Half-year Report

28 September 2021

Drumz plc 

('Drumz' or the 'Company')

Interim Results to 30 June 2021

CHAIRMAN’S STATEMENT

I am pleased to present the Company’s Interim Results for Drumz, which is focused on investment in the technology sector, for the six months ended 30 June 2021. 

Results and performance
The Group’s results for the six months ended 30 June 2021 showed revenue of £18,000 (2020: £Nil) and an operating loss of £115,000 (2020: loss of £36,000).

At 30 June 2021 the two principal assets of the Group were its holding in Acuity Risk Management Limited (“Acuity”), an award winning business specialising in risk management and cybersecurity and its legacy holding in KCR Residential REIT plc (“KCR”), a company listed on AIM, which owns rented property in the private rented residential sector, typically in blocks of studio, one and two bedroomed apartments which are rented to private tenants in the UK. 

Acuity continues to perform well and in September 2021, Drumz exercised its option to acquire a further 5% of Acuity for a cash consideration of £125,000. As a result, Drumz now owns 25% of Acuity’s share capital. Acuity’s principal product is STREAM™, which is used by private and public sector clients to manage their cyber security and other enterprise risks. Acuity is in a sector where customer demand is exceptionally strong, as more businesses seek to protect their data for financial, reputational and regulatory reasons. Demand for Acuity’s proprietary software continues to grow and further details of the progress achieved by the company are set out in the Chief Executive’s Report. 

The share price performance of KCR in the six months ended 30 June 2021 continued to be disappointing. The value of Drumz’s holding in KCR at 30 June 2021 was £427,000 (31 December 2020: £767,000) representing a further book loss on investments of £146,000 (2020: loss of £414,000). I am pleased to report that in recent weeks the KCR share price has improved and at the date of this announcement, the book loss suffered in the first half had been eliminated. 

Principally as a result of the KCR book loss, the Group’s loss before and after taxation amounted to £261,000 (2020: £450,000). The basic and diluted loss per share amounted to £0.08p (2020: loss £0.36p). No dividend has been declared. 

At 30 June 2021 the Group had cash resources of £380,000 (2020: £25,000) and shareholders’ funds of £1,276,000 (2020: £754,000). 

Macroeconomic factors

The effects of the global COVID-19 pandemic continue to be felt on the world’s economy and it remains extremely difficult to quantify what effect the broader impact of this pandemic will have on business in the future. 

Outlook
We continue to be extremely pleased with the progress at Acuity. The commercial infrastructure of Acuity has been overhauled and a number of significant new staff hires have been made. The improvement in the number and the quality of the sales leads Acuity is now generating is testament to the progress that has been made and bodes well for the future. We continue to look for new investment opportunities and I would like to take this opportunity to thank my colleagues for their continued support.

Simon Bennett
Chairman

27 September 2021

Chief Executive’s Report

Existing portfolio

Acuity Risk Management
The focus has been on working with the Acuity management team to put in solid foundations, which will enable Acuity to grow as quickly as possible in its market, risk management for cybersecurity. The main drivers of value of such companies which operate a Software as a Service (SaaS) business model, are scale and revenue growth rates. It takes time and effort to get this right and a lot of credit for the progress that has been made must go to the team at Acuity. 

In the period, Acuity completed its financial year end and the progress made in commercialising its activities has begun to show through, with a 27% rise in SaaS revenues to £1.2m, a 97% rise in contracted future revenues to £2.2m. Recently, Acuity was identified by a Gartner survey, Hype Cycle for Cyber and IT Risk Management, 2021. I am also delighted to be able to report that the highly influential global research, Gartner’s peer insights™, https://www.gartner.com/reviews/market/it-risk-management-solutions/vendor/acuity-risk-management/product/stream-cyber-risk-platform recognises Acuity’s principal product STREAM™ as being in the top three products in IT risk management. 

KCR
As referred to in the Chairman’s statement, the share price of our legacy investment in KCR has continued to be disappointing. However, it is an asset backed company, and KCR’s share price has been trading at a significant discount to its stated net asset value per share. I also note that there has been a significant improvement in the share price in recent weeks, as KCR moves towards positive monthly cashflows.

New investment activity
In order to achieve good rates of return for shareholders, the focus is on investing in and acquiring established software businesses with an enterprise product sold into the business-to-business market, where Drumz can use its expertise to transform the value. We continue to look actively for investment opportunities.

