Annual Financial Report

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain. 

21 May 2021 

Drumz plc
(the “Company” or the “Group”)

Final results for the year ended 31 December 2020

Drumz plc (AIM: DRUM) the investing company focused on building value in technology, is pleased to announce its final results for the year ended 31 December 2020. 

Highlights 

• In the year the Company changed its investing policy to focus on the technology sector.
• First technology investment made in Acuity Risk Management Limited (“Acuity”), an award winning cybersecurity software company.
• Despite COVID, Acuity announces new business wins and significant growth in forward contracted revenues.

Angus Forrest, Chief Executive commented on the results:

“We have made progress in the past six months and are increasingly confident that the promise shown by Acuity and its improved SaaS business model which is beginning to show with growth in new business should accelerate from here. Drumz has reviewed many new investment opportunities, and we are determined to focus on the opportunities which offer Drumz and its shareholders the best returns. We look forward to the future with optimism.”

Annual General Meeting

In view of the current prevailing guidance from the British Government in relation to the COVID-19 pandemic and specifically the restrictions on large gatherings, the 2021 AGM which will be held on 18 June will be convened with the minimum quorum of shareholders (which will comprise the Company’s directors) in order to conduct the business of the meeting.

This year, we are requesting that any relevant questions on the Annual Accounts or other business to be transacted at the meeting are submitted by shareholders in advance. Shareholders can do so by sending questions in writing to the Registered Office or by emailing [e-mail] no later than 14 June (at least 4 days before the AGM). Prior to the meeting, answers to questions will be provided on the Investor Section of the Company’s website at www.drumzplc.com.

For further information please contact:
Drumz Plc	www.drumzplc.com
Angus Forrest	[phone]
WH Ireland (NOMAD & Broker)	www.whirelandcb.com
Mike Coe / Chris Savidge	020 7220 1666
Peterhouse Capital Limited (Joint broker)
Lucy Williams / Duncan Vasey	020 7469 0936

Chairman’s Statement

I am pleased to present the results of Drumz plc (“Drumz” or “Company” or “Group”) for the year ended 31 December 2020.

On 30 June 2020 shareholders approved changes to the Company’s strategic direction from a company, which had principally invested in real estate to one focused on the technology sector. Simultaneously there were a number of Board changes with Angus Forrest, John Wakefield and I being appointed and Stephen Wicks and John Depasquale stepping down. I would like to thank Stephen and John for their stewardship and collective contributions to the Company over the past few years.

Results and performance

The Group’s results for the year ended 31 December 2020 showed revenues of £12,000 (2019: £2,000) and an operating loss of £149,000 (2019: profit £43,000).

At 30 June the principal asset of the Group was its legacy holding in KCR Residential REIT plc (‘KCR’), which owns property in the private rented residential sector, in particular blocks of studio, one and two bedroom apartments which are rented to private tenants in the UK.

The share price performance of KCR has been disappointing over the year and the value of the KCR holding has declined from £1,181,000 to £573,000, equating to an unrealised loss of £608,000. I am also disappointed to report that the KCR share price has fallen further since the year end. 

During the period under review Drumz made its first investment in Acuity Risk Management Limited (“Acuity”), an award winning business, specialising in risk management for cybersecurity. Acuity’s proprietary software platform STREAM™ provides its blue chip customer base on a SaaS basis, with a comprehensive view of risk and compliance on an enterprise wide basis. Drumz has invested £500,000 in cash for an initial 20 per cent. shareholding in Acuity and has an option to acquire an additional 5 per cent. shareholding for a further £125,000. Further details on the progress achieved by Acuity is in the CEO report and Investment report.

Therefore, the overall results of the Group for the year ended 31 December 2020 show a loss before taxation of £757,000 (2019: loss of £72,000), of which £608,000 (2019: £134,000) was due to the fall in value of the Group’s investment in KCR. The shareholders’ funds have increased to £1,518,000 (2019: £1,204,000), principally as a result of the two separate fund raisings undertaken by the Company in July and October 2020. 

New investment Policy

The Company’s new investment policy is to invest principally, but not exclusively in the technology sector in Europe. The Directors consider that there are opportunities to invest in and acquire established technology businesses which own their own intellectual property and improve them through a combination of the management skills and expertise available from Drumz and further investment capital as required.

