33)
----------------------------------------------------- -------- --------
(534) 533
----------------------------------------------------- -------- --------
Net cash flows used in operating activities (2,121) (47)
Cash flows from investing activities
Purchase of intangible assets (840) (749)
Purchase of property, plant and equipment (8) (6)
----------------------------------------------------- -------- --------
Net cash used in investing activities (848) (755)
Cash flows from financing activities
Proceeds from issue of shares - 4,735
Lease payments principal (217) (204)
Lease payments interest (33) (56)
Interest paid (285) (285)
Net cash (used in)/from financing activities (535) 4,190
----------------------------------------------------- -------- --------
Net (decrease)/increase in cash and cash equivalents (3,504) 3,388
Cash and cash equivalents at beginning of year 5,362 1,974
Effect of foreign exchange rate changes 42 -
----------------------------------------------------- -------- --------
Cash and cash equivalents at end of year 1,900 5,362
----------------------------------------------------- -------- --------
Consolidated statement of changes in equity
for the year ended 31 December 2022
Share
Convertible Foreign based
Ordinary Share Merger debt exchange payment Retained Total
shares premium reserve reserve reserve reserve losses equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ----------- ------------- -------- ------------ ---------- ------------ -------- ------------
At 1 January
2021 2,672 16,676 (190) 224 108 2,563 (17,103) 4,950
---------------- ----------- ------------- -------- ------------ ---------- ------------ -------- ------------
Loss for the
year - - - - - - (3,330) (3,330)
Other
comprehensive
income - - - - 7 - - 7
---------------- ----------- ------------- -------- ------------ ---------- ------------ -------- ------------
Total
comprehensive
loss - - - - 7 - (3,330) (3,323)
Non-controlling
interest - - - - - - 385 -
Allotment of
share capital 895 3,841 - - - - - 4,736
Share-based
payments - - - - - 349 - 349
At 31 December
2021 3,567 20,517 (190) 224 115 2,912 (20,433) 6,712
---------------- ----------- ------------- -------- ------------ ---------- ------------ -------- ------------
Loss for the
year - - - - - - (3,101) (3,101)
Other
comprehensive
loss - - - - (563) - - (563)
---------------- ----------- ------------- -------- ------------ ---------- ------------ -------- ------------
Total
comprehensive
loss - - - - (563) - (3,101) (3,664)
Share-based
payments - - - - - 133 - 133
At 31 December
2022 3,567 20,517 (190) 224 (448) 3,045 (23,534) 3,181
---------------- ----------- ------------- -------- ------------ ---------- ------------ -------- ------------
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 2021 or 2022. Statutory accounts for the years ended 31
December 2021 and 31 December 2022, which were approved by the
Directors on 27 June 2023, have been reported on by the Independent
Auditors. The Independent Auditor's Reports on the Annual Report
and Financial Statements for each of 2021 and 2022 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 2021 have been
filed with the Registrar of Companies. The statutory accounts for
the year ended 31 December 2022 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: http://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 2021, except for those that relate to new standards and
interpretations effective for the first time for periods beginning
on (or after) 1 January 2021. 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 the Group and Company'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 the Group's objectives, policies and processes for
managing its capital, its financial risk management objectives and
its exposure to credit and liquidity risks.
The Group and Company meets their day-to-day working capital
requirements through cash generated from the capital it has raised
on AIM, and a loan facility (the "Kestrel Convertible Loan") with
Kestrel Partners LLP ("Kestrel"). At 31 December 2022 the Group had
GBP1.9m of cash at bank and debt due to Kestrel of GBP3.0m (gross).
On 17 June 2023, the Company entered into an agreement for a new
GBP5.0m convertible loan facility (the "TT Convertible Loan")
arranged by Trading Technologies International, Inc. ("TT"), the
Company's largest shareholder, to replace the existing Kestrel
Convertible Loan.
The TT Convertible Loan is for up to GBP5.0m with an initial
GBP4.0m drawn down on 23 June 2023, of which GBP3.1m was used to
repay the outstanding Kestrel Convertible Loan debt of GBP3.0m plus
interest of GBP0.1m. The remaining GBP1.0m of the GBP5.0m facility
can be drawn down at any point by KRM22.
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 and a
combination of these different scenarios.
Having assessed the sensitivity analysis on cashflows, the key
risks to the Group 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 the sales opportunities that are currently at
contract negotiation stage and maintaining control of the cost
base.
If the forecast is achieved, the Group 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 in nature, is key.
Reasonable downside scenarios have been considered and management
consider with appropriate actions being taken KRM22 has the ability
to meet the various financial covenants.
Given the Group's forecast, visible sales pipeline and working
capital needs, the Directors have considered it is appropriate to
prepare financial statements on a going concern basis.
