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.
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 £'m | 2021 £'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 £'000 | 2021 £'000 | |
| Revenue | 3 | 4,273 (955) | 4,128 (676) | |
| Gross profit Other operating income Administrative expenses | | 3,318 131 (6,077) | 3,452 259 (6,695) | |
| Operating loss before interest, taxation, depreciation, amortisation, share based payment and exceptional items ('Adjusted EBITDA') | (1,684) | (687) |
| |
| Depreciation and amortisation | (1,637) | (1,696) |
| |
| Profit on disposal of tangible/intangible assets | 14 | 6 |
| |
| Contingent consideration charge | - | (126) |
| |
| Unrealised foreign exchange gain/(loss) | 812 | (112) |
| |
| Acquisition, funding and debt related expenses | - | (20) |
| |
| Share based payment expense | (133) | (349) |
| |
| Operating loss | (2,628) | (2,984) |
| |
| Finance charge (net) | (641) | (438) |
| |
| Loss before taxation | (3,269) | (3,422) | ||
| Taxation credit | 168 | 92 | ||
| Loss for the year | (3,101) | (3,330) | ||
| Loss for the year attributable to: |
|
| ||
| Equity shareholders of the parent | (3,101) | (3,330) | ||
|
| (3,101) | (3,330) | ||
| Other comprehensive income Item that may be reclassified subsequently to profit and loss: | | | ||
| Exchange loss on translation of foreign operations | (563) | (7) | ||
| Total comprehensive loss for the year | (3,664) | (3,337) | ||
| Total comprehensive loss for the year attributable to: | | | ||
| Equity shareholders of the parent | (3,664) | (3,337) | ||
| | (3,664) | (3,337) | ||
| Loss per ordinary share | | | ||
| Basic losses per share 4 | (8.7p) | (12.4p) | ||
| Diluted losses per share 4 | (8.7p) | (12.4p) | ||
Consolidated statement of financial position
at 31 December 2022
| Note | 2022 £'000 | 2021 £'000 |
| Non-current assets | | |
| Goodwill 5 | 5,167 | 4,841 |
| Other intangible assets 5 | 2,244 | 2,573 |
| Property, plant and equipment | 11 | 54 |
| Right of use assets | 369 | 632 |
| | 7,791 | 8,100 |
| Current assets | | |
| Trade and other receivables | 1,462 | 741 |
| Cash and cash equivalents | 1,900 | 5,362 |
| | 3,362 | 6,103 |
| Total assets | 11,153 | 14,203 |
| Current liabilities | | |
| Trade and other payables | 3,853 | 3,436 |
| Lease liabilities | 493 | 483 |
| Loans and borrowings | 2,974 | 97 |
| Derivative financial liability | 255 | 45 |
|
| 7,575 | 4,061 |
| Net current (liabilities)/assets | (4,213) | 2,042 |
| Non-current liabilities | | |
| Trade and other payables | 30 | 45 |
| Lease liabilities | 122 | 321 |
| Loans and borrowings | - | 2,763 |
| Deferred tax liability | 245 | 301 |
| | 397 | 3,430 |
| Total liabilities | 7,972 | 7,491 |
| Net assets | 3,181 | 6,712 |
| Equity | | |
| Share capital | 3,567 | 3,567 |
| Share premium | 20,517 | 20,517 |
| Merger reserve | (190) | (190) |
| Convertible debt reserve | 224 | 224 |
| Foreign exchange reserve | (448) | 115 |
| Share-based payment reserve | 3,045 | 2,912 |
| Retained deficit | (23,534) | (20,433) |
| Total equity | 3,181 | 6,712 |
Consolidated statement of cash flows
for the year ended 31 December 2022
| | 2022 £'000 | 2021 £'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 |
| | £'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
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:
|
|
|
Revenue 2022 | Non-current assets 2022 |
Revenue 2021 | Non-current assets 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
|
|
|
Goodwill on consolidation £'000 | Acquired software & related assets £'000 | Capitalised development costs £'000 |
Total £'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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