Whilst it is not possible to be entirely prescriptive, it is likely that the opportunities would generally have some or all of the following characteristics, namely: 

• Established business
• Software is proven and a key tool for users
• SaaS (“Software as a Service”) business model
• Significant B2B market opportunity

Macroeconomic impacts

During the current period there have been two major macroeconomic factors which have impacted the economy, namely:

• Brexit – as regulations change with Britain’s withdrawal from the EU, the software industry, particularly those selling on a SaaS basis, appear at present to be relatively unaffected by this new environment and

• COVID-19 – this global pandemic has had a major impact on the world economy and the ways in which people work. On the positive side, the software industry lends itself well to employees working effectively from remote locations, but the broader impact of the pandemic on global demand remains uncertain. At Acuity, there was a decline in new business sales in the second quarter of its financial year, after the first lockdown announced by the UK Government, but since then new business has picked up strongly.

Outlook

The first phase of the planned change programme at Acuity, with a complete overhaul of its commercial infrastructure and strengthening of the sales and marketing operations has now been completed. The Board believe that the benefits of the actions already taken will be seen over the coming months. We are now considering several new investment opportunities. I would like to welcome all new shareholders and thank all shareholders for their continuing support. I should also like to thank my colleagues and our advisors for their respective contributions and look forward to further progress in the current financial year. 

Simon Bennett
Chairman
21 May 2021

Chief Executive’s Report

Since the 2020 AGM, when shareholders approved changes to the business to focus on the technology sector was one of change as your Company transitioned and made its first technology investment. In that time changes have been made to the Board of directors, a pipeline of technology investment opportunities has been generated and a new corporate name has been adopted. 

Our strategy

Drumz’s strategy is to invest, predominantly but not exclusively in the technology sector, to achieve capital growth in the medium term, three to five years. We invest in operating companies whose activities include the sale of software or the use of software. The Board seeks to make investments where the associated risks are acceptable given the expertise available to the Company.

Our business model

Our business model is to identify established software companies with potential, that we can acquire or invest in and which would benefit from our expertise in order to exploit their market opportunity and thereby transform value. The skills and experience we inject, mainly relate to commercial, sales and marketing activities. Our objective is to transform the value of our investments by increasing growth rates and scale. Having achieved these goals the Company will determine whether the investee companies should be retained or whether it would be better to realise value by way of a trade sale or Initial Public Offering (“IPO”).

By acquiring established businesses whose software is valuable to its customers, Drumz is investing in businesses with a validated product / service so should be able to accelerate growth and value faster than for earlier stage companies, whilst being better able to identify and manage the associated risks.

Our business model is designed to allow all parties to benefit. It is achieved by investing in opportunities where the Board sees growth and if necessary, can provide expertise and assistance to management to accelerate growth and drive scale, two of the principal drivers of value for potential buyers. 

In a typical scenario:

Year 1: Initial review with key changes identified, and actions taken to set the foundations (business model, pricing, marketing, sales channels, partners);

Year 2: Build on the initial changes with any necessary refinements and implementation of business drivers; and

Year 3: Continue to accelerate growth (by this stage the business will be bigger and is likely to be growing at a far faster rate than previously)

Investments and Portfolio update

Acuity Risk Management 

This 15 year old company has developed a software platform which is used for risk management mainly for cybersecurity, but which also has the flexibility to be adapted for management of other risks including supplier management or health and safety. Acuity has won awards for its principal product STREAM™ which has a 5-star rating in Gartner’s 2021 Peer Insights review of recent software buyers and has won a five star rating for five consecutive years from leading security trade journal, SC MEDIA. The product is in use by Acuity’s customers in the UK, Europe and the United States. 

There has been considerable progress at Acuity in the time Drumz has been involved and some of the resulting contract wins have been announced on the Stock Exchange’s Reach News Service. All sales are now made on a SaaS basis with improved commercial terms and new pricing structures, which has substantially improved the company’s recurring revenues and average order values. A new digital marketing agency is generating increased and better quality sales leads which are fed into the sales team, which has been grown over the past year to increase sales capacity. These measures are beginning to show benefits through faster rates of growth in both the numbers and value of orders and we look forward to continuing to work with Acuity to build on these foundations. 

The biggest impact of COVID-19 on Acuity was felt in the quarter July to September 2020, when the Company found it difficult to get new customers to commit to new orders. However, since then, demand has recovered and continued to build in subsequent quarters. The increasing likelihood and impact of cyber attacks and consequently the relative importance of cyber security give the Board confidence to believe that the demand for Acuity’s services will continue to grow. 

