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

AUDITED RESULTS STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2023

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 2023 ("2023", the "Year"). 

Financial highlights

·    Annualised Recurring Revenue (ARR)^[1] as at 31 December 2023 of £5.4m (2022: £4.8m as reported, £4.6m at constant FX rate) - growth of 17.4% at constant FX rate

o  New contracted ARR in 2023 of £1.1m (2022: £1.3m)

o  Total ARR attributable to the relationship with Trading Technologies International, Inc. ("TT") of £0.4m (2022: £0.1m)

·    Total revenue recognised of £5.3m (2022: £4.3m) - growth of 23.3%

·    Adjusted EBITDA loss^[2] of £1.4m (2022: loss of £1.7m)

·    Loss before tax of £4.9m (2022: loss of £3.3m)

·    Gross cash as at 31 December 2023 of £0.9m (2022: £1.9m)

·    New £5.0m convertible loan provided by TT, of which £4.5m was drawn down in the year, to replace the previous Kestrel £3.0m convertible loan that was due to mature in September 2023

Operational highlights

·    12 new ARR contracts signed in the year including 7 new customers

·    First sales of Limits Manager product generated through the TT sales channel

·    42 institutional customers as at 31 December 2023

Post year-end events

·    Growth in ARR to £6.0m as at the date of this report

·    New Limits Manager product contract win worth £0.6m over three years with a major Futures Commission Merchant ("FCM"), one of the industry's top 15 largest FCMs

·    Group restructure and rationalisation to implement a focused cost savings programme, with annual cost savings of £1.2m

·    Board changes announced on 7 March 2024 with appointment of Dan Carter as CEO and Garry Jones as Non-Executive Chairman, replacing Stephen Casner and Keith Todd respectively, with Keith Todd remaining on the Board as Executive Director

Garry Jones, Non-Executive Chairman of KRM22, commented:

"2023 was another year of growth for KRM22, with increases in ARR and in year recognised revenue.  This momentum has continued into 2024 with further increases in ARR to £6.0m.  The product suite, team and strong pipeline of sales opportunities, together with the cost savings plan and Board changes announced in February and March 2024 respectively, mean that KRM22 has never been in a better position to deliver growth and become a cash positive business in due course."

For further information please contact:

KRM22 plc                                                                                                                                        InvestorRelations@krm22.com

Garry Jones, Non-Executive Chairman

Dan Cater, CEO

Kim Suter, CFO

Cavendish Capital Markets Limited (Nominated Adviser and Broker)                                     +44 (0)20 7220 0500

Carl Holmes / George Dollemore (Corporate Finance)

Sunila de Silva (ECM)

The information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 as amended.  With the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

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' trading and corporate risk challenges and to manage their entire enterprise risk profile.

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

KRM22 plc is 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

2023 was another year of growth for KRM22, with Annual Recurring Revenue ("ARR") continuing to achieve a new high of £5.4m, a 17.4% increase on 2022 at constant FX rates, as the business added more customers and further developed its broad product offering.  Twelve new ARR contracts were signed during 2023 including seven new customers.

Continued market volatility and turbulent geopolitical conditions have naturally resulted in some conservatism from companies throughout the year when assessing capital expenditure on new systems and services.  It is exactly these conditions that our risk management products are built for and can add real value, transparency and security in uncertain times.  We continue to be progressing with extensions to services for existing customers, whilst pushing hard to add new Tier one financial institutions to our customer portfolio.

Our product range of Limits Manager, Risk Manager, Market Surveillance and Risk Cockpit can be utilised individually, or in conjunction with each other, to provide a complete range of risk management services.

In March 2024, we made some internal changes and appointed Dan Carter as our new CEO.  Dan has been at KRM22 since its inception and has vast experience in the technology services industry.  I have every confidence that Dan and the management team will drive and accelerate our business to new heights.  I am also honoured to have been appointed as KRM22's chairman at the same time, and look forward to the challenges ahead.  I would like to take this opportunity to recognise Stephen Casner and Keith Todd, our predecessors as CEO and Chairman respectively, for all of their contributions to the Company since IPO just over six years ago.

