Annual Report 2020
Risk as alpha
CONTENTS
..................................................................................................................................................................................
Highlights ............................................................................................................................................................ 1
Chairman’s statement ...................................................................................................................................... 2
The Global Risk Platform ................................................................................................................................. 7
Our products ....................................................................................................................................................... 8
Principal risks and uncertainties ................................................................................................................... 13
Section 172 statement ................................................................................................................................... 16
Financial review................................................................................................................................................ 18
Board of Directors............................................................................................................................................ 25
Corporate Governance statement ................................................................................................................ 28
Audit Committee report .................................................................................................................................. 35
Remuneration Committee report .................................................................................................................. 37
Nomination Committee report ...................................................................................................................... 41
Directors’ report ............................................................................................................................................... 42
Financial statements ....................................................................................................................................... 48
Independent auditor’s report to the members of KRM22 Plc ................................................................. 49
Consolidated income statement and statement of comprehensive income for the group .............. 59
Consolidated statement of financial position for the group .................................................................... 60
Company statement of financial position ................................................................................................... 61
Consolidated statement of changes in equity for the group ................................................................... 62
Company statement of changes in equity .................................................................................................. 63
Consolidated statement of cash flows for the group ............................................................................... 64
Company statement of cash flows .............................................................................................................. 65
Notes to the consolidated financial statements ........................................................................................ 66
Company information ................................................................................................................................... 100
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KRM22 plc
ANNUAL REPORT 2020
HIGHLIGHTS
Financial
• Total revenue recognised of £4.6m (2019: £4.1m)
• A significantly improved adjusted EBITDA loss1 of £0.2m (2019: £3.1m)
• Annualised Recurring Revenue (ARR)2 as at 31 December 2020 of £4.3m (2019: £4.3m) at the 2020
constant rate (£4.1m at current rates)
o New contracted ARR in the year ended 31 December 2020 of £0.8m
Impairment of intangibles of £3.0m (2019: £ 2.3m)
• Gain on extinguishment of debt (net) of £0.7m
•
• Loss before tax of £5.7m (2019: loss of £7.3m)
• Group cash at 31 December 2020 of £2.0m (2019: £1.1m)
• Net increase in cash and cash equivalents of £0.9m (2019: outflow of £2.3m)
• Completed two capital raises in the year
o An equity fundraise in May 2020 raising gross proceeds of £1.3m through a placement and
subscription for new ordinary shares
o Replacement of the Harbert £10.0m loan facility, of which we had drawn down £1.0m in
2019, with a new £3.0m convertible loan facility with Kestrel Partners in September 2020
Operational
• Acquisition of remaining 40% shareholding in KRM22 Market Surveillance in April 2020
• Managing the impact of COVID-19 with KRM22 with the Company being fully operational, globally,
from home as a result of internal infrastructure and process implemented from launch
• Group restructure, with annual cost savings of £0.7m
• Soc 2 accreditation approved in March 2021
1 Adjusted EBITDA is the reported loss for the year, adjusted for recurring non-monetary costs including depreciation, amortisation
gain on extinguishment of debt, unrealised foreign exchange loss, deferred salary bonus accrual write back and share-based payment
charges and non-recurring costs including profit/(loss) on tangible/intangible assets, impairment charges, reorganisation costs and
acquisition and funding costs.
2 Annualised Recurring Revenue (ARR) is the value of contracted Software-as-a-Service (SaaS) revenue normalised to a one year
period and excludes one-time fees.
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KRM22 plc
ANNUAL REPORT 2020
CHAIRMAN’S STATEMENT
KEITH TODD CBE, CHAIRMAN AND CEO
KRM22 continued to make good progress in 2020, winning top tier institutions and broadening its product
offerings delivered through the Global Risk Platform. We are creating a powerful platform to help capital
markets participants manage risk. The Company reported a small, adjusted EBITDA loss for the year of £0.2m
compared with an adjusted EBITDA loss of £3.1m in 2019 on revenue of £4.6m (2019: £4.1m).
We completed one equity capital and one debt capital raise in 2020 to provide working capital and strengthen
the balance sheet. This, together with the improving financial performance, provides KRM22 with a strong
financial base for 2021.