KCR Residential REIT

KCR is a legacy investment which owns a portfolio, mostly properties, which comprise residential and retirement flats. Whilst Savills reported the UK housing market performed strongly in 2020 and Nationwide reported growth in transaction numbers (13%) and annual price growth of 7.3 per cent, it is disappointing that the share price has declined over the second six months of 2020 and subsequently, such that it is now at a level which represents a discount of 50% to net asset value. 

Summary and Outlook

In 2020 we achieved the requisite changes at Drumz and began the process of making the transformation necessary to drive value enhancement at Acuity, which is now attracting considerable interest. This demonstrates that our strategy is working and we continue to review a number of other possible investment opportunities. 

Angus Forrest 
Chief Executive
21 May 2021

Group statement of comprehensive income
for the year ended 31 December 2020

	Notes	2020 £000	2019 £000
Continuing operations
Revenue		12	2
Cost of sales		—	—
Gross profit		12	2
Reversal of accrued remuneration for former director		—	117
Administrative expenses		(161)	(76)
Operating profit/(loss)	2	(149)	43
Loss on investments	4	(608)	(134)
Recovery of bad debt written off in previous periods		_	19
Loss before taxation		(757)	(72)
Taxation	-	—	—
Loss for the year attributable to shareholders of the parent company		(757)	(72)
Total comprehensive income for the year attributable to shareholders of the parent company		(757)	(72)
Earnings per share
Basic and diluted earnings per share from total and continuing operations		(0.36)p	(0.06)p

Group statement of financial position
as at 31 December 2020

	Notes	2020 £000	2019 £000
ASSETS
Non-current assets
Investments at fair value through profit or loss	4	1,073	1,181
		1,073	1,181
Current assets
Trade and other receivables		14	5
Cash and cash equivalents		491	96
		505	101
Total assets		1,578	1,282
LIABILITIES
Current liabilities
Trade and other payables		60	78
Total liabilities		60	78
Net assets		1,518	1,204
EQUITY
Share capital	5	2,613	2,392
Share premium		8,039	7,189
Convertible loan		88	88
Merger reserve		1,012	1,012
Retained earnings		(10,234)	(9,477)
Total equity		1,518	1,204

Group statement of changes in equity
for the year ended 31 December 2020

	Share  capital £000	Share premium  000	Convertible loan  £000	Merger reserve £000	Retained earnings  £000	Total equity £000
Balance at 1 January 2019	2,392	7,189	88	1,012	(9,405)	1,276
Total comprehensive income	—	—	—	—	(72)	(72)
Balance at 31 December 2019	2,392	7,189	88	1,012	(9,477)	1,204
Balance at 1 January 2020	2,392	7,189	88	1,012	(9,477)	1,204
Transactions with owners in their capacity as owners:
Issue of shares (net of costs)	221	850	—	—	—	1,071
	221	850	—	—	—	1,071
Total comprehensive income	—	—	—	—	(757)	(757)
Balance at 31 December 2020	2,613	8,039	88	1,012	(10,234)	1,518

Group statement of cash flows
for the year ended 31 December 2020

	2020 £000	2019 £000
Cash flows from operating activities
Loss before taxation	(757)	(72)
Adjustments for:
Fair value adjustment for listed investments	608	134
Interest income	—	—
(Increase) / decrease in trade and other receivables	(2)	3
(Decrease) / increase in trade and other payables	(25)	(146)
Net cash used in operating activities	(176)	(81)
Cash flows from investing activities
Purchase of investments	(500)	—
Cash flows from financing activities
Cash raised through issue of shares (net of transaction costs)	1,071	—
Net decrease in cash and cash equivalents	(395)	(81)
Cash and cash equivalents at beginning of financial year	96	177
Cash and cash equivalents at end of financial year	491	96

Notes to the financial Statements

General information 

Drumz plc is a company incorporated and domiciled in the United Kingdom. The Company is a public limited company, which is listed on AIM of the London Stock Exchange, incorporated and domiciled in England and Wales. The address of the registered office is Burnham Yard, London End, Beaconsfield, HP9 2JH.

The principal accounting policies adopted in the preparation of the Group and Company financial statements are set out below.

Basis of accounting

Basis of preparation

The Group and Company financial statements have been prepared under the historical cost convention, except as modified for financial assets at fair value through profit or loss. 