The Board and I also wish to thank our loyal customers and investors for their continued commitment to our long-term vision of delivering high quality products and services to the capital markets and derivatives risk community.  The quality of our customers and their importance to the traded markets gives us much confidence that we are hitting the mark with industry professionals, who rely on KRM22's products and services to add value to their business.

I also want to congratulate the entire KRM22 team for another year of progress, and to recognise their continued hard work and loyalty to the Company.

I look forward to further growth in 2024, a continued increase in ARR, and becoming a cash generative business in due course.  KRM22 has never been in a better position as we progress through 2024 and beyond.

Garry Jones

Non-Executive Chairman

CEO'S REPORT

I am delighted to have been appointed CEO of KRM22 in March 2024.  The opportunity that KRM22 has to be the market leader of risk technology to the capital markets industry is incredibly exciting.  We have very strong foundations in place, implemented under the leadership of Keith Todd and Stephen Casner, a strong product offering and a motivated and ambitious team.  I have been at KRM22 since our inception in 2018, and in my former roles in the Sales and Customer Services teams, have seen first hand how KRM22 can satisfy our customers needs and deliver first class technology to the industry. 

Revenue growth

KRM22 continued to make great progress during 2023 with continuing growth in annualised recurring revenue ("ARR") year on year with the goal of becoming a £10.0m ARR business firmly in our sights.  The value behind the Global Risk Platform, and the ability to integrate various aspects of a firms risk is starting to be leveraged by firms.  At 31 December 2023, we had six of the top 15 Futures Commissions Merchants ("FCMs") in the world using our Limits Manager product.  The Limits Manager product has embedded itself as a true market leader and is providing firms with a much more efficient way of managing trading limits whilst at the same time giving firms a full audit of changes made.  As we progress through 2024 we anticipate the Risk Manager product to become another industry standard and achieve similar demand and success as Limits Manager has before it, allowing firms to manage and control risk in complete sync.

In 2023 we continued to grow ARR through our two distinct sales "channels" - our direct sales team as well as the product distribution agreements with various distributors including Trading Technologies International, Inc. ("TT").  KRM22 added new ARR in 2023 of £1.1m with £0.9m from direct sales and £0.2m from the TT sales channel.  The growth in ARR was primarily driven by sales of Market Surveillance (42%), Limits Manager (21%) and Risk Manager (21%), which incorporates the legacy functionality from the At-Trade P&L and Post-Trade Stress products.

The Customer Services team, made up of industry experts who have many years of experience between them, continue to ensure our service levels are of the highest quality and thus customer churn is kept to manageable levels.

The partnership with TT continues to go from strength to strength from a sales and revenue perspective.  The TT distribution agreement allows the Limits Manager product to be deployed to their customers on their platform without the timely and burdensome vendor onboarding processes that KRM22 experiences as a new vendor, thus helping to reduce the length of sales cycles.  In addition to revenue generated through the distribution agreement with TT, the partnership has also provided other revenue opportunities for KRM22 with both ARR and non-recurring revenue for specific projects, both internal and external to TT.

Products

In 2023 we simplified KRM22's product offering under the two key distinct areas of risk: Trading Risk, covering the Limits Manager and Risk Manager products, and Compliance Risk, covering the Risk Cockpit and Market Surveillance products. 

Limits Manager

Having been launched in early 2022, 2023 saw the continued development of Limits Manager with the addition of more user functionality which benefits both the execution services and risk management teams that use the product, and therefore created further operational efficiencies for those using the product.  Automation workflows have been delivered and firms are beginning to automate limit change requests that meet specific conditions when raised.  As we look ahead to 2024 we will continue to develop more reporting functions for the Limits Manager product to enhance visibility and further user understanding of what is happening with their limit change processes.

Risk Manager

When KRM22 launched in 2018, the goal and investment strategy was to bring the various aspects of risk management together in one place and 2023 saw us invest heavily in the development of Risk Manager, bringing real-time P&L, Margin, Stress scenario analysis and VaR together in one product.  The Risk Manager product also allows time series analysis of these key data points showing key trend analysis to the user when reviewing the account, or making limit change approval decisions.  We will continue to invest in the product as we migrate existing customers using the legacy At-Trade and Post-Trade products onto Risk Manager whilst also delivering the product to new customers. 

