Final Results

RNS Number : 8892A

KRM22 PLC

03 June 2019

 

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

AUDITED RESULTS STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2018

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 2018 ("2018", the "Year"). 

Highlights

Operational

·    Established the team, developed the Global Risk Platform and confirmed the market opportunity

·    Completed three acquisitions (two business combinations and an asset purchase) in 2018

·    Built a strong team culture and environment with the right combination of skills, systems and sales focus

·    Signed two product partnerships in 2018 to corner stone the revenue-share model on the Global Risk Platform

Financial

·    £1.3m revenue recognised from incorporation to 31 December 2018 (which includes 7 months of Irisium's and 3 months of ProOpticus' revenue)

·    £3.3m of Annualised Recurring Revenue as at 31 December 2018 (£3.9m following the acquisition of Object+ post period end; see below)

·    £3.4m of cash as at 31 December 2018

Post Year end matters

·    Completed a further acquisition: Object+ on 31st May 2019

·    Signed two additional partnerships to date in 2019

·    Raised £1.8m in a placing and subscription of shares in April 2019

·    Secured a debt facility for up to £10m of which an initial £1m has been drawn down to date

Keith Todd, Chief Executive Officer and Chairman of KRM22 plc, commented:

"I am delighted and proud of the progress KRM22 has made in the 13 months since IPO. This first set of annual results is just the start of the journey and the numbers represent just the first few months of our progress. We have established a very strong foundation for the business in terms of technical development of the Global Risk Platform, a quality customer base and an international team with deep subject matter expertise. We continually make strides towards our mission to bring increased visibility and lower cost risk management to capital market organisations."

For further information please contact:

KRM22 plc                                                                                                           [e-mail]

Keith Todd CBE, Executive Chairman and CEO

Kim Suter, Head of Finance

finnCap Ltd (Nominated Adviser and Sole Broker)                                                         [phone]

Corporate Finance: Carl Holmes / Kate Bannatyne

ECM/Corporate Broking: Alice Lane/Sunila de Silva

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

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' regulatory, market, technology and operations risk challenges and to manage their entire enterprise risk profile.

Capital markets companies' partner with KRM22 to optimize 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

Our journey to date

2018 was the inaugural year of KRM22 as a public company where we established solid foundations for the business and its future.

At IPO we stated that customers needed to simplify and reduce the cost of their risk management systems and that specialised risk management businesses needed help to scale and reach those customers.  Since IPO, this view has been confirmed by customers, prospects, acquisition targets and partners.  Our strategy to build the Global Risk Platform and in parallel acquire and partner with businesses with key subject matter expertise and products is right for the market place at the right time.

We promised investors that we would progress with speed and would not sit as a cash-shell, and we kept that promise.  By 31 December 2018, we completed three acquisitions, signed two distribution partnerships, signed new customer contracts to grow ARR to £3.3m, built a high-quality subject matter expert team and developed the Global Risk Platform.  Revenue recognised in 2018 was £1.3m including seven months of Irisium and three months of ProOpticus.

The KRM Global Risk Platform ('GRP')

The GRP is the underlying platform through which we deliver the integration of diverse applications to our customers. We believe that the breadth and depth of the KRM22 offering is a unique differentiator in the market.

The GRP brings risk applications together in one central place, allowing smooth single sign-on for all users and data sharing across applications to remove duplication and errors.

Applications delivered through the GRP are SaaS-based recurring revenue.

Strategy

To deliver applications through the GRP we:

1.    Invest in businesses with specialised risk management software and subject matter expertise that deliver SaaS and recurring revenue and deliver via the GRP.

In capital markets, there are a multitude of software products provided by small businesses who have deep subject matter expertise but face challenges to scale up to a large market presence.  By bringing such businesses into the KRM22 group:

·    KRM22's customers gain access to quality products;

·    The acquired businesses solve their scaling challenges; and

·    KRM22 accelerates its GRP offering and the breadth of its customer base.

The functionality acquired from the applications we invest in is integrated on to the GRP in progressive steps.  In parallel, we continue to generate new sales in each acquired business through additional sales focus and experienced management to leverage the cross-selling opportunities created.

2.    Develop the underlying technology of the GRP and add to that our own native applications, for example, the Enterprise Risk Cockpit.

The Risk Cockpit provides a dashboard for customers to see their firm's risk profile and in real-time if required.  It is a native application developed internally for the GRP and is configurable by each customer.  This product is relevant to our entire customer and prospect base.

3.    Establish partnerships with third party applications to distribute those products on a revenue share model.

In addition to our acquired and native applications, we deliver third-party specialised risk management applications through the GRP to provide customers with additional capabilities in one single platform.  This simplifies real-time risk management for customers and offers an additional route to market for those application providers.  KRM22 generates recurring revenue through these partnerships on a revenue-share basis.