When we started 2020, we did not envisage the dramatic impact the pandemic would have on the operating
environment. In April 2020, we implemented cost cutting actions through a voluntary salary waiver that all
team members participated in and general overhead reductions. In June 2020, we made some roles
redundant as we continued to adjust to a slowing business climate. Travel was suspended and all team
members operated from home from March 2020. There was little impact on our operating effectiveness as
a result of the infrastructure and processes that we implemented from launch in 2018.
Our customers and prospects were however significantly impacted. Across the board the high volume of
trading in March 2020 and April 2020, at a time when they were implementing home working for the first time,
meant that there was no time for new initiatives and therefore consideration of our products was not an
immediate priority. Whilst trading activity had evened out by the middle of the third quarter, adjustments to
normal business practices had to be absorbed to support prospect and customer engagement through
remote channels versus in person visits. The consequence of this was significant delays in new customer
signings. However, despite this new contract wins in the year included the sale of new risk products to
existing customers and the signing of a new contract for a suite of risk products with a major London based
brokerage firm, with the customer seeing the benefits of our ability to simplify the cost and complexity of risk
through technology delivered on one platform as a one-stop service. This impacted the carrying value of our
intangibles, including goodwill, asset base too. We experienced an unprecedented impact of churn in the year
as traders withdrew from trading while the trading pits were closed or suspended as well as some customer
retrenching and reducing external spend. While some churn in 2021 can be expected as part of any market,
we anticipate the level of churn going back to more normalised levels.
Market
As we enter 2021, we are seeing strong engagement from prospects and existing customers.
Regulators are moving to an enforcement phase with increasing fines and threats of fines covering a plethora
of regulatory areas. The pressure on cost efficiency, alongside regulatory compliance is top of the agenda.
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KRM22 plc
ANNUAL REPORT 2020
Vision and mission
Our vision ‘A world in which organisations operate at their optimal threshold of risk to drive increased returns’
and mission ‘To bring increased visibility and lower cost risk management to capital market organisations’
have not changed since our inception.
Our ability to offer integrated functionality as a technology service significantly reduces the cost and
complexity of managing risk for our customers. Most organisations are, in today’s market, tackling the
challenges of an increase in costs added to historically costly infrastructure leading to a motivation to reduce
cost. We are however on a journey with our customers to help them optimise business performance and
thus deliver superior returns to their shareholders. We do this by providing cost effective risk tools as a service
that eliminate multiple distinct applications that demand separate infrastructure and data sources. The
replacement solution is one holistic Global Risk Platform that operates a series of risk based business
processes, increasingly supported by AI tools, that operate on one single data source. As our journey
progresses, and with customer agreement, we will be able to create risk benchmarks and indices that will
fundamentally change how the industry measures itself. It is a truly exciting journey we are on.
What we sell
We position our product offerings within five domains of risk Enterprise, Market, Compliance, Operations and
Technology. They are delivered through our single Global Risk Platform.
The Global Risk Platform is not sold as a separate product, it comes with any functional offering and includes
the ability to receive news feeds, raise support questions and provides insight to other integrated risk offerings
that are not currently used by the customer. The Global Risk Platform provides the unifying glue between the
offerings, reduces integration costs and provides a platform for our growth. Our product offerings are
supported by experienced subject matter experts which prospects and customers leverage to help define and
manage risk on new instruments, respond to regulatory changes and build the ultimate risk platform tailored
for each customer.
Our ‘Risk Cockpit’ offering has a full range of functionality to support real time enterprise risk as well as other
department use cases. We have found that the application of what we know as the Risk Cockpit to have
specific use cases within operations, compliance as well as others such as people and culture risk. The
structured accountability framework, along with integrated risk functionality and dashboards, provides
customers with a holistic view of a risk area and the ability to track and improve risk management. We are
now exploring the use of AI to help predict risk events. This will become an add on sale to the core Risk
Cockpit.
Our Market Risk offerings cover the life cycle of risk: Pre-trade, At-trade and Post-trade risk. The offerings are
used across the spectrum of customers from Tier one banks to traders.
Our Compliance offerings cover a full range of regulatory requirements, the anchor of which is surveillance
but extends across market abuse online training, digital on boarding (Know Your Customer) as well as
regulatory reporting, enhanced individual due diligence and senior management regime. Our Compliance
offering includes many partner products which expand what we can do for customers and leverages the
partners investment in offerings as well as subject matter expertise.