Integration of Limits Manager and Risk Manager

As we progress through 2024, KRM22 is excited to bring the integration of the Limits Manager and Risk Manager products into production.  This integration will allow risk managers the ability to review key risk metrics from Risk Manager and display it alongside the limit changes raised by a client within Limits Manager.  When the risk team within the financial institution approves the change, these values will be stored in the audit trail - a crucial view of what standing the account was in and why the decision was made at that time.  This will provide risk teams with more visibility and information in real-time when making these key decisions. 

Market Surveillance

The Market Surveillance product continues to adapt with new alerts, including Spoofing by Order Depth, Cross Trades and Gilt Closing alongside key functional changes.  We now have over 80 alert types available to customers in the application.  In 2023 KRM22 signed an agreement with TT to integrate Score, TT's AI/ML surveillance application, with KRM22's Market Surveillance product, which is a human calibrated alerting tool, to allow compliance officers to ensure their calibrations are valid.   The planned release date for this integrated product is late 2024 for TT to market and sell directly.  The project has already generated ARR and non-recurring revenue for KRM22 and the integrated product is expected to generate further revenue for KRM22 once product sales crystalise for TT though a revenue share model.

Outlook

We have continued to make good progress in the year towards our target of becoming a £10.0m ARR business with net ARR growth in 2023 of 17.4% and the addition of seven new customers using our products.  As of the date of this report, the use of the Limits Manager product by seven of the top 15 FCMs in the world demonstrates that there is demand for such product and that it, together with the Risk Manager product, has the ability to become the industry standard for FCMs.

The team is experienced, energised and ready to grow the business and improve on the results reported in 2023 as we continue the journey towards a £10.0m ARR business generating positive EBITDA and cashflows.  The pipeline of sales opportunities is strong and the reorganisation of our workforce in early 2024 will help us manage the cost base of the business as we look towards the move to positive adjusted EBITDA and cashflows.

Dan Carter

CEO

CFO'S REPORT

KRM22's financial results for the year ended 31 December 2023 has seen a continuation of the financial turnaround initially reported in the prior year, with growth of 23.3% in total revenue recognised to £5.3m from £4.3m reported for the year ended 31 December 2022. 

ARR continued to increase, with ARR exceeding £5.0m for the first time in 2023 since KRM22's inception in 2018, to end the year at £5.4m from £4.6m at 31 December 2022 at constant FX rates - a year-on-year increase of 17.4%. 

Adjusted EBITDA loss reported for 2023 was £1.4m, an improvement on the £1.7m reported in 2022.  This growth was set against continued global economic uncertainty and extended sales cycles.

Profit and Loss

Total revenue

Revenue recognised for the year to 31 December 2023 was £5.3m (2022: £4.3m), an increase of 23.3% compared with the prior year, with 90.6% (2022: 92.3%) of total revenue generated from recurring customer contracts.  Non-recurring revenue for the year ended 31 December 2023 totalled £0.5m (2022: £0.3m) and related principally to customer implementations, product development and proof of concept work.

Recurring revenue

ARR is a key metric and KPI for KRM22 and as at 31 December 2023, ARR had increased by 17.4% to £5.4m (2022: £4.8m as reported, £4.6m at constant FX rates), a net increase of £0.8m at constant FX rates (2022: net increase of £1.0m).

New contracted ARR in the year totalled £1.1m (2022: £1.3m) of which £0.6m (2022: £0.7m) was from seven new customers and £0.5m (2022: £0.6m) was generated from existing customers.  Included within the £0.6m of new ARR from new customers was £0.2m (2022: £nil) of ARR generated from sales of the Limits Manager product under the distribution agreement which KRM22 has with TT.  The £0.5m of new ARR generated from existing customers was a combination of these existing customers purchasing additional products and contractual renewals for existing products, with an increase in ARR and extensions of contractual terms.