Outlook
We continue to be pleased with the progress being made at Acuity, where Drumz’s strategy for delivering value enhancement is starting to bear fruit. Our search for new investment opportunities continues and I look forward to being able to report on the progress made in the coming months. 

Angus Forrest
Chief Executive

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

Condensed consolidated statement of comprehensive income

		Unaudited 6 months to 30 June 2021	Unaudited 6 months to 30 June 2020	Audited year to 31 December 2020
	Note	£000	£000	£000
Continuing operations
Revenue		18	—	12
Cost of sales		—	—	—
Gross profit		18	—	12
Administrative expenses		(133)	(36)	(161)
Operating loss	5	(115)	(36)	(149)
Loss on investments		(146)	(414)	(608)
Loss before and after taxation	5	(261)	(450)	(757)
Loss for the period attributable to shareholders of the company		(261)	(450)	(757)
Total comprehensive income attributable to shareholders of the company		(261)	(450)	(757)
Earnings per share
Basic and diluted earnings per share from total and continuing operations	4	(0.08)p	(0.36)p	(0.36)p

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

Condensed consolidated statement of financial position

		Unaudited as at 30 June 2021	Unaudited as at 30 June 2020	Audited as at 31 December 2020
	Note	£000	£000	£000
ASSETS
Non-current assets
Investments at fair value through profit or loss	6	927	767	1,073
		927	767	1,073
Current assets
Trade and other receivables		20	9	14
Cash and cash equivalents		380	25	491
		400	34	505
Total assets		1,327	801	1,578
LIABILITIES
Current liabilities
Trade and other payables		51	47	60
Total liabilities		51	47	60
Net assets		1,276	754	1,518
EQUITY
Share capital		2,613	2,392	2,613
Share premium account		8,039	7,189	8,039
Share option reserve		19	-	-
Convertible loan		88	88	88
Merger reserve		1,012	1,012	1,012
Retained earnings		(10,495)	(9,927)	(10,234)
Total equity attributable to shareholders of the company		1,276	754	1,518

Condensed consolidated statement of changes in equity

		Share	Share
	Share	premium	option	Convertible	Merger	Retained	Total
	capital	account	Reserve	loan	reserve	earnings	equity
	£000	£000	£000	£000	£000	£000	£000
Balance at 1 January 2020	2,392	7,189	__	88	1,012	(9,477)	1,204
Total comprehensive profit	—	—	__	—	—	(450)	(450)
Balance at 30 June 2020	2,392	7,189	__	88	1,012	(9,927)	754
Total comprehensive loss Issue of shares net of costs	— 221	— 850	__	—	—	(307)	(307) 1,071
Balance at 31 December 2020	2,613	8,039	__	88	1,012	(10,234)	1,518
Total comprehensive loss	—	—		—	—	(261)	(261)
Share option reserve	__	__	19	__	__	__	19
Balance at 30 June 2021	2,613	8,039	19	88	1,012	(10,495)	1,276

Condensed consolidated statement of cash flows

	Unaudited 6 months to 30 June 2021	Unaudited 6 months to 30 June 2020	Audited year to 31 December 2020
	£000	£000	£000
Cash flows from operating activities
(Loss)/profit before taxation	(261)	(450)	(757)
Adjustments for:
Fair value adjustment for listed investments	146	414	608
Share option reserve	19
Changes in working capital:
- (Increase)/decrease in trade and other receivables	(6)	(4)	(2)
- (Decrease)/increase in trade and other payables	(9)	(31)	(25)
Net cash used in operating activities	(111)	(71)	(176)
Cash flows from investing activities Purchase of investments Cash flows from financing activities Cash raised through issue of shares (net of transaction costs)			(500) 1,071
Net increase (decrease) in cash and cash equivalents	(111)	(71)	395
Cash and cash equivalents at beginning of period	491	96	96
Cash and cash equivalents at end of period	380	25	491

1. Nature of operations and general information

The principal activity of the Company is investing in technology companies, which offer value creation opportunities over the short and medium term. 

The Company is incorporated and domiciled in the United Kingdom. The address of Drumz plc’s registered office is Burnham Yard, London End, Beaconsfield, Buckinghamshire, HP9 2JH.

Drumz plc’s shares are listed on AIM, a market operated by the London Stock Exchange. The condensed consolidated interim financial report was approved for issue by the Board of Directors on 27 September 2021.

