Krm22 Plc Regulatory News (KRM)

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

AUDITED RESULTS STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021

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 2021 ("2021", the "Year").

Financial highlights

· Gross cash as at 31 December 2021 of £5.4m (2020: £2.0m)

· Annualised Recurring Revenue (ARR)[1] as at 31 December 2021 of £3.8m (2020: £4.1m)

o New contracted ARR in the year ended 31 December 2021 of £0.7m

· Total revenue recognised of £4.1m (2020: £4.6m)

· Adjusted EBITDA loss[2] of £0.7m (2020: £0.2m)

· An improved loss before tax of £3.4m (2020: loss of £5.7m)

· Further funding received in December 2021 of £4.7m (gross) through a direct strategic investment by Trading Technologies International, Inc.

Operational highlights

· Distribution agreement signed with Trading Technologies International, Inc. in December 2021 following its strategic investment which will help provide a platform for future growth

· Deployment of a major futures brokerage customer adopting multiple KRM22 risk management products using a single data set

· 69% of customers now contacted under a Master Services Agreement on multi-year contracts with increased ARR on an annual basis over the term of the contract with contract commitments of between two and five years

· Soc 2 accreditation approved in March 2021 demonstrating KRM22 has internal controls in place to safeguard customer data which will assist in new customer procurement processes

Keith Todd CBE, Executive Chairman of KRM22, commented:

"The 2021 financial performance masks the significant progress the Company has made strategically, with significant expansion of offerings on the Global Risk Platform and the continued migration of many customers to new multi-year contracts as well as new revenue contract wins. We have started 2022 with a strong balance sheet and, most importantly, I'm pleased that the TT partnership is progressing very well with positive reaction from prospects and customers at the recent FIA global conference at Boca Raton clearly visible."

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 / Kate Bannatyne / James Balicki (Corporate Finance)

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 shareholders through the investment in, and subsequent growth and development of, target companies in the technology and software sector, with a focus on risk management in capital markets.

Through its investments and the Global Risk Platform, KRM22 helps capital market companies reduce the cost and complexity of risk management. The Global Risk Platform provides applications to help address firms' market, compliance operations and technology risk challenges and to manage their entire enterprise risk profile.

Capital markets companies' partner with KRM22 to optimise risk management systems and processes, improving profitability and expanding opportunities to increase portfolio returns by leveraging risk as alpha.

KRM22 plc is quoted on AIM and the Group is headquartered in London, with offices in several of the world's major financial centres.

See more about KRM22 at KRM22.com.

CHAIRMAN'S STATEMENT

2021 was a challenging year for KRM22 however we have entered 2022 well positioned for the next phase of the Company's growth. In the almost four years since we floated on AIM, we have created a capital markets SaaS based risk business with £3.8m of Annual Recurring Revenue and 28 institutional customers with multi-year contracts.

We have endured two years of the COVID-19 pandemic which has placed restrictions on the traditional sales methods and tackled the transitioning of acquired deployed software to SaaS platform delivered services.

We exit 2021 with a strong shareholder base and balance sheet as well as an extensive array of risk services on our Global Risk Platform as well as many new and renewed multi-year contracts.

Trading Technologies International Inc. ("TT") acquired a 25% strategic stake in KRM22 in December 2021 through a subscription for new shares and we have entered into a distribution agreement with TT to take KRM22's products progressively into the TT customer base with significant opportunities for growth and cross selling.

In 2021 we secured £0.7m of new business however this organic growth was offset by an unprecedented level of existing customer churn in the year. The churn was from legacy customers on old deployed software that did not want to migrate to SaaS delivered services. This has been a common theme over the last two years of the COVID-19 pandemic. Whilst some churn is expected and budgeted for in 2022, we now believe to be at the end of that excessive churn process and expect to see positive growth in ARR going forward.

I am pleased that Stephen Casner is taking the Company forward as CEO. Stephen's plans to strengthen sales and marketing resource as well as continue investment in the Global Risk Platform and KRM22 risk products, will help accelerate KRM22 for a sustained period of growth backed up by a strong balance sheet.

Keith Todd CBE

Executive Chairman

CEO'S STATEMENT

KRM22 is poised for a significant and rewarding year in 2022. We ended 2021 with a significant influx of capital from a new investor, a new distribution channel with one of our industry's premier technology providers and a renewed commitment to redeploy our sales and marketing resources, all of which is expected to provide accelerated growth over the next two years.

