logo-loader
RNS
viewKRM22 PLC

KRM22 PLC - AUDITED RESULTS FOR THE YEAR ENDED 31 DEC 2019

RNS Number : 5973N
KRM22 PLC
21 May 2020
 

 

 

KRM22 plc
("KRM22", the "Group" and the "Company")

 

AUDITED RESULTS STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019

 

KRM22 plc (AIM: KRM), the technology and software company focused on risk management in capital markets, announces its audited results for the year ended 31 December 2019 ("2019", the "Year"). 

 

Financial highlights

·    Total revenue recognised of £4.1m (2018 - £1.3m, based on seven months and three months post-acquisition revenue from Irisium and ProOpticus respectively)

·    Annualised Recurring Revenue (ARR):

Current undisputed ARR of £4.0m (May 2020)

ARR at 31 December 2019 of £4.3m (2018 - £3.3m)

Net organic ARR growth of 21% in the year (2018 - 10%) including 33% ARR growth from institutional customers

Acquired ARR growth of £0.5m from the acquisition of Object+

·    Adjusted EBITDA loss of £3.1m (2018 - loss of £3.3m)

·    Loss before tax of £7.3m (2018 - loss of £5.4m)

·    Cash at 31 December 2019 of £1.1m (2018 - £3.4m)

·    Net cash outflow of £2.3m (2018 - inflow of £3.3m)

·    Raised gross proceeds of £2.8m through a placement and subscription for new ordinary shares

·    Agreed a £10.0m loan facility with an initial drawdown of £1.0m in April 2019 and a committed £0.5m drawdown in 2020 available at the Company's discretion

 

Operational highlights

·    Acquisition of Object+ in May 2019 to provide a suite of "pre-trade" and "at trade" market risk applications to complement existing "post-trade" applications

·    Global Risk Platform and Enterprise Risk Cockpit launched in March 2019 and first significant customer of Enterprise Risk Cockpit in October 2019

·    Six new partnerships signed covering client onboarding, enhanced due diligence, online training, individual accountability regime and regulatory reporting

 

Post Year end matters

·    Acquired the remaining 40% non-controlling interest in Irisium from Cinnober on 16 April 2020

·    Raised gross proceeds of £1.3m in a placing and subscription of shares in May 2020

·    Current cash position of £1.4m

 

 

Keith Todd, Chief Executive Officer and Chairman of KRM22 plc, commented:

"We made significant progress in 2019 launching the KRM22 Global Risk Platform with its range of market risk and regulatory services.  In the later part of 2019, we suspended our acquisition activity and focussed on organic growth in which we are continuing with this plan through 2020 and the 'COVID' crisis.  I am pleased to say that the business is operating very effectively working from home as a result of the automation and flexible working we established from day one.  We are confident of further progress with new and existing customers providing organic growth and remain confident of meeting management expectations."

 

 

 

For further information please contact:

 

KRM22 plc                                                                                                           [email protected]

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' regulatory, market, technology and operations 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

 

2019 was the first full year of KRM22 as a trading public company, during which the Group has made significant progress on many fronts.

·    We have delivered on our strategy to acquire specialised risk management software and subject matter expertise, develop the underlying technology of the Global Risk Platform, and establish partnerships with third-party applications

·    We have delivered a financial performance in line with market expectations on adjusted EBITDA loss

·    We have built a foundation for future business growth

 

Financial performance

We have reported revenues of £4.1m (£1.3m in 2018) and our Annual Recurring Revenue (ARR) as at 31 December 2019 was £4.3m (£3.3m in 2018).  In 2019 we reported £0.3m of non-recurring income and we expect to contract at least a similar level in 2020.  Since 31 December 2019 we have generated an additional £0.1m ARR from existing customers buying new products however one existing customer, using the surveillance product, has terminated their contract for £0.1m ARR and two contracts with ARR of £0.4m combined in dispute.  At the date of this report we have undisputed ARR of £4.0m from 34 customers.

 

As a result of our tight control of costs and deferral of some investments, we have achieved an EBITDA loss inline with our market forecasts at £3.1m (2018 - adjusted EBITDA loss of £3.3m).  Adjusted EBITDA is a key metric in order to understand the cash profitability of the business as it excludes exceptional cash items such as acquisition costs and non-cash items including share-based payment charges, depreciation, amortisation and impairments, reorganisation costs and disposal of assets.  At the date of this report, our operational cost base is currently running at £4.6m per annum.

 

To achieve adjusted EBITDA positive on a run rate basis in 2020 we need to recognise total revenue of £5.0m and this can be achieved if we sign additional ARR in new business above the £4.3m ARR recognised at 31 December 2019 together with anticipated non-recurring revenue, a continued containment of operating costs and taking into account known customer churn in 2020.

 

We spent £1.5m on capitalised software development in 2019 but currently plan to spend £0.8m in 2020.