The Group and Company financial statements have been prepared in accordance with the accounting policies set out below and international accounting standards in conformity with the Companies Act 2006.

The accounting policies have been applied consistently throughout the Group and the Company for the purposes of the preparation of these financial statements and the same accounting policies, presentations and methods of computation are followed in this set of financial statements as were applied in the previous set of audited financial statements.

Going concern

The financial statements have been prepared on the going concern basis. 

The Directors have a reasonable expectation that the Company and Group has adequate resources to continue operating for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Company’s and Group’s financial statements. This has been assessed using detailed cash flow analysis so that the Board can conclude that the Company and Group has sufficient capital resources for at least 12 months without any additional working capital financing requirement.

1. Income and segmental analysis

The Group generates income by charging investee companies fees and for profits or losses on investments. These operating segments are monitored by the Executive Directors and strategic decisions are made on the basis of segment operating results. The segmental analysis of operations is as follows:

Segmental analysis by activity

	2020 £000	2019 £000
Segment result
Operating income	12	—
Investment activities:
Reversal of accrued remuneration for former director	—	117
Administrative expenses	(161)	(76)
	(149)	(41)
Rental activities:
Net rental income	—	2
	—	2
Operating loss/profit	(149)	43
Loss in value of quoted investment	(608)	(134)
Recovery of bad debt written off in previous periods	–	19
Loss before tax	(757)	(72)

	2020 £000	2019 £000
Segment assets
Investment activities:
Non-current assets – investment	1,073	1,181
Other	505	101
Total assets	1,578	1,282

	2020 £000	2019 £000
Segment liabilities
Investment activities:
Current liabilities	60	78
Total liabilities	60	78
Total assets less total liabilities	1,518	1,204

The activity of investments arose wholly in the United Kingdom.

2. Operating profit / loss

Operating profit / loss is stated after charging:

	2020 £000	2019 £000
Auditor’s remuneration for:
Audit services
– audit of the Group’s and Company’s annual accounts	12	7
– audit of subsidiaries pursuant to legislation	3	3
Share based payment (options)	1	—

3. Earnings per ordinary share

The earnings per ordinary share is based on the weighted average number of ordinary shares in issue during the year of 210,083,568 ordinary shares of 0.1p (2019: 123,912,957 ordinary shares of 0.1p) and the following figures:

	2020	2019
Loss attributable to equity shareholders (£000)	(757)	(72)
Loss per ordinary share	(0.36)p	(0.06)p

Diluted earnings per share is taken as equal to basic earnings per share as the Group’s average share price during the period is lower than the exercise price of the share options and therefore the effect of including share options is anti-dilutive.

4. Investments

	Investment £000
Cost
At 1 January 2020	1,705
Additions	500
At 31 December 2020	2,205
Fair value movements
At 1 January 2020	(524)
Fair value adjustment	(608)
At 31 December 2020	(1,132)
Fair value
At 31 December 2020	1,073
At 31 December 2019	1,181

Drumz plc acquired shares in KCR Residential REIT plc at a price of £0.70 per share in 2018. The investment was classed as fair value through profit and loss in accordance with IFRS 9. The investment was valued downwards at the year-end in accordance with IFRS 13. The closing value at 31 December 2020 was £573,000.

Drumz plc acquired shares in Acuity Risk Management Limited in September 2020. The value of this investment is shown at cost, £500,000. As part of the investment, the agreement also contained an option to invest a further £125,000 for 5%. The directors consider the value of this option to be immaterial.

Fair value hierarchy 

In accordance with IFRS 7, financial instruments are measured by level of the following fair value measurement hierarchy:

• Level 1: quoted prices in an active market for identical assets or liabilities. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available and those prices represent actual and regularly occurring market transactions on an arm’s-length basis. The quoted market price used for financial assets held by the Group is the closing price on the last day of the financial year of the Group. These instruments are included in level 1 and comprise FTSE and AIM-listed investments classified as held at fair value through profit or loss.
• Level 2: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. 
• Level 3: the fair value of financial instruments that are not traded in an active market (for example, investments in unquoted companies) is determined by using valuation techniques such as earnings multiples. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

There have been no transfers between these classifications in the period (2019: none). The change in fair value for the current and previous years is recognised through profit or loss.

All assets held at fair value through profit or loss were designated as such upon initial recognition. 