2021 brought significant change to our target market. We saw companies change the way they use, deploy and consolidate risk technology. This change was predicted by KRM22 and underpinned the rationale for the acquisition of legacy software products like Ancoa, ProOpticus and Object+ which have subsequently been enhanced and rebranded as Market Surveillance, Post-Trade, At-Trade and Pre-Trade products and the development of our Global Risk Platform. Those acquisitions brought KRM22 key risk management talent and technology solutions that could be modeled into services for our Global Risk Platform, as well as a portfolio of customers who trusted these systems on a daily basis to manage risk on their assets.

We knew the products we acquired, and their competitors, were created in isolation of each other and significant benefit would come from standardisation on to a seamless platform. Disruption would come to these legacy platforms and our investments in creating a next generation, SaaS based Global Risk Platform would prove to be a natural constituent for the market to progress into.

2021 saw KRM22 make good progress on delivering the Global Risk Platform. A new showcase customer was deployed, creating the first instance of an "end to end" risk platform customer. This platform enabled our customer to use one risk system, the KRM22 Global Risk Platform, with a common set of data elements to manage market, compliance and enterprise risk. I am proud to announce that this key engagement continues to be a success and new services are being deployed weekly to further grow and mature this next generation system.

A key deliverable last year was our ability to completely rebuild one of the legacy systems we acquired into fresh technology and successfully deploy it for a tier one bank as a new customer of KRM22. This Pre-Trade Risk Limit Management application is now a key focal point of our Global Risk Platform and is being deployed for the "showcase customer" right now. We believe by the end of 2022 that our "showcase" will be complete and that the full power of the Global Risk Platform will be easy to identify and its value proposition obvious. This will have a significant impact on our core market and will act as an accelerant to KRM22's success in becoming the capital markets premier provider of risk technologies.

In Blackrock's CEO Larry Fink's 2022 Letter to their CEO's, he stated that the pandemic "has turbocharged an evolution in the operating environment for virtually every company.". This is true for KRM22 as well.

He went on to say "It's changing how people work and how consumers buy. It's creating new businesses and destroying others. Most notably, it's dramatically accelerating how technology is reshaping life and business. Innovative companies looking to adapt to this environment have easier access to capital to realize their visions than ever before. And the relationship between a company, its employees, and society is being redefined.".

The pandemic's "turbo-charging" had significant consequences for KRM22. Customer use of the legacy applications we acquired diminished, as five major organisations "swapped" our legacy products for newer products. While new customer acquisition was still strong, the sting of customer losses made it appear that KRM22 was basically "treading water", but nothing could be further from the truth.

Our products continued to grow into a formidable platform, our new customers are some of the most exciting and dynamic firms in our industry and our staff of talented risk "knowledge merchants" found a successful way to work remotely while building great new products and providing exceptional global support services.

One "turbo-charged" effect of the pandemic was the change in the "buying process" our target market uses to evaluate and adopt new technology. The traditional industry events that could highlight and showcase new products were either cancelled, reformulated into webinars or so lightly attended that they were no longer effective marketing and selling events. Customers no longer tolerated the amount of "friction" in adopting modern technology. They increasingly demand "on the go" applications that they can use without long implementation planning and use of internal resources to manage large scale projects.

In response to that dynamic, KRM22 announced in September 2021 that it was looking for a strategic partner to help battle back these headwinds, accelerate the adoption of our new products, stem the tide of customer losses and provide capital to accelerate new features and products on the Global Risk Platform while we build one of the best sales organisations in our industry.

To that end we took in a strategic investment and signed a major distribution agreement with Trading Technologies International Inc. ("TT"), one of the futures industry's most iconic technology firms. We now begin 2022 with a strong balance sheet and one of the biggest growth opportunities for the Global Risk Platform since we launched the platform in 2019.

We will use our balance sheet strength to continue adding to the Global Risk Platform, to invest in new sales and marketing resources and efforts that recognise the "new post-pandemic normal", whilst also adhering to any financial covenants associated with the Kestrel loan facility. We are currently working hand in hand with our new distribution partner and will deliver exciting and proven risk technology to their customers before mid-year in a "frictionless" method, matching exactly how these customers want to buy. We will allow TT users to adopt KRM22 technology without having to wait for long term implementations, risk will be available to them at the "touch of a button". This ability quickly validates the value proposition our technology brings and creates a "stickiness" for our applications that will pave the way for these new customers to explore and use more and more of our Global Risk Platform.

While we expect 2022 to be a year of transformation for KRM22, it is coming from a sound basis of great technology, expert resources and enriching partnerships.

Stephen Casner

CEO

FINANCIAL REVIEW

We continued to experience challenging conditions in the year with the COVID-19 pandemic continuing to have an impact on extended sales cycles and customer churn which reduced total revenue recognised in the year by 10% to £4.1m (2020: £4.6m). Adjusted EBITDA loss for the year increased to £0.7m (2020: loss of £0.2m) however the loss for the year included staff salaries being paid at their full rate compared to the prior year when all staff agreed to temporary salary waivers at the start of the pandemic to help KRM22's cash flow.