 

Cash at 31 December 2019 was £1.1m.  We benefit from commercial terms where customers pay in advance, either annually or quarterly, and as a result, new customer wins generate cash before revenue is reported.  In addition, we continue to have the Harbert Debt Facility available to us, which allows for drawdowns in £0.5m increments, based on annual recurring revenue growth and we anticipate receiving a tax R&D credit.  Cash as at the date of this report is £1.4m, following receipt of £1.1m for the Placing Shares from the placement completed on 14 May 2020.

 

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

 

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.

 

Our Global Risk Platform is live and being used by customers to access our risk management applications.  We now have thirteen applications accessible through the platform and we are well advanced in integrating the common utilities.  The platform provides efficiency and reduced cost for customers.

 

We launched the Enterprise Risk Cockpit in March 2019, our first native application available through the Global Risk Platform, and achieved our first significant Enterprise Risk customer contract in October 2019.

 

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 now completed four acquisitions since inception, including the acquisition of the Enterprise Risk expert team, and eight partnerships.  In May 2019 we acquired Object+, a provider of pre-trade and at-trade risk management applications.  The team has been fully integrated, and we have made our first sale to a new customer for one of the products, which was in Asia.

 

We have established partnerships to complement our existing portfolio across regulatory, market and operational risk.  Revenue from partnerships has been low so far, with only one partnership product sold in 2019, however we are expecting to see an increase in partnership sales in 2020.

 

Business automation

We have implemented extensive business automation to ensure we have a scalable operational foundation covering customer acquisition and service, through to financial control and administration.  This will ensure the maximum margin can drop to the bottom line.

 

Team effectiveness

The investment in the team we have recruited and acquired is at the heart of our engine.  We have clear company values:

·    Focus wins

·    Business is a team game

·    Clear accountabilities for all

These guiding principles, along with the team appraisal process and open internal communication, help to ensure we achieve optimal team performance.

 

Organic growth

Organic growth is at the heart of our business approach.  In 2019, our net organic growth was 21%.

 

Through our business automation program, we have implemented a sophisticated customer relationship management system that provides visibility and allows us to manage and track activities through completion of sales opportunities.  The Global Risk Platform facilitates cross selling through its single logon facility, allowing all users to see the other applications which KRM22 provides, but also by the shared data utilities which offers increased operational and cost efficiency for customers.  We have a very strong pipeline of prospects across enterprise, market, regulatory and operations risk.

 

COVID-19

The rapid spread of the coronavirus and resulting COVID-19 global pandemic has had an operational and financial impact on KRM22.  We are seeing that sales cycles for contracts are extending due to restrictions imposed by governments across the world and due to the high volatility in markets and trading volumes increasing daily workloads for our customers and prospects. 

 

We have taken action to mitigate the financial impact by implementing further cost cutting actions which is expected to reduce the overall cost-base of KRM22 by over £1.0m over twelve months through salary sacrifices for all staff, general overhead reductions, reduced spend on travel as a result of the restrictions imposed pursuant to COVID-19 and reduced property and office costs.  The cost reductions will not affect KRM22's ability to support its existing customers or win new potential customers.

 

KRM22 is fully operational globally from home as a result of the infrastructure and processes that were implemented from launch.

 

Our foundation for growth

Since 30 April 2018 when we listed, we have built the core of a business that is now a springboard for growth.  The business development team is represented across major financial centers worldwide in the US, London, Singapore and Sydney enabling us to support local opportunities as well as global customers.  The array of offerings accessible through the Global Risk Platform increases cross sell opportunities and provide highly competitive functionality at competitive cost.

 

The Board

Garry Jones, Steve Sparke and Kim Suter joined the board and bring a wealth of Industry credibility and contacts to assist us on the next phase of growth.  I would again like to thank Karen Bach, David Ellis, Jim Oliff and Matt Reed who stepped down from the board for the insights and assistance during the formation and early period of KRM22.

 

The team and communities

We could not have achieved so much without the energy and commitment of our team for which the board and I thank them.

 

We have been able to support a few charities, including 'Future for Kids', as part of our commitment to fulfilling a full role in our industry and community.

 

Outlook

The coronavirus (COVID-19) pandemic and related risks and uncertainties continue to evolve however we are confident that we will deliver on our growth and adjusted EBITDA profit plans.

 

 

 

Keith Todd CBE

Executive Chairman and CEO

 

 

 

FINANCIAL REVIEW

 

The 2019 financial results for KRM22 reflect our first full year of trading in which we have grown revenue, increased our contracted annualised recurring revenue (ARR), completed an acquisition and managed tight control of our cost base.  2018 was a trading year however the financial results were driven largely by transactions in the period since IPO on 30 April 2018.