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 two areas of risk management as operating
segments, together with a third segment where the two areas of risk
management are not easily separable, 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
2022 2022 2021 2021
GBP'000 GBP'000 GBP'000 GBP'000
UK 1,712 2,694 1,234 3,224
Europe 716 1,955 895 1,918
USA 1,520 3,141 1,697 2,958
Rest of world 325 1 302 -
--------------- ---------- ------------ ---------- ------------
Total 4,243 8,100 4,128 8,100
--------------- ---------- ------------ ---------- ------------
The Directors consider that the business has two areas of risk
management: Trading Risk and Corporate Risk. Within these segments,
there are two revenue streams with different characteristics, which
are generated from the same assets and cost base.
One customer generated more than 10% of total revenue during the
year ended 31 December 2022. The total revenue received from this
customer was GBP0.5m (2021: GBP0.4m) and is included within the UK
segment. No customer generated more than 10% of total revenue in
the year ended 31 December 2021.
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.
2022 2021
GBP'000 GBP'000
Recurring revenue 3,945 3,955
Non-recurring revenue 328 173
Total revenue 4,273 4,128
----------------------- -------- --------
2022 2021
GBP'000 GBP'000
Trading Risk 1,867 1,881
Corporate Risk 2,258 2,247
Multiple Risk 148 -
Total 4,273 4,128
---------------- -------- --------
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.
2022 2021
GBP'000 GBP'000
-------------------------------------------- ----------- -----------
Loss for the year attributable to equity
holders of the parent (3,101) (3,330)
Basic weighted average number of shares in
issue 35,666,336 26,765,037
Diluted weighted average number of shares
in issue 46,671,529 37,502,896
-------------------------------------------- ----------- -----------
Basic and diluted loss per share (8.7p) (12.4p)
-------------------------------------------- ----------- -----------
5. Intangible assets
Acquired Capitalised
Goodwill software development
on & costs Total
consolidation related GBP'000 GBP'000
GBP'000 assets
GBP'000
Cost
At 1 January 2022 7,537 2,826 5,002 15,365
Additions - - 840 840
Foreign exchange
movements 516 118 75 709
--------------------------- ---------------- ---------- ------------- ----------
At 31 December 2022 8,053 2,944 3,564 14,561
--------------------------- ---------------- ---------- ------------- ----------
Accumulated amortisation
At 1 January 2022 2,696 1,525 3,730 7,951
Amortisation for
the year - 453 871 1,324
Foreign exchange
movements 190 (2) 40 228
--------------------------- ---------------- ---------- ------------- ----------
At 31 December 2022 2,886 1,976 2,288 7,150
--------------------------- ---------------- ---------- ------------- ----------
At 31 December 2021 4,841 1,301 1,272 7,414
--------------------------- ---------------- ---------- ------------- ----------
At 31 December
2022 5,167 968 1,276 7,411
--------------------------- ---------------- ---------- ------------- ----------
6. Events after the reporting date
On 17 June 2023, the Company entered into an agreement for a new
GBP5.0m convertible loan facility (the "TT Convertible Loan")
arranged by TT, the Company's largest shareholder, to replace the
existing Kestrel Convertible Loan and to support future business
growth.
The TT Convertible Loan is for up to GBP5.0m with an initial
GBP4.0m drawn down on 23 June 2023, of which GBP3.1m was used to
repay the outstanding Kestrel Convertible Loan debt of GBP3.0m plus
interest of GBP0.1m.
The interest rate payable on the TT Convertible Loan is the
aggregate of the SOFR average rate and a margin of 5.5% provided
that the amount of such aggregate percentage rate shall be a
minimum of 9.25%. Interest on the TT Convertible Loan is paid
quarterly however in the first 18 months of the TT Convertible Loan
term, interest can be deferred with 50% of any deferred interest
being paid at 18 months and the remaining balance of deferred
interest being paid at 21 months. The term of the TT Convertible
Loan is three years with the option to extend by a further year to
four years.
TT can convert the TT Convertible Loan into new ordinary shares
in the Company at any time at the lowest conversion price of: 46p,
the volume weighted average price of the Company's ordinary shares
for the three-month period prior to service of a conversion notice;
or the lowest daily closing price for the 30 completed calendar
days prior to service of a conversion notice. TT has the right to
prevent any conversion which would trigger a Rule 9 event under the
Takeover Code. The TT Convertible Loan is secured on certain KRM22
assets and includes covenants based on the Group's financial
performance, based on ARR, revenue recognised and solvency.
7. Cautionary statement
This document contains certain forward-looking statements
relating to KRM22. KRM22 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.
[1] 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.
[2] Adjusted EBITDA is the reported loss for the year, adjusted
for recurring non-monetary costs including depreciation,
amortisation, unrealised foreign exchange gain/(loss) and
share-based payment charges and non-recurring costs including
profit on disposal of tangible/intangible assets and acquisition
and funding costs.
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END
FR NKOBQNBKKFAB
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June 27, 2023 02:00 ET (06:00 GMT)
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