The financial information set out in this interim financial report does not constitute statutory accounts as defined in Sections 434(3) and 435(3) of the Companies Act 2006. The Company’s statutory financial statements for the year ended 31 December 2020 have been filed with the Registrar of Companies and are available at www.drumzplc.com. The auditor’s report on those financial statements was unqualified and did not contain any statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

2. Basis of preparation

The condensed consolidated interim financial report has been prepared in accordance with the requirements of the AIM Rules for Companies. As permitted, the Company has chosen not to adopt IAS 34 “Interim Financial Statements” in preparing this interim financial information. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2020. The interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the United Kingdom which have not differed from the previously EU-endorsed IFRS, and hence the previously reported accounting policies still apply.

The Directors believe that whilst the impact of COVID-19 appears to be reducing there is still significant uncertainty as to what foreseen or unforeseen action or actions the Company may be required to take in order to respond to any circumstances that may arise in the future. They have considered the possible impact of COVID-19 on Drumz and its business activities, which are now increasingly focussed on software businesses, many businesses in the software sector can be operated remotely in a virtual environment which should reduce the impact of COVID-19 on their activities.

Going concern

The Directors, having made appropriate enquiries, consider that adequate resources exist for the Company and Group to continue in operational existence for the foreseeable future and that, therefore, it is appropriate to adopt the going concern basis in preparing the condensed consolidated interim financial statements for the period ended 30 June 2021.

Risks and uncertainties

The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Group’s medium term performance and the factors that mitigate those risks have not substantially changed from those set out in the Company’s 2020 Annual Report and Financial Statements, a copy of which is available on the Company’s website: www.drumzplc.com. 

Critical accounting estimates

The preparation of condensed consolidated interim financial report requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the end of the reporting period. Significant items subject to such estimates are set out in the Company’s 2020 Annual Report and Financial Statements. The nature and amounts of such estimates have not changed significantly during the interim period.

3. Accounting policies

Except as described below, the same accounting policies, presentation and methods of computation have been followed in these condensed consolidated interim financial statements as were applied in the preparation of the Group’s annual financial statements for the year ended 31 December 2020.

3.1 Changes in accounting policy and disclosures

(a) Accounting developments during 2021

The International Accounting Standards Board (IASB) issued various amendments and revisions to International Financial Reporting Standards and IFRIC interpretations. The amendments and revisions were applicable for the period ended 30 June 2021 but did not result in any material changes to the financial statements of the Group or Company.

(b)  New standards, amendments and interpretations in issue but not yet effective or not yet endorsed and not early adopted

Standard	Impact on initial application	Effective date
IFRS 3	Reference to Conceptual Framework	1 January 2022
IAS 37	Onerous contracts	1 January 2022
IAS 16	Proceeds before intended use	1 January 2022
Annual improvements	2018-2020 Cycle	1 January 2022
IAS 8	Accounting estimates	1 January 2023
IAS 1	Classification of Liabilities as Current or Non-Current.	1 January 2023

The Group is evaluating the impact of the new and amended standards above which are not expected to have a material impact on the Group’s results or shareholders’ funds.

4. Loss per ordinary share

The loss per ordinary share is based on the weighted average number of ordinary shares in issue during the period of 344,822,048 ordinary shares of 0.1p (2020: 210,083,568 ordinary shares of 0.1p) and the following figures:

	Unaudited 6 months to 30 June 2021	Unaudited 6 months to 30 June 2020	Audited year to 31 December 2020
Loss attributable to equity shareholders £000	(261)	(450)	(757)
Loss per ordinary share	(0.08)p	(0.36)p	(0.36)p

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

5. Income and segmental analysis

There is one operating segment.

The activity of both the investments is based mainly in the United Kingdom. 

6. Investments

The Company made investments as follows during the years ended 31 December:

2018 It acquired 2,435,710 shares in KCR Residential REIT PLC, an AIM listed real estate investment trust specialising in the acquisition and management of rented residential portfolios in the UK. 

2020 It invested £500,000 for a 20% holding in Acuity Risk Management Limited. 

Subsequent to the period end, Drumz exercised its option and invested a further £125,000 in Acuity Risk Management Limited, increasing the holding to 25% (see Note 7 below).

Investments 

	£000
Cost
At 1 January 2021	2,205
At 30 June 2021	2,205
Fair value losses
At 1 January 2021	(1,132)
Change in fair value recognised in profit and loss	(146)
At 30 June 2021	(1,278)
Fair Value
At 30 June 2021	927
At 31 December 2020	1,073

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 (2020: 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. 

7. Post balance sheet events

Subsequent to the period end, Drumz exercised its option and invested a further £125,000 in Acuity Risk Management Limited, taking its holding to 25%.