 

Scope of financial results

This financial review focuses on the twelve month period ending 31 December 2019 and include the results of the Object+ group of companies from 30 May 2019, whilst the prior year comparatives include twelve months of costs for the core KRM22 group and the revenue of Irisium and ProOpticus from the date of acquisition on 5 June 2018 and 25 September 2018 respectively.

 

The financial results of the entities acquired in the year (Object+) have been aligned with IFRS and KRM22's accounting policies.

 

Acquisitions

 

Object+

On 30 May 2019, we acquired 100% of the issued share capital and voting rights of Object+ Holding B.V. ("Object+").

 

Amsterdam-based Object+, provides post-trade services software and, at the time of investment had 8 institutional customers and £0.5m ARR.  Revenue generated by Object+ in 2019 in the seven months post acquisition was £0.4m.

 

On completion of the acquisition of Object+, KRM22 paid US$0.5m (£0.4m) in cash consideration and issued 606,909 KRM22 Plc shares to the Object+ vendors.  Based on the revenue growth of Object+ products and services, a total discounted earn out consideration of US$1.5m (£1.2m) (undiscounted earn-out consideration of US$2.7m (£2.3m)) may be payable in three tranches over a three year period following acquisition, payable in cash or shares, at KRM22's discretion.

 

Profit and Loss

 

Total revenue

Revenue recognised for the year to 31 December 2019 was £4.1m (2018 - £1.3m) and this was seven months of revenue generated by Object+ (£0.4m) and twelve months of revenue generated by remaining KRM22 group companies.  Revenue recognised in 2018 was based on seven months of revenue generated by Irisium and three months of revenue generated by ProOpticus.

 

Revenue generated from recurring customer contracts for the year ended 31 December 2019 was 91% (2018 - 87%).  In addition, KRM22 generates some non-recurring revenue related principally to customer implementations and, following the acquisition of Object+, legacy recurring consultancy revenue.  Non-recurring revenue recognised for the year ended 31 December 2019 was £0.3m (2018 - £0.2m).

 

Recurring revenue

The key revenue metric for KRM22 is ARR (Annualised Recurring Revenue) and as at 31 December 2019, we had grown ARR by £1.0m to £4.3m, which included acquired ARR of £0.5m following the acquisition of Object+.  Since 31 December 2019, we have signed new contracts totalling £0.1m however one customer has terminated their contract for £0.1m ARR for cost purposes and two customers with total ARR of £0.4m are in dispute.  At the date of this report, KRM22 has non-disputed contracted ARR of £4.0m.

Whilst ARR growth in 2019 was behind market forecasts, net organic growth in 2019 was 21% (2018 - 10%) which includes 33% ARR growth from institutional customers.  This growth in ARR validates our strategic approach to acquiring and scaling businesses through our shared network and customer base, and the streamlining of back office functions.

 

Gross profit

Gross profit for the year to 31 December 2019 was £3.7m (2018 - £1.1m) and included £0.4m gross profit contribution from Object+.  This 90% gross profit margin demonstrates the operating leverage of the business and indicates how we can cover our cost base efficiently as we sell new recurring revenue contracts.

 

Capitalised research and development

Our total investment in research and development for the year to 31 December 2019 was £2.5m (2018 - £2.7m).  Of this, £1.5m or 60% was capitalised and the amount of development capitalised by product was:

·    KRM22 Global Risk Platform £0.5m;

·    KRM22 Enterprise Risk Cockpit £0.1m;

·    Irisium £0.7m;

·    ProOpticus £0.1m; and

·    Object+ £0.1m. 

Capitalised research and development is amortised over three years.

 

Impairment

In the year ended 31 December 2019, impairment costs of £2.3m were recognised in connection with market surveillance development costs.  The carrying amount of these development costs has been impaired on the basis that development work has been suspended in 2020 due to lack of capital and it is therefore prudent to assume that capitalised development costs will not generate cash inflows in the near future.

 

Reorganisation costs

A total of £0.5m of company reorganisation costs has been recognised in the year ended 31 December 2019 and were a result of staff redundancies made in the year.  The key drivers of the redundancies were:

·    Synergies as a result of Irisium and ProOpticus, the acquisitions completed in 2018, being fully integrated into central KRM22 systems;

·    Delays in new customer contract signatures; and

·    Fundraising challenges experienced in the year to continue our acquisition strategy. 

At the start of 2019 KRM22 planned to raise additional funding to continue the acquisition strategy of investing in specialised risk management businesses however, as a result of market circumstances, with Brexit uncertainty and the effect of revised FCA regulation on fund liquidity, KRM22 was not able to secure the necessary funding to complete all planned acquisition opportunities.  The limited access to funding impaired the ability to close all the acquisition opportunities and investments planned, resulting in KRM22 scaling back certain business operations resulting in staff redundancies. 