The amount of ARR generated through partner products and services, primarily through data and news feeds, with minimal margin to KRM22, accounted for 4.6% (2022: 6.9%).

Total churn in ARR for the year was £0.4m (2022: £0.6m), from three institutional customers, of which £0.1m was anticipated as it related to a customer acquired through the acquisition of Object+ in 2019 using a bespoke product that does not form part of the current product offering.  A further £0.1m of churn was from a customer directly impacted by the SVB collapse in March 2023.  The third customer, with churn of £0.1m, related to data feeds which, whilst impacting ARR and revenue recognition, had minimal profit margin and so the effect on the operating loss is £nil. 

Gross profit

Gross profit for the year to 31 December 2023 was £4.1m (2022: £3.3m).  There was a small increase in gross profit margin to 78% compared to the prior year margin of 77% which was due to an improvement in foreign currency rates, compared with the prior year when there was volatility and adverse movements, with a significant proportion of the Group's cost of sales being Amazon Web Services server costs which are invoiced in US dollars. 

Capitalised development

A total of £1.1m (2022: £0.8m) of development was capitalised in the year to 31 December 2023.  Capitalised development is amortised over three years.

Adjusted EBITDA

Adjusted EBITDA is the key metric that the Company considers in order to understand the cash-profitability of the business.  This is due in particular to the non-cash items that impact the Income Statement under IFRS accounting, such as non-cash share-based payment charges.

Adjusted EBITDA for the year to 31 December 2023 was a £1.4m loss (2022: loss of £1.7m).  Whilst the adjusted EBITDA loss reported for the year is a £0.3m improvement on the prior year, this reduction is not proportional to the increase in total revenue recognised in the year compared with the prior year and this was due to the increase in administrative expenses. 

The increase in administrative costs was primarily driven by two factors.  Firstly, in 2022 KRM22 used the investment proceeds from TT's investment in KRM22 in December 2021 to invest in Revenue, Customer Services and Development resource to help drive the business forward and the timing of this new resource joining KRM22 occurred throughout 2022.  Administrative costs for the year ended 31 December 2023 therefore includes a full year of increased staff costs compared with the prior year.  In addition to the aforementioned investment in resource, the rate of inflation in 2022 and 2023 meant that staff salary reviews, which are completed on an annual basis in the first quarter of each year, resulted in a significantly higher average pay increase in 2023 compared to 2022.  The average pay increase in 2023, whilst being higher than 2022, was not matched to the rate of inflation.

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

Operating loss

Reported operating loss for the year to 31 December 2023 was £4.5m (2022: loss of £2.6m) and includes an impairment charge of £1.6m primarily related to a revision in the estimated recoverable amount of goodwill using a value-in-use model by projecting cashflows for future years using different inputs to the model compared with prior years.

Finance charges

Net finance expense in the year was £0.4m (2022: £0.6m) and includes:

·    Loan interest of £0.4m (2022: £0.3m);

·    IFRS16 lease liability interest of £0.0m (2022: £0.1m); and

·    Derivative financial instrument fair value adjustment of £0.0m (2022: £0.2m).

Taxation

The tax credit in the year was £0.3m (2022: credit of £0.2m) which includes a £0.2m (2022: £0.1m) R&D tax credit received. 

Financial position

Assets

The cash balance as at 31 December 2023 was £0.9m (2022: £1.9m).

Current assets at 31 December 2023 include trade and other receivables of £1.1m (2022: £1.5m). 

Non-current assets were £5.8m (2022: £7.8m) relating principally to: £4.2m for goodwill and assets acquired (2022: £6.1m), £1.4m (2022: £1.3m) for capitalised development costs, and £0.1m for right of use assets recognised under IFRS16 (2022: £0.4m).

Liabilities

As at 31 December 2023, our principal liabilities were:

·    £4.5m convertible loan owed to TT plus accrued interest of £0.2m.

·    £0.7m (US$0.9m) deferred consideration for earn out payments for the acquisition of Object+.  The deferred consideration can be satisfied in either cash or Company Ordinary Shares in KRM22 at the Company's discretion.