Deepening customer relationships

We focus on deepening the relationship with every customer we gain from each acquisition via cross-selling, as well as working with new prospects. Building the customer relationship is facilitated by:

·    our simplified delivery of each application through the GRP, allowing single-sign-on and simplified procurement by the customer; and

·    the planned development of the GRP to remove duplication of databases and removal of reconciliation processes for the customer.

This cross-selling is at the heart of what we do, and the team is structured in a way to help customers find the best combination of applications for their own business.

We have made good progress in a short period and as I write, we have a very strong sales pipeline which includes many cross-sales opportunities.

Acquisitions progress

We completed three acquisitions by the end of 2018 and in May 2019 we acquired a fourth business called Object+ which further strengthens our market risk offering.

These acquisitions added proven risk management applications, high-calibre customer bases and recurring revenue, together with deep subject matter expertise to the KRM22 team.

We aggressively integrated these businesses into our teams, our road-maps and our cloud-based suite of internal systems. We truly believe that successful integration provides cost efficiencies and supports our growth.

Partnerships progress

We signed two partnership deals by the end of 2018 covering regulatory compliance and a Value at Risk market risk calculator.  Since then, we have signed partnership deals with Entrima in April 2019 for market abuse online training and Trailight in May 2019, a Senior Management Regime ("SMR") system to help companies address the upcoming FCA regulatory requirements.

Sales

Our strong focus on sales has delivered increased recurring revenue and we have a strong sales pipeline.

We increased the ARR (annualised recurring revenue) of Irisium from £1.0m at acquisition in June 2018 to £1.3m at the end of the year.

As at the date of this report, our ARR is £3.9m including the acquisition of Object+ announced May 2019.  We continue to be encouraged by our strong sales pipeline.

Team progress

We have assembled a talented team of people with deep expertise.  The knowledge and skill base of the team is second to none: whether it's SaaS architecture techniques, market surveillance or options risk know-how, back office proficiency or customer service excellence.

Product progress

We have built great momentum in expanding our product offerings.  Our in-house development has focused on building the core GRP, through which our applications are delivered.  The Enterprise Risk Cockpit has been developed in parallel to the GRP, with a free "Team" version available to all GRP users for 12 months to gain usage, traction and feedback.

Supplementary to our ongoing development, we have expanded our portfolio further through acquisition and partnerships and are now actively marketing thirteen offerings in the marketplace.

Market: customers are ready

Capital market organisations are under growing pressure from:

·    Increasing regulations in terms of both volumes and complexity;

·    Increasing focus on compliance by regulators and stronger civil and criminal punishments for non-compliance;

·    Increasing value of cash reserves to meet clearing and trading requirements; and

·    Increasing staff costs to deal with regulation and the complexity of systems and processes built up over time.

These trends impact not only banks but all organisations across capital markets.

Our deep experience and wide networks in capital markets, in particular in derivatives and hedge funds, provide personal insight into the trends and pressures of these organisations.  The customers we have acquired through investment and our potential customers, confirm time and time again that these pressures are real and need to be solved.

KRM22's GRP and the applications which it delivers are relevant to all sectors of capital markets and bring increased visibility of risks to CEOs and senior executives while lowering the cost of their risk management systems.

Outlook: Continuing our journey in 2019

This coming year we will focus on:

·    delivering the GRP into more live customer environments;

·    integrating applications to remove duplication and cost;

·    deepening the relationships with existing and new customers; and

·    building the depth and breadth of our risk management experts.

We are focused on growing our recurring revenue through our strong sales pipeline of cross-selling opportunities and attracting new customers.  We aim to become cash-flow positive, in run rate terms, in Q2 2020 and be profitable in 2021.

The market trends and real business needs of our customers will support our goals for 2019 and beyond.

Conclusion

I believe we are in a great position and perfectly placed to deliver our vision: to help capital markets companies reduce the cost and complexity of risk management.

We thank our investors for their support and are delighted they have joined our journey.

We have proved that customers need the solutions we provide and we have built a team that has already shown it can execute quickly and efficiently.  I am very excited about the next chapter of our journey.

Keith Todd CBE

Executive Chairman and CEO

2 June 2019

FINANCIAL REVIEW

I am proud to present the financial results of the inaugural year of our journey throughout which we have grown revenue and put in place a strong financial infrastructure.

Since IPO, we have built a team with deep subject matter expertise across several of the world's major capital markets, delivered the Global Risk Platform and built a strong sales perceptive.