 

Adjusted EBITDA

We believe the Adjusted EBITDA is the key metric to consider 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 2019 was a £3.1m loss (2018 - loss of £3.3m) and was inline with market forecasts.  The Adjusted EBITDA loss is as per the reported operating loss, adjusted for:

·    Depreciation and amortisation £1.3m;

·    Impairment charges £2.3m;

·    Contingent consideration write back £1.4m;

·    Reorganisation costs £0.5m;

·    Non-recurring costs of acquisitions of £0.2m;

·    Non-recurring costs of debt and equity funding £0.2m; and

·    Share-based payment cost £1.0m.

 

Finance charges

Net finance expense in the year was £0.2m (2018 - £0.1m) and includes:

·    accrued interest due on the Cinnober shareholder loan of £0.1m;

·    interest paid of £0.1m on the initial £1.0m draw down on the Harbert debt facility before accounting for a £0.1m fair value gain on the warrants issued in conjunction with the debt facility; and

·    IFRS16 lease liability interest of £0.1m.

 

Taxation

The tax credit in the year was £0.8m (2018 - credit of £0.0m) which includes £0.6m (2018 - £nil) R&D tax credit received. 

 

Reported operating loss

Reported operating loss for the year to 31 December 2019 was £6.5m (2018 - loss of £5.4m). 

 

Balance sheet

 

Assets

As at 31 December 2019, we held current assets of £1.1m cash (2018 - £3.4m) and trade and other receivables of £1.4m (2018 - £1.1m).

 

Non-current assets were £13.1m (2018 - £12.4m) relating principally to: £10.4m for goodwill and assets acquired (2018 - £8.7m), £1.6m for right of use assets recognised under IFRS16 (2018 - £1.6m) and £0.8m (2018 - £1.8m) for capitalised development costs.

 

Liabilities

As at 31 December 2019, our principal liabilities were:

·    £1.2m minority shareholder loan owned to Cinnober by Irisium.  Cinnober owned 40% of Irisium and this balance includes capitalised interest.  The loan and capitalised interest was converted to equity on 16 April 2020 and replaced by a convertible loan note.

·    £0.8m loan owed to Harbert European Growth Capital Fund II.  The interest rate payable on the loan is 11% per annum, is repayable in monthly instalments and will be repaid in full by October 2022.

·    £1.1m (US$1.5m) discounted contingent consideration (£1.7m (US$2.2m) undiscounted) for earn out payments for the acquisition of Object+. 

·    £1.5m 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, £0.5m of the related liability is shown in current liabilities as it relates to lease payments that will be paid in 2020, with the balance for periods greater than one year.

·    There is £1.1m of contingent revenue; contracted and paid services that will be released in a future period.

 

Investors

As an AIM-listed business, a large proportion of KRM22's shareholders are professional investment funds.  In addition, the Directors together owned 3,463,334 shares at the year end.

 

Funding

On 3 April 2019, we raised £1.8m gross proceeds in equity funding through a subscription and placement of 2,118,967 new shares at 85 pence per share.  Subsequently on 7 November 2019, we raised £1.0m gross proceeds and issued 1,895,765 new shares at 52 pence per share.  Funding fees for both transactions totalled £0.1m.

 

On 29 April 2019, we entered into a five-year debt facility (the "Debt Facility") with Harbert European Growth Capital Fund II ("Harbert") to support future business growth.  The Debt Facility is for up to £10.0m of which an initial £1.0m was drawn down on 30 April 2019.  The availability of additional drawdowns is based on the value and growth of KRM22's annualised recurring revenues.  Drawdowns can be made until 31 December 2020.

 

The interest rate payable is 11% per annum on the initial £1.0m drawdown.  The interest rate payable on future additional drawdowns will be at the higher of 11% or 11% plus one year EURO Libor.  The Debt Facility is secured on certain KRM22 assets however there are no covenants based on KRM22's financial performance.

 

In conjunction with the Debt Facility, the Company has constituted warrants over a number of Ordinary shares in the Company to Harbert with a total value equal to a maximum of £1.0m.  Upon initial drawdown, warrants over 495,049 new Ordinary Shares were issued with an exercise price of £1.01 per Ordinary Share.  Additional warrants will be issued in an amount equal to 5.6% of each subsequent drawdown of the Facility (up to a maximum value of £500,000 in aggregate) calculated by reference to an exercise price of the lower of a 10% discount to the prevailing market price or £1.01 per new Ordinary Share.

 

Since year end we have raised £1.3m of gross proceeds in equity funding.

 

Use of cash in the year

Our net cash outflow in the year was £2.3m, of which, £1.5m was used for capitalised research and development, £0.4m was used to fund the acquisition of Object+, £0.8m for acquisition and funding fees and the balance used for building the infrastructure of 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 2019, KRM22 had 20,998,029 shares in issue.  The undiluted weighted average number of shares for the period to 31 December 2019 was 18,552,176.  The difference in the two numbers results from the timing of shares issued for the equity fundraise completed on 3 April 2019 and 7 November 2019 and the Object+ acquisition on 30 May 2019.

