REG - KRM22 PLC - Final Results
27/06/2023 07:15
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RNS Number : 0240E KRM22 PLC 27 June 2023
KRM22 plc
("KRM22", the "Group" and the "Company")
AUDITED RESULTS STATEMENT FOR THE YEAR ENDED 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
£4.8m (2021: £3.8m) - growth of 26.3%
o New contracted ARR in 2022 of £1.3m (2021: £0.7m) - growth of 85.7%
· Total revenue recognised of £4.3m (2021: £4.1m) - growth of 4.9%
· Adjusted EBITDA loss(( 2 )) of £1.7m (2021: £0.7m)
· An improved loss before tax of £3.0m (2021: loss of £3.4m)
· Gross cash as at 31 December 2022 of £1.9m (2021: £5.4m)
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 £0.1m (2021: £0.7m)
· Ambition to target 20%+ annual growth of ARR
Post year-end events
· Replacement of existing Kestrel debt facility with a new £5.0m
facility provided by TT
· Growth in ARR to £4.9m 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 (https://www.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 £4.8m at 31 December 2022, up from £3.8m 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 £5.0m 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 £10.0m 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 £5.0m secured
debt facility from TT, our largest shareholder, to replace a £3.0m 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 £0.1m of ARR to KRM22 in addition to £0.2m 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 £4.9m up from £3.8m at 31 December
2021, an increase of approximately 29% which we are pleased with. In 2022
the Company signed 22 new contracts totalling £1.3m - 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 £1.4m 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 £0.1m, 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 £10.0m 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 £10.0m 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 £4.3m from £4.1m, the Company's ARR
at year end saw a net increase of 26.3% to £4.8m from £3.8m at 31 December
2021.
Profit and Loss
Total revenue
Revenue recognised for the year to 31 December 2022 was £4.3m (2021: £4.1m),
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 £0.3m (2021: £0.2m) 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 £4.8m (2021: £3.8m), a net
increase of £1.0m (2021: net decrease of £0.3m). New contracted ARR in the
year totalled £1.3m (2021: £0.7m) of which £0.7m (2021: £0.3m) was from
new customers and £0.6m (2021: £0.4m) was generated from existing
customers.
Total churn in the year was £0.6m (2021: £0.9m), of which £0.1m 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 £0.5m 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 £3.3m (2021: £3.5m). 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 £0.8m (2021: £0.7m) 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 £1.7m loss (2021: loss
of £0.7m). Following the investment from Trading Technologies
International, Inc ("TT") in December 2021 of £4.7m, 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 £0.2m (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
£'m £'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 £2.6m (2020:
loss of £3.0m).
Finance charges
Net finance expense in the year was £0.6m (2021: £0.4m) and includes:
· Loan interest of £0.3m (2021: £0.3m);
· IFRS16 lease liability interest of £0.1m (2021: £0.1m); and
· Derivative financial instrument fair value adjustment of £0.2m
(2021: £0.0).
Taxation
The tax credit in the year was £0.2m (2021: credit of £0.1m) which includes
£0.1m (2021: £nil) R&D tax credit received.
Financial position
Assets
The cash balance as at 31 December 2022 was £1.9m (2021: £5.4m).
Current assets at 31 December 2022 include trade and other receivables of
£1.5m (2021: £0.7m).
Non-current assets were £7.8m (2021: £8.1m) relating principally to: £6.1m
for goodwill and assets acquired (2021: £6.1m), £0.4m for right of use
assets recognised under IFRS16 (2021: £0.6m) and £1.3m (2021: £1.3m) for
capitalised development costs.
Liabilities
As at 31 December 2022, our principal liabilities were:
· £3.0m 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.
· £1.0m (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.
· £0.6m 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, £0.5m 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.
· £1.8m 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 £3.0m 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 £5.0m 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 £3.5m, of which £0.7m was used for
capitalised development, £0.3m 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
Note 2022 2021
£'000 £'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 (1,684) (687)
based payment and exceptional items ('Adjusted EBITDA')
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 168 92
credit
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 (8.7p) (12.4p)
4
Diluted losses per share (8.7p) (12.4p)
4
Consolidated statement of financial position
at 31 December 2022
Note 2022 2021
£'000 £'000
Non-current assets
Goodwill 5,167 4,841
5
Other intangible assets 2,244 2,573
5
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
£'000 £'000
Cash flows from operating activities
Loss for the year (3,101) (3,330)
Adjustments for:
Tax credit (168) (92)
Net finance 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
Ordinary Share premium Merger Convertible debt reserve Foreign exchange reserve Share based payment reserve Retained Total equity
shares
reserve
losses
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'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 (http://krm22.com/investor-relations/home)
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 £1.9m of cash at bank and
debt due to Kestrel of £3.0m (gross). On 17 June 2023, the Company entered
into an agreement for a new £5.0m 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 £5.0m with an initial £4.0m drawn down
on 23 June 2023, of which £3.1m was used to repay the outstanding Kestrel
Convertible Loan debt of £3.0m plus interest of £0.1m. The remaining
£1.0m of the £5.0m 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
£'000 £'000 £'000 £'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 £0.5m
(2021: £0.4m) 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
£'000 £'000
Recurring revenue 3,945 3,955
Non-recurring revenue 328 173
Total revenue 4,273 4,128
2022 2021
£'000 £'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
£'000 £'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 on software & development
consolidation related assets costs Total
£'000 £'000 £'000 £'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 £5.0m
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 £5.0m with an initial £4.0m drawn down
on 23 June 2023, of which £3.1m was used to repay the outstanding Kestrel
Convertible Loan debt of £3.0m plus interest of £0.1m.
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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