Scope of financial results

This financial review focuses on the eight month period since our listing on 30 April 2018.  Prior year comparatives are based on the results of the Company's subsidiary KRM22 Central Limited.

These financial statements are for the group and reflect our fast growth from a standing start to a £3.3m ARR business.  In particular, they include:

·    KRM22 Central and its subsidiaries from 1 January 2018;

·    Irisium from 5 June 2018;

·    ProOpticus from 25 September 2018; and

·    Revenue recognised in 2018 of £1.3m including seven months of Irisium and three months of ProOpticus.

The financial results of the subsidiaries acquired in the year (Irisium and ProOpticus) have been aligned with IFRS and KRM22's accounting policies.

The acquisition of the Enterprise team in July 2018 was for the team and certain assets.  No revenue or costs of a separate legal entity are included.

Acquisitions

A key part of our strategy is to invest in specialist risk management businesses to provide quality risk management applications across our increasing customer base and to help those businesses grow their recurring revenue.

KRM22 listed as an Investing Company on AIM and our investing policy is to invest in businesses with some, or all, of the following features:

·    are revenue generating and have a good customer base;

·    have or are developing a desirable technology or software offerings, principally within risk management;

·    have management with particular skills or sector expertise; and

·    where we believe that there are good growth opportunities through strategic and operational guidance and providing a platform to scale.

In the eight months to 31 December 2018, we acquired three businesses.  Two of the acquisitions were for the share capital and voting rights of the target businesses and a third acquisition was for a team and certain assets of the target business.

Irisium

On 5 June 2018, we made our maiden investment by acquiring 60% of the issued share capital and voting rights of Irisium Limited ("Irisium"), together with management control of the business.

London-based Irisium provides trade surveillance software and, at the time of investment, had 13 customers and £1.0m annualised recurring revenue.  Since acquisition, and as of today, Irisium has grown its customer base and ARR to £1.4m and the sales pipeline remains strong.  Revenue generated by Irisium in 2018 in the seven months post acquisition was £0.8m.

The remaining 40% of the issued share capital of Irisium remains owned by Cinnober Financial Technology AB ("Cinnober").  Cinnober was acquired by Nasdaq in January 2019.

On completion of the acquisition of Irisium, KRM22 paid £1.7m to Cinnober in cash consideration for its shares, and £1.0m to acquire 60% of a shareholder loan previously held by Cinnober.  The potential earn-out consideration of £0.6m has not been accrued for in the balance sheet as at 31 December 2018.

ProOpticus

On 25 September 2018, we acquired 100% of the issued share capital and voting rights of KRM22 ProOpticus LLC (formerly Prime Analytics LLC) ("ProOpticus").

Chicago-based ProOpticus provides market risk tools historically for derivative options and, at the time of investment, had 13 enterprise customers and US$2.6m annualised recurring revenue ("ARR").

Revenue generated by ProOpticus in 2018 in the three months post acquisition was £0.5m.

On completion of the acquisition of ProOpticus, KRM22 paid US$3.0m in cash consideration and issued 773,515 KRM22 Plc shares to the ProOpticus vendors.  Based on the revenue growth of ProOpticus, a total undiscounted earn-out consideration of US$3.0m (£2.3m) may be payable following audited accounts for the years 2019 and 2020, payable in cash or shares, at KRM22's discretion.

Enterprise Risk Management team

On 17 July 2018, we entered into an employment agreement with Enterprise Risk Management expert Andrew Smart.  In parallel, two other subject matter experts in enterprise risk, who had been developing software for Andrew, also accepted job offers.  In parallel to these appointments, we acquired certain assets of Ascendore Limited, including a contracts database, goodwill and existing product code all focused on Enterprise Risk Management.

Andrew and his team have leveraged their knowledge and experience to accelerate the build of the Risk Cockpit and launched it as the first application on the GRP in April 2019.

Profit and Loss

Recurring revenue

Revenue recognised for the year to 31 December 2018 was £1.3m and this was seven months of revenue generated by Irisium and three months of revenue generated by ProOpticus.  KRM22 is focused on building a recurring revenue business and our key revenue metric is ARR (Annualised Recurring Revenue).  As at 31 December 2018, we had grown acquired ARR of £3.0m to £3.3m and this has continued to grow to £3.9m at the date of this report following the acquisition of Object+.

This growth in ARR validates our strategic approach to acquiring and scaling businesses through our shared network and customer base, and the streamlining of back office functions.

In addition, KRM22 generates some non-recurring revenue related principally to customer implementations.

Total revenue

Total revenue reported for the year to 31 December 2018 was £1.3m and 87% was generated from recurring customer contracts. The total revenue recognised includes £0.2m non--recurring revenue.