 

The resulting Earning per Share ("EPS") is a 30.4p loss per share (2018 - loss of 55.5p) on a weighted average number of shares basis (equivalent to 18,552,176 on the shares in issue at year end).  Due to the loss made, diluted EPS is the same as EPS.

 

Financial processes and integration

As KRM22 continues to grow, we aim to support that growth by effective and efficient internal systems and processes.  When KRM22 completes an acquisition, the detailed financial history of the acquired company is fully transferred onto central KRM22 systems with bank accounts and all processes centrally managed.  The agile integration approach not only establishes good governance but also frees up the acquired management team and allows them to focus on customers, product development and growth.  Object+ was fully integrated into central KRM22 systems by 31 December 2019.

 

Dividend

We aim to deliver capital growth for shareholders to generate an attractive total return.  Accordingly, we do not recommend a dividend for the year, but may choose to do so in future years.

 

Conclusion

Whilst 2019 has been challenging in terms of fundraising to continue our acquisition strategy and time taken to convert the sales pipeline, we have recognised revenue of £4.1m, increased ARR by £1.0m, achieved organic growth of 21%, maintained strong relationships with institutional customers, expanded our product offering and restructured our cost base to utilise operational efficiencies.

 

 

 

Kim Suter

CFO

 

Consolidated income statement and statement of comprehensive income

for the year ended 31 December 2019

 

 

 

 

Note

2019

£'000

2018

£'000

Revenue
Cost of sales

3

4,143

(434)

1,288

(142)

Gross profit

Administrative expenses

 

3,709

(10,830)

1,146

(6,497)

Operating loss before interest, taxation, depreciation, amortisation, share based payment and exceptional items ('Adjusted EBITDA')

(3,072)

(3,319)

 

Depreciation and amortisation

(1,259)

(523)

 

Impairment of assets

(2,344)

(75)

 

Profit and loss on disposal of tangible assets

22

-

 

Contingent consideration write back

1,493

-

 

IPO funding expenses

-

(299)

 

Acquisition expenses

(413)

(478)

 

Company reorganisation costs

(527)

-

 

Share based payment expense

(1,021)

(657)

 

Operating loss

(7,121)

(5,351)

 

Finance charge

(196)

(82)

 

Loss before taxation

(7,317)

(5,433)

Taxation                                                                                                                                      

792

13

Loss for the year

(6,525)

(5,420)

Loss for the year attributable to:

 

 

Equity shareholders of the parent

(5,648)

(5,217)

Non-controlling interest

(877)

(203)

 

(6,525)

(5,420)

Other comprehensive income Item that may be reclassified to subsequently to profit and loss;

 

 

Exchange gain on translation of foreign operations

33

24

Total comprehensive loss for the year

(6,492)

(5,396)

Total comprehensive loss for the year attributable to:

 

 

Equity shareholders of the parent

(5,615)

(5,193)

Non-controlling interest

(877)

(203)

 

(6,492)

(5,396)

Loss per ordinary share

 

 

Basic earnings per share                                                                                                     4

(30.4p)

(55.5p)

Diluted earnings per share                                                                                                4

(30.4p)

(55.5p)

 

 

 

 

 

Consolidated statement of financial position

at 31 December 2019

 

 

 

Note

2019

£'000

2018

£'000

Non-current assets

 

 

Goodwill                                                                                                                                     5

7,667

5,928

Other intangible assets                                                                                                        5

3,562

4,523

Property, plant and equipment                                                                                         

233

304

Right of use assets

1,642

1,602

Other receivables                                                                                                                    

42

-

 

13,146

12,357

Current assets

 

 

Trade and other receivables                                                                                                

1,358

1,131

Cash and cash equivalents                                                                                                   

1,076

3,355

 

2,434

4,486

Total assets

15,580

16,843

Current liabilities

 

 

Trade and other payables                                                                                                     

2,954

2,177

Loans and borrowings                                                                                                            

388

-

Lease liabilities                                                                                                                          

488

541

Derivative financial liability                                                                                                   

45

-

 

3,875

2,718

Net current (liabilities)/assets

(1,441)

1,768

Non-current liabilities

 

 

Trade and other payables                                                                                                     

1,179

1,563

Loans and borrowings                                                                                                          

1,597

1,193

Lease liabilities

988

1,046

Deferred tax liability                                                                                                               

536

619

 

4,300

4,421

Total liabilities

8,175

7,139

Net assets

7,405

9,704

Equity

 

 

Share capital                                                                                                                               

2,100

1,638

Share premium

15,435

12,659

Merger reserve

(190)

(190)

Foreign exchange reserve

(9)