Movements in investments held at fair value through profit or loss are summarised as follows:

	Level 3 Equity investments £000	Level 1 Equity investments £000	Total investments £000
Cost
At 1 January 2020	–	1,705	1,705
Additions	500		–
At 31 December 2020	500	1,705	2,205
Fair value losses
At 1 January 2020	—	(524)	(524)
Fair value adjustment	—	(608)	(608)
At 31 December 2020	—	(1,132)	(1,132)
Fair value
At 31 December 2020	500	573	1,073
At 31 December 2019	—	1,181	1,181

Investment in the subsidiaries of the parent company are carried at £nil (2019: £nil). See note 12 for details of subsidiary undertakings.

5. Share capital

	2020 £000	2019 £000
Allotted, called up and fully paid
344,821,957 (2019: 123,912,957) ordinary shares of 0.1p each	345	124
2,268,113,165 (2019: 2,268,113,165) deferred shares of 0.1p each	2,268	2,268
	2,613	2,392

	2020 Number	2020 £000	2019 Number	2019 £000
Ordinary shares
At 1 January 2020	123,912,957	124	123,912,957	124
Additions	220,909,091	221		—
At 31 December 2020	344,822,048	345	123,912,957	124

On 1 July the Company issued 130,000,000 new Ordinary shares of 0.1p at 0.5p per share to raise approximately £650,000 before expenses; and on 1 October it issued a further 90,909,091 new Ordinary shares at 0.55p to raise a further £500,000 before expenses.

Deferred shares

The deferred shares have:

• no right to any dividend;
• the right to receive notice of any general meeting and to attend such meeting but no right to vote thereat; and
• the right on a winding up or other return of capital (after payment of the debts and liabilities of the Company and an amount equal to the amounts paid up, or credited as paid up, including any premium on the ordinary shares of the Company, together with any unpaid arrears of dividend declared on such shares) to an amount equal to the amounts paid up or credited as paid up on such deferred shares.

Share option scheme

The Group operates an unapproved share option scheme. Awards under each scheme are made periodically to employees. The share options in this scheme vest three years after the date of grant and have an exercise period of seven years. The options may only be exercised by option holders while they are still employees of the Group. If death in service occurs the options can be exercised (to the extent that they have vested) by the option holder’s personal representatives within 12 months from the date of death. If an option holder ceases to be employed and the Directors deem the option holder to be a ‘Good Leaver’ the options can be exercised (to the extent that they have vested) within six months from the date of cessation of employment. 

A reconciliation of option movements over the year ended 31 December 2020 is shown below:

	Number	Exercise  price
Outstanding at 31 December 2019	6,100,000
Lapsed during the year	(6,100,000)	2.00p
Granted on 15 July 2020	11,000,000	0.65p
Granted on 25 November 2020	4,000,000	0.55p
Outstanding at 31 December 2020	15,000,000

At 31 December 2020 outstanding options granted over ordinary shares were as follows:

Share option scheme	Exercise price	Number	Dates exercisable
Company unapproved	0.65p	11,000,000	15 July 2020 to 14 July 2030
Company unapproved	0.55p	4,000,000	25 Nov 2020 to 24 Nov 2030

The weighted average exercise price for the Group’s options are as follows:

Options issued during the year: 0.62p

Options forfeited/lapsed during the year:  2.0p

Options outstanding at 31 December 2020:  0.62p

Options exercisable at 31 December 2020: nil

The weighted average remaining contractual life of the share options outstanding at the end of the year is 9 years (2019: 4 years).

The Group has used the Black-Scholes formula to calculate the fair value of outstanding share options. The assumptions applied to the Black-Scholes formula for share options issued and the fair value per option are detailed in the table below for options issued in the year. The charge calculated up to 31 December 2020 is immaterial and has not been recognised as an expense (2019: £nil). Volatility was calculated using historical share price information for the six months prior to the date of grant.

	Unapproved share options 2020 grant
Date of grant	15 July 2020
Expected life of options based on options exercised to date	3 years
Volatility of share price	87%
Dividend yield	0%
Risk free interest rate	0.01%
Share price at date of grant	0.65p
Exercise price	0.65p
Fair value per option	£0.46

Date of grant	25 Nov 2020
Expected life of options based on options exercised to date	3 years
Volatility of share price	10%
Dividend yield	0%
Risk free interest rate	0.01%
Share price at date of grant	0.48p
Exercise price	0.35p
Fair value per option	£0.00