Gross margin

Gross profit for the year to 31 December 2018 was £1.1m.  This 89% gross profit margin demonstrates the operating leverage of the business and indicates how we can cover our cost base efficiently as we sell new recurring revenue contracts.

Capitalised research and development

Our total investment in research and development for the year to 31 December 2018 was £2.7m.  Of this, £1.8m or 67% was capitalised. Capitalised research and development is amortised over three years.

Adjusted EBITDA

We believe the Adjusted EBITDA is the key metric to consider 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 costs.

Adjusted EBITDA for the year to 31 December 2018 was a £3.3m loss. The Adjusted EBITDA is as per the reported operating loss, adjusted for:

·    Depreciation and amortisation £0.5m;

·    Impairment charges of £0.1m;

·    Non-recurring costs of acquisitions £0.5m;

·    Non-recurring costs of IPO funding £0.3m; and

·    Share based payment cost £0.7m.

Tax charges

Due to the losses incurred in the year the only tax charge is a deferred tax credit of £13k.

Reported operating loss

Reported operating loss for the year to 31 December 2018 was £5.4m.  This loss includes:

·    £0.8m for funding and acquisition fees;

·    Eight months operational costs and set-up costs of KRM22 group as a result of the restructuring in 2018;

·    Seven months of Irisium operations; and

·    Three months of ProOpticus operations.

Cash

Cash in bank at 31 December 2018 was £3.4m.  This cash, together with the equity and debt funding announced on 3 April and 29 April 2019 respectively, provides the business with working capital to build ARR to reach cash break-even and become self-funding.

Net cash at 31 December 2018 was £2.4m, equivalent to the cash less the shareholder loan to Cinnober.

Balance sheet

The balance sheet as at 31 December 2018 includes Irisium, ProOpticus and the core legacy KRM22 group.

Assets

As at 31 December 2018, we held current assets of £3.4m cash and trade and other receivables of £1.1m.

Non-current assets were £12.4m relating principally to: £8.7m for the fair value of goodwill and assets acquired and £1.8m for capitalised research and development costs for the period.

Liabilities

As at 31 December 2018, our principal liabilities were:

·    £1.0m minority shareholder loan owed to Cinnober by Irisium. Cinnober owned 40% of Irisium during the period from acquisition to the year end and this balance includes capitalised interest.  The loan is not repayable until 2023.

·    £2.3m of undiscounted (discounted £1.5m) deferred consideration for earn out payments for the acquisition of ProOpticus.  We believe that the acquired ProOpticus business will grow successfully and the earn outs will be achieved.  As such, IFRS requires that the value of the future earn out, whether cash or shares, be provided for at today's present value.  When the earn out targets are met it is at KRM22's discretion as to whether the earn outs are paid in cash or shares.  The deferred payment consideration for Irisium of £0.6m has not been recognised on the basis that the directors do not believe that the earnout performance criteria will be met.

·    £1.6m for the right of use of assets relating to all future payments of leased-office rentals. KRM22 has adopted, early, IFRS 16 accounting 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 2019, with the balance for periods greater than one year.

·    There is £0.6m of deferred revenue; contracted and paid services that will be released in a future period.

KRM22 had no bank loans or overdrafts as at 31 December 2018.

Investors

As an AIM-listed business, a large proportion of KRM22's shareholders are professional investment funds.  Our largest such investors are Cannaccord (ex-Hargreave Hale), Herald, Miton, Gresham House (ex-Livingbridge), Octopus and Fidelity. In addition, the directors together owned 2,447,143 shares at the year end.

Funding

At IPO on 30 April 2018, we raised £10.3m gross proceeds from new investors at £1.00 per share.  Funding fees were £0.5m; of which £0.3m is recognised in the Income Statement and £0.2m allocated to the share premium reserve, being costs directly related to the issuance of this new equity.

Subsequently on 26 September 2018, we raised £3.3m gross proceeds and issued 773,515 new shares for the ProOpticus acquisition at £1.01 per share.  Funding fees of £0.5m were recognised in the Income Statement.

Since the year end, we raised £1.8m in equity funding and secured a growth debt facility of £10.0m.

Use of cash in the year

In the eight months to 31 December 2018, we raised a total of £13.6m cash, of which, £5.3m was used to fund acquisitions (including £0.7m IFRS accounting value of deferred consideration, £1.8m for capitalised research and development and £0.8m for fees of the IPO and acquisitions).

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 2018, KRM22 had 16,376,388 shares in issue.  The undiluted weighted average number of shares for the period to 31 December 2018 was 9,407,958.  The difference in the two numbers results from the timing of share issues at IPO (30 April 2018) and shares issued for the ProOpticus acquisition (25 September 2018).