24

Share-based payment reserve                                                                                           

1,678

657

Retained earnings

(10,871)

(5,223)

 

8,143

9,565

Non-controlling interest

(738)

139

Total equity

7,405

9,704

 

 

 

 

Consolidated statement of cash flows

for the year ended 31 December 2019

 

 

 

 

2019

£'000

2018

£'000

Cash flows from operating activities

 

 

Loss for the year

(6,525)

(5,420)

Adjustments for:

 

 

Tax credit

(792)

(13)

Net finance expense

196

82

Amortisation of intangible assets

672

233

Depreciation of property, plant and equipment and right of use assets

587

290

Impairment of intangible assets

2,344

75

Equity-settled Share-based payment expense

1,021

657

Write back of contingent consideration

(1,493)

-

Income taxes received

562

-

 

(3,428)

(4,096)

Decrease in trade and other receivables

98

148

Increase in trade and other payables

71

1,427

 

169

1,575

Net cash flows used in operating activities

(3,259)

(2,521)

Cash flows from investing activities

 

 

Acquisition of subsidiary undertakings (net of cash acquired)

(379)

(5,084)

Purchase of intangible assets

(1,599)

(1,983)

Purchase property, plant and equipment

(16)

(148)

Net cash used in investing activities

(1,994)

(7,215)

Cash flows from financing activities

 

 

Proceeds from issue of shares

2,787

13,635

Costs of the issue of shares

(65)

(320)

Lease payments principal

(559)

(182)

Lease payments interest

(93)

(56)

Receipts from borrowings

1,056

-

Repayments of borrowings

(203)

 

-

Net cash from financing activities

2,923

13,077

Net (decrease) / increase in cash and cash equivalents

(2,330)

3,341

Cash and cash equivalents at beginning of year

3,355

14

Bank overdraft

22

-

Effect of foreign exchange rate changes

29

-

Cash and cash equivalents at end of year

1,076

3,355

 

 

 

 

Consolidated statement of changes in equity

for the year ended 31 December 2019

 

 

 

 

Ordinary
shares

Share premium

Merger
reserve

Foreign exchange reserve

Share based payment reserve

Retained
losses

Non-

controlling

interest

Total equity

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 January 2018

10

-

-

-

-

(6)

-

4

Loss for the year

-

-

-

-

-

(5,217)

(203)

(5,420)

Other comprehensive income

-

-

-

24

-

-

-

Total comprehensive loss

-

-

-

24

-

(5,217)

(203)

(5,396)

Group merger

190

-

(190)

-

-

-

-

-

Allotment of share capital

406

3,603

-

-

-

-

-

4,009

Issue of share capital IPO

1,032

9,056

-

-

-

-

-

10,088

Share-based payments

-

-

-

-

657

-

-

657

Non-controlling interest recognised on acquisition

-

-

-

-

-

-

342

342

At 31 December 2018

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)

-

-

-

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

 

 

 

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 2018 or 2019.  Statutory accounts for the years ended 31 December 2018 and 31 December 2019, which were approved by the directors on 20 May 2020, have been reported on by the Independent Auditors.  The Independent Auditor's Reports on the Annual Report and Financial Statements for each of 2018 and 2019 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 2018 have been filed with the Registrar of Companies.  The statutory accounts for the year ended 31 December 2019 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-information 

 

The financial information set out in these results has been prepared using the recognition and measurement principles of International Accounting Standards, and International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs).  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 2018, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2019.  No new standards, amendments and/or interpretations to existing standards, which have been adopted by the Group, have been listed, since they have no 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 Company and 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 debt facility with Harbert European Growth Capital Fund II ("Harbert").  On 29 April 2019 KRM22 entered into a five-year debt facility for up to £10.0m with Harbert and the availability of additional drawdowns is based on the value and growth of KRM22's annualised recurring revenues.  Drawdowns can be made until 31 December 2020.  At 31 December 2019 KRM22 had £1.1m of cash at bank and debt due to Harbert of £0.9m (gross).

 

In considering the global coronavirus (COVID-19) pandemic, the resultant global economic uncertainties and impact on delayed sales cycles, the Directors have undertaken a significant assessment of the cashflow forecasts covering a period of at least 12 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, no further debt or equity funding, existing customer churn at different churn rates, no new contracted sales revenue, delayed sales, cost reductions, both limited and extensive, and a combination of these different scenarios.  Having assessed the sensitivity analysis on cashflows, noting that £1.3m gross proceeds, which was included in the forecasts, was raised subsequent to the year end, 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, in addition to the £1.3m successfully raised in May 2020, through a placement of shares or other source of funding.

