Trading Update

RNS Number : 5012I

KRM22 PLC

02 April 2020

 

KRM22 plc

("KRM22", the "Group" or the "Company")

Trading Update

KRM22 plc (AIM: KRM.L), the technology and software investment company that focuses on risk management for capital markets, announces the following trading update for the first quarter of the new financial year and an update on the current and expected impacts of the rapidly changing developments regarding the Coronavirus (COVID-19) pandemic.

Q1 Trading update and COVID-19

During the first quarter of the financial year ending 31 December 2020, the Company has continued to see interest for its software products as referenced in its trading update of 13 January 2020.  In the period the Company has won new contracts, including an initial contract with a Tier-1 bank, and a number of multi-year contracts are in advanced stages of negotiation.  One of these contracts is with a UK based global brokerage firm which is expected imminently and two further contracts are with Tier-1 banks and if all are signed, are expected to increase ARR by an aggregate of over £0.6m ARR and account for non-recurring revenue of over £0.2m.  While the Company has been engaged with the Tier 1 banks for several months and the process with both is advancing, the time to complete the negotiations can be unpredictable.  The Company will provide a further update when appropriate.

The Company continues to see strong interest in its risk management offerings however, is also seeing that sales cycles for contracts are extending predominantly due to the high volatility in markets and trading volumes increasing daily workloads at the Company's customers and prospects.  In addition to this, the sales cycles are also being impacted by the restrictions implemented by governments across the world pursuant to COVID-19.  The Company is fully operational globally from home as a result of the infrastructure and process that were implemented from launch.  The Board remains encouraged by the fact that the Company's existing and potential customers remain engaged in discussions on new business, due to the critical nature of the Company's offering.  However, visibility on what the full impact COVID-19 will have on the progress of these discussions is limited.

As announced in the trading update of 13 January 2020, £0.3m of ARR was contributed by an existing customer that was acquired by a third party.  Unfortunately, as a result of this acquisition the services provided by the Company have been terminated.  The Company believes that the customer is in breach of the termination clauses and facilitated an IP infringement.  The Company will pursue legal action if required.  One customer focused on the crypto-currencies market, has terminated their contract for £0.1m ARR for cost purposes.  One additional crypto-currencies market customer, with £0.1m ARR, has requested payment deferral to September 2020 for the same reason and is not contractually entitled to terminate.  Despite these impacts, the Company continues to have a strong pipeline of prospects of other opportunities, including crypto venues in addition to the prospects outlined above.  The Company remains focused on continuing to drive organic growth during 2020.  Excluding the above three contracts, as at today the Company currently has non disputed contracted annual recurring revenue ("ARR") of £4.0m.

Actions taken

The Company has implemented further cost cutting actions which is expected to reduce the overall cost-base of the Group by over £1.0m over twelve months.  These measures include salary sacrifices for all staff in 2020, together with general overhead reductions and a decreased spend on travel as a result of the restrictions imposed pursuant to COVID-19.  The Company has also agreed to reduce property/office costs by downsizing in London and giving up certain leases in Prague, Chicago and New York.  The Board expects arrangements to be completed by July and these property cost savings would amount to approximately £0.3m per annum.  The cost reductions will not affect the Company's ability to support its existing customers or win new potential customers.  As at July 2020 the total monthly operational cash burn will be £0.1m plus £0.03m cash outflow for Harbert interest and capital repayments.

Financial facilities

Cash at 31 March 2020 was £0.4m (cash as at 31 December 2019: £1.0m).  The Board and executive team continue to monitor cash very carefully and have continued to reduce the cost base further, as explained above.  The Company is also engaged in discussions with its existing debt facility provider with regards to a further draw-down of cash and expects this to provide £0.5m by the end of June.  In addition, the Board will be making a further R&D Tax claim which is expected to be worth approximately £0.5m which, if approved, is expected to be received in August 2020.  This is subject to sign off of the Company's final audited accounts for the year ended 31 December 2019.

The Board is aware that strengthening its balance sheet to meet its working capital needs over the next six weeks is critical, particularly in these turbulent and uncertain times.  The Company will be talking to existing and potential new shareholders about an equity placement as well as banks about access to government backed loans and in addition to its existing and new debt providers.  The Board has committed that it will participate in an equity placement.  The Company is also exploring other options to ensure it has alternatives to support its continued growth.

Board changes 

As also announced today, Kim Suter, CFO, has been appointed to the Board of Directors and Karen Bach has stepped down from her role as Non-Executive Director.  The Board would like to thank Karen for her important role in establishing KRM22 as a business and for her contribution since float.

Outlook

As a result of the many uncertainties and unknowns relating to COVID-19 in terms of timeline and both macro and micro economic consequences, the Board is taking a prudent approach to the growth expected for the year ended 31 December 2020.  As a result, the Board anticipates ARR to be significantly lower than management expectations, however as a result of the actions being taken to reduce costs, the Board still expects to be adjusted EBITDA positive by the end of 2020.

For further information please contact:

KRM22 plc                                                                                                          [e-mail]

Keith Todd CBE, Executive Chairman and CEO

Kim Suter, CFO

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

Carl Holmes / Kate Bannatyne / Matthew Radley

Alice Lane / Sunila de Silva (ECM)

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 .

 

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