The resulting Earning per Share ("EPS") is a 55.5p loss per share on a weighted average number of shares basis (equivalent to 9,407,958 on the shares in issue at period end).

Accounting policies and procedures

In the eight months since IPO, we have defined and adopted accounting policies that we believe fairly reflect the underlying business and comply with IFRS as adopted by the European Union accounting practices.

Financial processes and integration

As we grow KRM22, we aim to support that growth by effective and efficient internal systems and processes. The finance team have implemented a strong finance organisation in the period and achieved full financial integration.  By 31 December 2018, the detailed financial history of both Irisium and ProOpticus were fully transferred onto the central KRM22 systems, with bank accounts and all processes centrally managed.

This agile integration approach not only establishes good governance but also frees up the acquiree management team and allows them to focus on customers, product development and growth.

Dividend

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

Conclusion

In the first eight months of the year we successfully integrated three acquisitions recognised revenue of £1.3m, grew to £3.3m ARR, brought new and acquired products to market, established strong relationships with 26 institutional customers and built a team with deep subject matter expertise.  We are very excited for the journey ahead.

Karen Bach

Company Secretary

2 June 2019

Consolidated income statement and statement of comprehensive income

for the year ended 31 December 2018

	Note	2018 £'000	2017 £'000
Revenue Cost of sales	3	1,288 (142)	- -
Gross profit Administrative expenses		1,146 (6,497)	- 6
Operating loss before interest, taxation, depreciation, amortisation, share based payment and exceptional items ('Adjusted EBITDA')		(3,319)	(6)
Depreciation and amortisation		(523)	-
Impairment of assets		(75)	-
IPO funding expenses		(299)	-
Acquisition expenses		(478)	-
Share based payment expense		(657)	-
Operating loss		(5,351)	(6)
Finance charge                                                                                                                                                      (82)                          -
Loss before taxation		(5,433)	(6)
Taxation		13	-
Loss for the year		(5,420)	(6)
Loss for the year attributable to:
Equity shareholders of the parent		(5,217)	(6)
Non-controlling interest		(203)	-
		(5,420)	(6)
Other comprehensive income Item that may be reclassified to subsequently to profit and loss;
Exchange gain on translation of foreign operations		24	-
Total comprehensive loss for the year		(5,396)	(6)
Total comprehensive loss for the year attributable to:
Equity shareholders of the parent		(5,193)	(6)
Non-controlling interest		(203)	-
		(5,396)	(6)
Loss per ordinary share
Basic earnings per share                                                                                                     4		(55.5p)	(60.0p)
Diluted earnings per share                                                                                                4		(55.5p)	(60.0p)

Consolidated statement of financial position

at 31 December 2018

Note	2018 £'000	2017 £'000
Non-current assets
Goodwill                                                                                                                                     5	5,928	-
Other intangible assets                                                                                                        5	4,523	-
Property, plant and equipment	304	-
Right of use assets	1,602	-
	12,357	-
Current assets
Trade and other receivables	1,131	1
Cash and cash equivalents	3,355	14
	4,486	15
Total assets	16,843	15
Current liabilities
Trade and other payables	2,718	11
	2,718	11
Net current assets	1,768	4
Non-current liabilities
Trade and other payables	2,609	-
Loans and borrowings	1,193	-
Deferred tax liability	619	-
	4,421	-
Total liabilities	7,139	11
Net assets	9,704	4
Equity
Share capital	1,638	10
Share premium	12,659	-
Merger reserve	(190)	-
Foreign exchange reserve	24	-
Share-based payment reserve	657	-
Retained earnings	(5,223)	(6)
	9,565	4
Non-controlling interest	139	-
Total equity	9,704	4

Consolidated statement of cash flows

for the year ended 31 December 2018

	2018 £'000	2017 £'000
Cash flows from operating activities
Loss for the period	(5,420)	(6)
Adjustments for:
Deferred tax credit	(13)	-
Net finance income	82	-
Amortisation of intangible assets	233	-
Depreciation of property, plant and equipment and right of use assets	290	-
Impairment of intangible assets	75	-
Equity-settled Share-based payment expense	657	-
Lease payments	(238)	-
	(4,334)	(6)
Decrease / (increase) in trade and other receivables	148	(1)
Increase in trade and other payables	1,427	11
	1,575	10
Net cash flows from operating activities	(2,759)	4
Cash flows from investing activities
Cash acquired on acquisition of subsidiary undertakings	275	-
Acquisition of subsidiary undertakings	(5,359)	-
Purchase of intangible assets	(1,983)	-
Purchase property, plant and equipment	(148)	-
Net cash used in investing activities	(7,215)	-
Cash flows from financing activities
Proceeds from issue of shares	13,635	10
Costs of the issue of shares	(320)	-
Net cash from financing activities	13,315	10
Net increase in cash and cash equivalents	3,341	14
Cash and cash equivalents at beginning of period	14	-
Cash and cash equivalents at end of period	3,355	14