 

 

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:

 

 

 

 

 

Revenue

2019

Non-current

assets

2019

 

Revenue

2018

Non-current

assets

2018

 

 

£'000

£'000

£'000

£'000

 

UK

422

5,151

229

6,422

 

Europe

798

2,463

382

38

 

USA

2,489

5,531

629

5,897

 

Rest of world

434

1

48

-

 

Total

4,143

13,146

1,288

12,357

 

The Directors consider that the business has five risk domains: Enterprise, Market, Operations, Regulatory 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 year ended 31 December 2019, no customer generated more than 10% of total revenue.  For the year ended 31 December 2018, one customer, reported in the Europe segment, generated more than 10% of total revenue and the revenue received from this customer was £0.4m.

 

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. 

 

 

 

2019

2018

 

 

£'000

£'000

 

Recurring revenue

3,753

1,121

 

Non-recurring revenue

305

167

 

Other revenue

85

-

 

Total revenue

4,143

1,288

 

 

 

2019

2018

 

 

£'000

£'000

 

Enterprise

81

-

 

Market

2,447

514

 

Regulatory

1,530

774

 

Other

85

-

 

Total

4,143

1,288

 

 

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 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.

 

 

 

2019

2018

 

 

£'000

£'000

 

Loss for the year attributable to equity holders of the parent

(5,648)

(5,217)

 

Basic weighted average number of shares in issue

18,552,176

9,407,958

 

Diluted weighted average number of shares in issue

25,933,265

13,706,193

 

Basic and diluted loss per share

(30.4p)

(55.5p)

 

 

5.       Intangible assets

 

 

 

Goodwill on

consolidation

£'000

Acquired

software &

related assets

£'000

 

Trademarks

& licenses

£'000

Capitalised

development

costs

£'000

 

 

Total

£'000

Cost

 

 

 

 

 

At 1 January 2019

5,928

2,448

589

1,789

10,754

Acquisition of subsidiaries

1,922

421

55

-

2,398

Additions

-

-

61

1,531

1,592

Foreign exchange movements

 

(183)

 

(13)

 

(1)

 

-

 

(197)

At 31 December 2019

7,667

2,856

704

3,320

14,547

Accumulated amortisation

 

 

 

 

 

At 1 January 2019

-

210

93

-

303

Amortisation for the year

-

431

87

154

672

Impairment charge

-

-

-

2,344

2,344

Foreign exchange movements

 

-

 

(1)

 

-

 

-

 

(1)

At 31 December 2019

-

640

180

2,498

3,318

 

 

 

 

 

 

At 31 December 2018

5,928

2,238

496

1,789

10,451

 

 

 

 

 

 

At 31 December 2019

7,667

2,216

524

822

11,229

 

 

 

 

 

6.       Business combinations

Object+

On 30 May 2019 KRM22 Netherlands B.V., a wholly owned subsidiary of KRM22 Central Limited, acquired Object+ Holding B.V. and its subsidiaries Object+ B.V., Object+ Financial Services B.V., Object+ Financial Products B.V. and Object+ Americas LLC (collectively "Object+"), a risk management and post-trade services technology business focused on capital markets.

 

The acquisition was for an initial consideration of US$1.2m (£0.9m) with US$0.5m (£0.4m) payable in cash and US$0.7m (£0.5m) through the issue of 606,909 ordinary shares in the Company together with contingent consideration of US$2.7m (£2.3m). 

 

The contingent consideration is payable in three tranches subject to earn-out conditions.  The first tranche of contingent consideration of US$0.6m (£0.4m) is payable in the event that the ARR of Object+ native products exceeds US$1.0m (£0.8m) on the first anniversary of acquisition.  The second tranche of contingent consideration of US$0.6m (£0.4m) is payable in the event that the ARR of Object+ native products exceeds US$1.5m (£1.1m) on the second anniversary of acquisition.  The third and final tranche of contingent consideration of $1.6m (£1.2m) is payable in the event that $0.3m (£0.2m) of ARR can be generated by sales of Object+ native products by new customers by the third anniversary of acquisition.  Subject to the first tranche performance milestone being achieved, the third tranche contingent consideration can be paid at any point between the first and third anniversary date of acquisition.

 

The contingent consideration can be satisfied in either cash or Company ordinary shares at the Company's discretion.  If contingent consideration is satisfied by the issue of ordinary shares, the number of shares issued will be determined by the market share price at the issue date.  The contingent consideration of £2.3m has been discounted to a present value of £1.3m based on a WACC of 13.8%.

 

Based on the current financial performance of Object+, the Directors do not believe that Object+ will achieve the US$1.0m (£0.8m) ARR target on the first anniversary of acquisition.  On this basis the Directors believe that the first tranche of contingent consideration will not be payable and have therefore excluded this element of consideration from fair value of the total consideration that could have been paid under the term of the share purchase agreement.