Profit and Loss

Total revenue

Revenue recognised for the year to 31 December 2021 was £4.1m (2020: £4.6m), a reduction of 10% compared with the prior year, with 96% (2020: 91%) of total revenue generated from recurring customer contracts. Non-recurring revenue for the year ended 31 December 2021 totalled £0.2m (2020: £0.4m) and related principally to customer implementations and proof of concept work.

Recurring revenue

A key revenue metric for KRM22 is ARR ("Annualised Recurring Revenue") and as at 31 December 2021, ARR was £3.8m (2020: £4.1m). KRM22 signed new contracted ARR in 2021 of £0.7m (2020: £0.8m) with £0.3m generated from new customers and £0.4m generated from existing customers signing new contracts for existing products and contractual price increases. The increase in ARR was offset by the level of customer churn, largely from legacy customers, of £0.9m for the year (2020: £0.9m).

Gross profit

Gross profit for the year to 31 December 2021 was £3.5m (2020: £4.2m). The reduction in gross profit margin to 84% compared to the prior year margin of 90% was due to an increase in the amount of recurring revenue generated from partner products and services.

Capitalised research and development

A total of £0.7m (2020: £1.0m) of research and development was capitalised in the year to 31 December 2021. Capitalised research and 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 2021 was a £0.7m loss (2020: loss of £0.2m). The increase in adjusted EBITDA loss was driven by the reduction in total revenue recognised, the reduction in gross margin from 90% to 84% and that staff salaries were paid at their full rate in the year following the temporary salary waivers implemented of between 10% and 25% in April 2020 for the remainder of the prior year. Whilst the adjusted EBITDA loss for the year increased compared to 2020, the loss for the year was still a significant reduction compared to 2019 when adjusted EBITDA loss was £3.1m.

KRM22 benefited from a £0.2m (US$0.3m) Payback Protection Program ("PPP") loan, a US government backed loan, with the proceeds being used to cover specific US based payroll costs. Under the rules of the PPP scheme, the total value of the loan was eligible for 100% forgiveness, with the loan being converted to a grant and recognised as Other operating income.

A reconciliation of adjusted EBITDA loss to the reported operating loss is provided as follows:

Operating loss

Reported operating loss for the year to 31 December 2021 was £3.0m (2020: loss of £5.4m).

Finance charges

Net finance expense in the year was £0.4m (2020: £0.3m) and includes:

· Loan interest of £0.3m (2020: £0.2m); and

· IFRS16 lease liability interest of £0.1m (2020: £0.1m).

Taxation

The tax credit in the year was £0.1m (2020: credit of £0.2m) which includes £nil (2020: £0.1m) R&D tax credit received.

Financial position

Assets

The cash balance as at 31 December 2021 was £5.4m (2020: £2.0m).

Current assets at 31 December 2021 include trade and other receivables of £0.7m (2020: £1.4m).

Non-current assets were £8.1m (2020: £9.2m) relating principally to: £6.1m for goodwill and assets acquired (2020: £6.7m), £0.6m for right of use assets recognised under IFRS16 (2020: £1.0m) and £1.3m (2020: £1.3m) for capitalised development costs.

Liabilities

As at 31 December 2021, 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, subject to certain conditions regarding the Company's share price at that time.

· £0.9m (US$1.1m) deferred consideration for earn out payments for the acquisition of Object+. The liability had previously been accounted for as contingent consideration on a discounted basis as the contingent consideration was payable subject to earnt-out performance milestones being achieved. The Directors believe that the third and final performance milestone has been achieved and therefore the consideration is now disclosed as a liability due within one year however the liability can be satisfied in either cash or Company ordinary shares at the Company's discretion.

· £0.8m 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 2022, with the balance for periods greater than one year.

· £1.7m 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.

Funding

On 30 December 2021, the Company raised £4.7m proceeds in equity funding through a subscription and placement of 8,916,584 new shares at 53 pence per share.

The Company has a £3.0m convertible loan (the "Convertible Loan") with Kestrel Partners LLP ("Kestrel"). The interest rate payable on the Convertible Loan is 9.5% per annum and is paid quarterly in arrears. Kestrel can convert the Convertible Loan into new ordinary shares in the Company at any time at a conversion price of 38p. The Company has the right to request conversion at any time after the 18 months following the date of the agreement, subject to certain conditions regarding the Company's share price at that time. Kestrel has the right to prevent any conversion which would trigger a Rule 9 event under the Takeover Code.