Consolidated statement of changes in equity

for the year ended 31 December 2018

	Ordinary shares	Share premium	Merger reserve	Foreign exchange reserve	Share based payment reserve	Retained losses	Non- controlling interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2017	-	-	-	-	-	-	-	-
Allotment of share capital	10	-	-	-	-	-	-	10
Loss for the year	-	-	-	-	-	(6)	-	(6)
At 31 December 2017	10	-	-	-	-	(6)	-	4
Loss for the year	-	-	-	-	-	(5,217)	(203)	(5,420)
Other comprehensive income	-	-	-	24	-	-	-	24
Total comprehensive loss	-	-	-	24	-	(5,217)	(203)	(5,396)
Group merger	190	-	(190)	-	-	-	-	-
Allotment of share capital	406	3,603	-	-	-	-	-	4,009
Issue of share capital IPO	1,032	9,056	-	-	-	-	-	10,088
Share-based payments	-	-	-	-	657	-	-	657
Non-controlling interest recognised on acquisition	-	-	-	-	-	-	342	342
At 31 December 2018	1,638	12,659	(190)	24	657	(5,223)	139	9,704

Notes to the financial information

1.       Accounting basis

The financial information set out in this document does not constitute the Company's statutory accounts for the years ended 31 December 2018.  Statutory accounts for the years ended 31 December 2018, which were approved by the directors on 2 June 2019, have been reported on by the Independent Auditors.  The Independent Auditor's report on the Annual Report and Financial Statements for year ended 31 December 2018 was 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.

The statutory accounts for the year ended 31 December 2018 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-information 

The financial information set out in these results has been prepared using the recognition and measurement principles of International Accounting Standards, and International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs).  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 2017, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2018.  New standards impacting the Group that have be adopted in the annual financial statements for the year ended 31 December 2018 are IFRS 9 Financial Instruments,  IFRS 15 Revenue from contracts with customers and IFRS 16 Leases (which has been early adopted).  Other new standards, amendments and interpretations to existing standards, which have been adopted by the Group have not been listed, since they have no material impact on the financial statements.

2.       Going concern

The Group's financial statements have been prepared on the going concern basis.  The Directors have reviewed the Company and 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 Company meets its day-to-day working capital requirements through cash generated from the capital it has raised on AIM.  At 31 December 2018 KRM22 had £3.4m of cash at bank and no bank debt.  As detailed in note 30, on 3 April 2019 the Company raised additional funds of £1.8m for working capital and planned acquisitions of controlling stakes in businesses in the risk sector.  In addition to the fundraise, on 29 April 2019 KRM22 entered into a five-year debt facility for up to £10.0m with Harbert European Growth Capital Fund II.  An initial £1.0m was drawn down on 30 April 2019 and the availability of additional drawdowns is based on the value and growth of KRM22's annualised recurring revenues.  Drawdowns can be made until 31 December 2020.

The directors have prepared cash flow forecasts covering a period of at least 12 months from the date of approval of the financial statements.  If the forecast is achieved, KRM22 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 high value and low volume in nature are factors which constrain the ability to accurately predict revenue performance.  Furthermore investment in winning customers, via marketing expenditure, remains an important function of the forecasts too.  If sales contracts are slow to materialise, there is a risk that KRM22's working capital may prove insufficient to cover both operating activities and the repayment of its debt facility entered into on 29 April 2019.  In such circumstances, KRM22 would be obliged to seek additional funding though a placement of shares or other source of funding without reduction of operating costs.

The directors have concluded that the circumstances set forth above represent a material uncertainty, which may cast significant doubt about the Company and KRM22's ability to continue as going concerns.  However they believe that taken as a whole, the factors described above enable the Company and KRM22 to continue as a going concern for the foreseeable future.  The group's financial statements do not include the adjustments that would be required if the Company and KRM22 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 is organised for reporting purposes into a single global business unit.

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.

The Directors consider that the business has three 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 2018.  The total revenue received from this customer was £0.4m (2017 - £nil) and is reported in the Europe segment.

		2018	2017
		£'000	£'000
	Recurring revenue	1,121	-
	Non-recurring revenue	167	-
	Total revenue	1,288	-

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

		Revenue 2018	Non-current assets 2017
		£'000	£'000
	UK	229	6,422
	Europe	382	38
	USA	629	5,897
	Rest of world	48	-
	Total	1,288	12,357

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 and 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.