 

Fair value of consideration paid

 

 

£'000

Cash

 

 

390

KRM22 Plc shares

 

 

514

Contingent deferred consideration

 

 

1,150

 

 

 

2,054

 

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

 

 

 

 

 

Book

Value

 

 

Fair value

adjustments

 

Fair value

under

IFRS

 

 

 

£'000

 

£'000

 

£'000

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

 

29

 

-

 

29

 

Software

 

-

 

421

 

421

 

Customer relationships

 

-

 

28

 

28

 

Brand

 

-

 

27

 

27

 

 

 

29

 

476

 

505

 

Current assets and liabilities

 

 

 

 

 

 

 

Receivables

 

326

 

-

 

326

 

Cash and cash equivalents

 

28

 

-

 

28

 

Payables

 

(605)

 

-

 

(605)

 

Deferred tax

 

-

 

(122)

 

(122)

 

 

 

(251

 

(122)

 

(373)

 

Net identifiable (liabilities) /assets acquired

 

(222)

 

354

 

132

 

Goodwill

 

 

 

 

 

1,922

 

Total consideration paid by the Group

 

 

 

 

 

2,054

 

Goodwill is recognised on the acquisition as a result of Object+ contracted sales pipeline in the financial technology market and synergies expected to arise after acquisition.  Acquisition costs of £0.1m arose as a result of the transaction and are included in the Group's administrative expenses in the consolidated income statement for the year ended 31 December 2019.

 

The fair value of receivables acquired was £0.3m and the Directors believe that this also represents the gross contractual amounts receivable, as this is the Directors best estimate at the date of acquisition of contractual cashflows expected to be collected.

 

Since acquisition date Object+ has contributed £0.5m to group revenues and £0.1m to group loss.  Had the transaction been undertaken at 1 January 2019, Object+ would have contributed £0.8m to group revenues and £0.1m to group loss.

 

7.       Events after the reporting date

On 16 April 2020, KRM22 Central Limited acquired the remaining 40% minority interest in Irisium from Cinnober Financial Technology AB ("Cinnober").  Under the terms of the transaction, a total of £2.9m in debt due the KRM22 and Cinnober (together the "Parent Companies") together with £0.3m of other liabilities due to the Parent Companies was converted into ordinary shares in Irisium immediately prior to KRM22 consolidating its ownership of Irisium.

 

On completion of the debt to equity conversion in Irisium, the Company immediately acquired the remaining 40% stake in Irisium for a total consideration of £0.55m payable to Cinnober by way of a convertible loan note (CLN) provided by KRM22 to Cinnober.  The CLN is for a one-year term and can be satisfied by either the allotment and issue of ordinary shares of the Company by no later than 31 July 2020 or settled by cash at any point in the CLN term, at the Company's sole discretion.  The number of ordinary shares to be allotted to Cinnober shall be equal to £0.55m divided by £0.48 or the price at which KRM22 allots shares on any placement concluded before 31 July 2020.  The interest rate payable on the CLN is 8 per cent. per annum payable quarterly.  Cinnober is currently a 5.71% shareholder of KRM22.  No cash consideration was payable at the point of acquisition.

 

On 14 May 2020, the Company raised gross proceeds of £1.3m through a conditional placing of 3,816,666 new ordinary shares of 10 pence each in the Company (the "Placing Shares") at a price of 30 pence per Ordinary Share (the "Issue Price") and a subscription of 449,998 new ordinary shares (the "Subscription Shares") at the Issue Price.

 

The rapid emergence of the coronavirus pandemic has caused significant disruption to many businesses where the implementation of social distancing measures is not practical or deemed ineffective.  This has had material implications for the wider global economy.  As a technology based business we remain able to deploy our technology solutions and provide assistance remotely and we expect this to continue throughout the pandemic.  However, there is a risk that the Group will be impacted by decisions in our supply and demand chain leading to delays in contract negotiations and cancelling of anticipated sales, which could affect the Group's working capital.  The coronavirus pandemic was not a condition in existence at the year-end date therefore it is being a regarded as a non-adjusting subsequent event.

 

 

 

 

8.    Cautionary statement

 

KRM22 has made forward-looking statements in this press release, including statements about the market for and benefits of its products and services; financial results; product development plans; the potential benefits of business relationships with third parties and business strategies.  These statements about future events are subject to risks and uncertainties that could cause KRM22's actual results to differ materially from those that might be inferred from the forward-looking statements, KRM22 can make no assurance that any forward-looking statements will prove correct.


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
END
 
 
FR EFLBLBELLBBK

Quick facts: KRM22 PLC

Price: 33.5

Market: AIM
Market Cap: £8.95 m
Follow

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

Watch

KRM22 PLC assessing 'long pipeline of acquisition targets' in risk management

Keith Todd, chief executive of KRM22 PLC (LON:KRM) spoke to Proactive Investors a week after they begun trading on AIM. The technology and software investment firm successfully raised £10.32mln through the issue of 10.32mln shares at a price of 100p each, giving the company an initial...

on 10/5/18