·    £0.4m for the right of use assets relating to all future payments of leased-office rentals under IFRS16 'Leases' whereby such lease payments are provided for at today's value.  KRM22 has one remaining lease in London which expires in 2024.

·    £2.2m of deferred revenue; contracted and paid services that will be released in a future period.

Investors

As an AIM quoted business, a large proportion of KRM22's shareholders are professional investment funds.  In addition, the Directors together owned 3,764,958 shares at the year end, representing 10.6% of the Company's issued share capital.

Funding

On 17 June 2023, KRM22 entered into an agreement for a new three year £5.0m convertible loan facility (the "TT Convertible Loan") with TT, the Company's largest shareholder.  At 31 December 2023, KRM22 had drawn down £4.5m of the total facility amount and these proceeds were used to replace the Company's existing convertible loan (the "Kestrel Convertible Loan") with Kestrel Partners LLP.  The outstanding balance of the Kestrel Convertible Loan, inclusive of principal and accrued interest was £3.1m.

The interest rate payable on the TT Convertible Loan is the average 90 day Secured Overnight Financing Rate ("SOFR") and a margin of 5.5%, subject to a minimum aggregate percentage rate per annum of 9.25%.  Interest is payable quarterly in arrears however KRM22 has the ability to defer interest payments in the initial 18 months (the "Initial Interest Period"), with the total deferred interest in the Initial Interest Period being paid in two equal instalments on the calendar quarters ending after the 18^th and 21^st month anniversary of the facility, i.e. 31 December 2024 and 31 March 2025. 

Under the terms of the TT Convertible Loan agreement dated 17 June 2023 (the "TT Loan Agreement"), any amounts drawn down from the TT Convertible Loan could be converted into new Ordinary Shares in the Company by TT at any time at the lowest conversion price of: £0.46, the volume weighted average price of the Company's ordinary shares for the three month period prior to service of conversion notice; or the lowest daily closing price for the 30 completed calendar days prior to service of conversion notice.  On 1 July 2023, the TT Loan Agreement was amended to remove the variability of the conversion price and replace with a fixed conversion price of £0.46.  TT has the right to prevent any conversion which would trigger a Rule 9 event under the Takeover Code.

The TT Convertible Loan is secured on certain KRM22 assets and includes covenants based on the Group's financial performance including ARR, revenue recognition and solvency.

Use of cash in the year

Our net cash outflow in the year was £1.0m, which included £4.5m draw down receipts from the TT Convertible Loan, of which £3.0m was used to settle the Kestrel Convertible Loan principal, £1.1m was used for capitalised development, £0.2m was used to pay interest on the Kestrel Convertible Loan and the balance was used to provide working capital for KRM22.

Going concern

The financial statements have been prepared on a going concern basis based on a range of cashflow forecasts and scenarios covering a period of at least twelve months from the date of this report.  The time to close new customers and the value of each customer, which are deemed individually as high value and low volume in nature, is key to the forecast being achieved.  Even if the forecast is achieved, there remains a material uncertainty around KRM22 operating within the financial covenants associated with the TT Convertible Loan.  The Board have received a letter of support from TT that they would be willing to enter into discussions with KRM22 around amending the terms of the TT Convertible Loan to ensure that KRM22 does not breach the financial covenants.  Further 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 2023, KRM22 had 35,666,336 shares in issue and this was also the undiluted weighted average number of shares for the period.  The resulting Earning per Share ("EPS") is a 13.0p loss per share (2022: loss of 8.7p).  Due to the loss made by the Company in the year, the diluted EPS is the same as EPS.

Conclusion

In 2023, KRM22 has continued to grow with recognised revenue increasing by 23.3% to £5.3m, ARR increasing to £5.4m which, as at the date of this report, has further increased to £6.0m.  Whilst administrative costs increased in 2023 compared with the prior year, the Board took action in early 2024 to review the underlying cost base of the business and have since implemented a focused cost savings programme to generate annual cost savings of approximately £1.2m.  This cost savings programme, together with significant sales pipeline opportunities, both from direct selling opportunities and through the TT distribution agreement, will improve the adjusted EBITDA position going forward and accelerate the Company's path to profitability.

Kim Suter

CFO