		2018	2017
		£'000	£'000
	Loss for the year attributable to equity holders of the parent	(5,217)	(6)
	Basic weighted average number of shares in issue	9,407,958	10,000
	Diluted weighted average number of shares in issue	13,760,193	10,000
	Basic and diluted loss per share	(55.5p)	(60.0p)

5.       Intangible assets

	Goodwill on consolidation £'000	Acquired software & related assets £'000	Trademarks & licenses £'000	Capitalised development costs £'000	Total £'000
Cost
At 1 January 2018	-	-	-	-	-
Additions	5,809	2,448	586	1,789	10,632
Foreign exchange movements	119	-	3	-	122
At 31 December 2018	5,928	2,448	589	1,789	10,754
Accumulated amortisation
At 1 January 2018	-	-	-	-	-
Amortisation for the year	-	215	18	-	233
Impairment charge	-	-	75	-	75
Foreign exchange movements	-	(5)	-	-	(5)
At 31 December 2018	-	210	93	-	303
At 31 December 2017	-	-	-	-	-
At 31 December 2018	5,928	2,238	496	1,789	10,451

6.       Business combinations

Irisium Limited

On 5 June 2018 KRM22 Central Limited, a wholly owned subsidiary of the Company, acquired 60% of the issued share capital in Irisium Limited ("Irisium") a financial technology provider specialising in capital markets regulation.  The acquisition was for an initial cash consideration of £1.7m, £1.0m shareholder loan assignment and undiscounted contingent deferred consideration of £0.6m. The deferred consideration is payable in the event that Irisium achieves £2.0m of annualised recurring revenue as at 30 June 2019 and can be satisfied in either cash or Company ordinary shares at the Company's discretion.  If the deferred consideration is satisfied by the issue of ordinary shares, the number of shares issued will be determined by the market share price at the issue date.  Based on the current financial performance of Irisium, the directors do not believe that Irisium will achieve the £2.0m annualised recurring revenue target by 30 June 2019.  On this basis the directors believe that the contingent deferred consideration will not be payable and have therefore excluded this element of consideration from fair value of the total consideration that could have been paid under the terms of the share purchase agreement.

Fair value of consideration paid			£'000
Cash			1,698
Assignment of shareholder loan			1,018
			2,717

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

			Book value		Fair value adjustments		Fair value under IFRS
			£'000		£'000		£'000
	Non-current assets
	Property, plant and equipment		86		-		86
	Software		-		1,618		1,618
	Trademarks		49		-		49
			135		1,618		1,753
	Current assets and liabilities
	Receivables		770		-		770
	Cash and cash equivalents		86		-		86
	Payables		(791)		-		(791)
	Borrowings		(1,697)		1,018		(679)
	Deferred tax		-		(283)		(283)
			(1,632)		735		(897)
	Net identifiable (liabilities) /assets acquired		(1,497)		2,353		856
	Goodwill						2,203
	Fair value of non-controlling interest						(342)
	Total consideration paid by the Group						2,717

Goodwill is recognised on the acquisition as a result of Irisium's contracted sales pipeline in the financial technology market and synergies expected to arise after acquisition.  Acquisition costs of £0.1m arose as a result of the transaction and are included in KRM22's administrative expenses in the consolidated income statement.

The fair value of receivables acquired was £0.8m and the directors believe that this also represents the gross contractual amounts receivable, as this is the directors best estimate at the date of acquisition of contractual cashflows expected to be collected.

Since acquisition date, Irisium has contributed £0.8m to group revenues and £0.9m to group loss.  Had the transaction been undertaken at 1 January 2018, Irisium would have contributed £1.3m to group revenues and £2.2m to group loss.

KRM22 ProOpticus LLC

On 25 September 2018 KRM22 Americas Inc., a wholly owned subsidiary of KRM22 Central Limited, acquired KRM22 ProOpticus LLC (formerly Prime Analytics LLC), a financial technology providing real time software solutions to professional derivative traders.  The acquisition was affected by way of a merger of Prime Analytics LLC and KRM22 Prime Merger Sub LLC, a wholly owned subsidiary of KRM22 Americas Inc.

The acquisition was for an initial consideration of US$3.5m (£2.6m) cash and US$1m (£0.8m) in the Company's ordinary shares together with contingent deferred consideration of US$3m (£2.3m).  The deferred consideration is payable in two equal tranches of US$1.5m each in the event that KRM22 ProOpticus achieves US$3.0m revenue in the year ended 31 December 2019 and US$3.3m revenue in the year ended 31 December 2020.  The deferred consideration can be satisfied in either cash or Company ordinary shares at the Company's discretion.  If deferred consideration is satisfied by the issue of ordinary shares, the number of shares issued will be determined by the market share price at the issue date.  The contingent deferred consideration of £2.3m has been discounted to a present value of £1.5m based on a WACC of 20%.