The Convertible Loan is secured on certain KRM22 assets and includes covenants based on the Group's financial performance.

Use of cash in the year

Our net cash inflow in the year was £3.4m, which included the £4.7m receipt from the share subscription completed in December 2021. Excluding the investment proceeds of £4.7m, the net cash outflow for the year was £1.4m, of which £0.7m was used for capitalised research and development, £0.2m was used to pay interest on the 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 2021, KRM22 had 35,666,336 shares in issue. The undiluted weighted average number of shares for the period to 31 December 2021 was 26,765,037. The difference in the two numbers results from the timing of shares issued for the equity fundraise completed on 30 December 2021.

The resulting Earning per Share ("EPS") is a 12.4p loss per share (2020: loss of 24.1p) on a weighted average number of shares basis (equivalent to 26,765,037 on the shares in issue at year end). Due to the loss made, diluted EPS is the same as EPS.

Dividend

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

Conclusion

Whilst 2021 has been challenging in terms of time taken to convert the sales pipeline and increased customer churn, the TT investment of £4.7m has helped strengthen the financial position of KRM22 and this, together with the sales pipeline opportunities, both direct and through the distribution agreement signed with TT, means that KRM22 is well placed for growth in 2022.

Kim Suter

CFO

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 2020 or 2021. Statutory accounts for the years ended 31 December 2020 and 31 December 2021, which were approved by the Directors on 22 March 2022, have been reported on by the Independent Auditors. The Independent Auditor's Reports on the Annual Report and Financial Statements for each of 2020 and 2021 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 2020 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2021 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 2020, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2020. There are deemed to be no new standards, amendments and interpretations to existing standards, which have been adopted by the Group, that have had a material impact on the financial statements.

The Group's financial information has been presented in Pounds Sterling (GBP). Amounts are rounded to the nearest thousand, unless otherwise stated.

2. Going concern

The Group's financial statements have been prepared on the going concern basis. The Directors have reviewed KRM22's going concern position taking into account of its current business activities, budgeted performance and the factors likely to affect its future development, which are set out in this Annual Report, and include KRM22's objectives, policies and processes for managing its capital, its financial risk management objectives and its exposure to credit and liquidity risks.

The Group and Company meets their day-to-day working capital requirements through cash generated from the capital it has raised on AIM, and a Convertible Loan facility (the "Convertible Loan") with Kestrel Partners LLP ("Kestrel"). Further, the Group has infused a capital of £4.7m during the year. At 31 December 2021 the Group had £5.4m of cash at bank and debt due to Kestrel of £3.0m (gross).

The Directors have undertaken a significant assessment of the cashflow forecasts covering a period of at least twelve months from the date of approval of the financial statements. Cashflow forecasts have been prepared based on a range of scenarios including, but not limited to, existing customer churn at different churn rates, no new contracted sales revenue, delayed sales 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. In addition, delayed sales and/or increased existing customer churn could result in the Company failing to comply with financial covenants associated with the Convertible Loan and in this circumstance the Group would be obliged to seek resolution with Kestrel Partners on these financial covenants and may need to seek additional funding through a placement of shares or other courses of funding which have not yet been secured. This event indicates the existence of a material uncertainty that may cast significant doubt on the Group and Company's ability to continue as a going concern. However, 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 and have not included the adjustments that would result if the Group or Company were unable to continue as a going concern.

3. Segmental reporting

The Board of Directors, as the chief operating decision maker in accordance with IFRS 8 Operating Segments, has determined that KRM22 have identified five risk domains as operating segments, however for reporting purposes into a single global business unit and operates as a single operating segment, as the nature of services delivered are common.

The internal management accounting information has been prepared in accordance with IFRS but has a non-GAAP 'Adjusted EBITDA' as a profit measure for the overall group. This amount is reported on the face of the income statement.

KRM22's revenue from external customers and information about its non-current assets, excluding deferred tax, by geography is detailed below:

The Directors consider that the business has five risk domains: Enterprise, Market, Compliance, Operations and Technology as is described in Strategic Report. Within these five risk domains, there are two revenue streams with different characteristics, which are generated from the same assets and cost base.

For the years ended 31 December 2021 and 2020, no customer generated more than 10% of total revenue.

Non-current assets include goodwill and intangible assets recognised on consolidation and are classified by reference to the geographical location of the KRM22 group company which initially acquired the acquiree.

Recurring revenue is recognised over the period of time and non-recurring revenue is recognised at a point in time. Other revenue comprises miscellaneous revenue that is not part of KRM22's core business. 

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.

5. Intangible assets

6. 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.