Fair value of consideration paid			£'000
Cash			2,642
KRM22 Plc shares			781
Contingent deferred consideration			1,453
			4,876

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

			Book value		Fair value adjustments		Fair value under IFRS
			£'000		£'000		£'000
	Non-current assets
	Property, plant and equipment		-		114		114
	Software		-		830		830
	Customer relationships		-		238		238
	Brand		-		109		109
			-		1,291		1,291
	Current assets and liabilities
	Receivables		508		-		508
	Cash and cash equivalents		189		-		189
	Payables		(369)		-		(369)
	Deferred tax		-		(349)		(349
			328		(349)		(21)
	Net identifiable (liabilities) /assets acquired		328		942		1,270
	Goodwill						3,606
	Total consideration paid by the Group						4,876

Goodwill is recognised on the acquisition as a result of KRM22 ProOpticus' contracted sales pipeline in the financial technology market and synergies expected to arise after acquisition.  Acquisition costs of £0.1m arose as a result of the transaction and are included in the Group's administrative expenses in the consolidated income statement.

The fair value of receivables acquired was £0.5m and the directors believe that this also represents the gross contractual amounts receivable, as this is the directors best estimate at the date of acquisition of contractual cashflows expected to be collected.

Since acquisition date KRM22 ProOpticus has contributed £0.5m to group revenues and £0.1m to group loss.  Had the transaction been undertaken at 1 January 2018, KRM22 ProOpticus would have contributed £2.7m to group revenues and £0.4m to group loss.

7.       Events after the reporting date

On 3 April 2019, the Company raised gross proceeds of up to £1.8 million through a conditional placing of up to 1,601,318 new ordinary shares of 10 pence each in the Company (the "Placing Shares") at a price of 85 pence per Ordinary Share (the "Issue Price") and a subscription of up to 529,414 new ordinary Shares (the "Subscription Shares" and together with the Placing Shares, the "Fundraising Shares") at the Issue Price (the "Subscription" together with the Placing, the "Fundraising").  In addition, 117,647 ordinary shares were issued to certain advisors in lieu of fees ("the Advisor Shares").

On 29 April 2019, KRM22 Central Limited entered into a five-year debt facility (the "Debt Facility") with Harbert European Growth Capital Fund II ("Harbert") to support future business growth and allow KRM22 to pursue its pipeline of investment targets.

The Debt Facility is for up to £10.0m of which an initial £1.0m was drawn down on 30 April 2019. The availability of additional drawdowns is based on the value and growth of KRM22's annualised recurring revenues.  Drawdowns can be made until 31 December 2020.

The interest rate payable is 11% per annum on the initial £1.0m drawdown. The interest rate payable on future additional drawdowns will be at the higher of 11% or 11% plus one year EURO Libor.  The Debt Facility is secured on certain KRM22 assets however there are no covenants based on KRM22's financial performance.

In conjunction with the Debt Facility, the Company has constituted warrants over a number of Ordinary shares in the Company to Harbert with a total value equal to a maximum of £1.0m. Upon initial drawdown, warrants over 495,049 new Ordinary Shares were issued with an exercise price of £1.01 per Ordinary Share.  Additional warrants will be issued in an amount equal to 5.6% of each subsequent drawdown of the Facility (up to a maximum value of £500,000 in aggregate) calculated by reference to an exercise price of the lower of a 10% discount to the prevailing market price or £1.01 per new Ordinary Share.

On 30 May 2019, KRM22 Central Limited completed the acquisition of Object + Holding B.V. ("Object +"), a risk management and post-trade services technology business focused on capital markets, for a maximum consideration of US$3.9m (£3.0m).

The acquisition was for an initial consideration of US$1.2m (£0.9m) with US$0.5m (£0.4m) payable in cash and US$0.7m (£0.5m) through the issue of 606,909 ordinary shares in the Company.  The deferred consideration is a maximum of US$2.7m (£2.3m) payable in three tranches subject to earn-out conditions based on the growth of annual recurring revenue of Object+'s products and services.

8.    Cautionary statement

KRM22 has made forward-looking statements in this press release, including statements about the market for and benefits of its products and services; financial results; product development plans; the potential benefits of business relationships with third parties and business strategies. These statements about future events are subject to risks and uncertainties that could cause KRM22's actual results to differ materially from those that might be inferred from the forward-looking statements, KRM22 can make no assurance that any forward-looking statements will prove correct.

 

END

 

 

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