We launched our People and Culture Risk offering in February 2021 in conjunction with Kintail Consulting as
part of our Operations offering. This will leverage the Risk Cockpit functionality and online training
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KRM22 plc
ANNUAL REPORT 2020
partnerships and specifically addresses one of the industries key risk areas as identified by the Regulators -
people and culture.
How we sell
We have a clear focus for increasing sales, starting with expanding sales to current customers and then
targeting people we know and who are within our addressable market. We are increasing our online marketing
presence as we are no longer able to attend physical industry conferences due to the pandemic. We
specifically target a range of buying points within a customer organisation so that we can benefit from the
master services agreement we have and internal cross referencing about the positive KRM22 experience.
Strategy
Our strategy consists of six core pillars that ensure we build a successful company.
‘Foundation of the business’
‘Driving growth’
Technology as a service
Organic growth
Business automation
Team effectiveness
Technology as a service
Acquisitions
Partnerships
At the heart of our philosophy is the concept of reducing the cost and complexity of risk management for
customers through technology delivered on an open platform, while driving increased business margins for
investors.
Organic growth
Organic growth is the central tenant of our business approach. In 2020 we secured £0.8m of new business
however this organic growth was offset by an unprecedented level of existing customer churn in the year. We
have implemented a sophisticated customer relationship management system that provides visibility and
allows us to manage and track sales activities through completion of sales opportunities. We have a very
strong pipeline of prospects across Enterprise, Market, Compliance and Operations risk.
Business automation
We have implemented extensive business automation to ensure we have a scalable operational foundation
covering customer acquisition, service delivery and through to financial control and administration. This will
ensure that as we increase margin, we will also improve the bottom line performance.
Acquisitions and commercial partnerships
We have been clear from the start of KRM22 that we build, acquire and partner to bring products to the Global
Risk Platform and therefore to our customers and prospects. We have established partnerships to
complement our existing portfolio across Market, Compliance and Operations risk. We had to hold back on
acquisitions and further partnerships in 2020 but we look to reignite these initiatives in 2021.
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KRM22 plc
ANNUAL REPORT 2020
Team effectiveness
The investment in the team we have recruited and acquired is at the heart of our business. Team members
know their roles and that KRM22 operates under the philosophy that business is a team game. The Board
and I would like to thank the team for their commitment and work during a difficult year.
We are fully committed to our stakeholders including the communities in which we work. The Executive team
and Board will take further action to establish a more comprehensive Environmental, Social and Governance
(“ESG”) programme in 2021.
Outlook
After a challenging 2020, we have entered the new financial year stronger than last year. A higher quality of
customers that can grow with us and an extensive sale opportunities and prospects list, together with
vaccines helping to bring the pandemic under control, we are confident of continuing our growth and
delivering market expectations.
Keith Todd CBE
Executive Chairman and CEO
15 March 2021
Strategic Report
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KRM22 plc
ANNUAL REPORT 2020
THE GLOBAL RISK PLATFORM
All the risk applications of a customer in one place
The KRM22 Global Risk Platform brings all client’s risk applications together to help them manage their entire
risk profile across the five domains in a single place.
Customers can log in to all applications with one click and with integration can share and avoid duplication of
data.
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KRM22 plc
ANNUAL REPORT 2020
OUR PRODUCTS
Enterprise Risk Cockpit
The Risk Cockpit improves your team’s process efficiency and
accuracy by capturing all risk management data in a single place for
automated analysis.
Your senior management and risk teams can:
• Eliminate the need for cumbersome spreadsheets
• Automate processes and workflows
• Define and embed accountabilities within the firm
•
Increase your ability to capture and analyse operational
losses
• Create a common risk management language and approach
• Deliver enterprise risk analysis and reporting
Regulatory Navigator
The Regulatory Navigator brings out-the-box regulatory functionality
covering Market Abuse, SM&CR and Financial Crime. Address your
overall regulatory risk and compliance position through real-time,
meaningful management information, sourced from the entire
regulatory application suite.
Your senior management and risk and compliance teams can:
• Eliminate the need for cumbersome spreadsheets
• Automate key regulatory processes and monitoring
workflows
• Embed regulatory industry best practice within the firm
•
Increase your ability to monitor and manage regulatory
breaches
• Benchmark versus continuously evolving industry best
practice
• Deliver a culture of individual accountability and transparency
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KRM22 plc
ANNUAL REPORT 2020
Market Surveillance
Market surveillance provides insightful analytics and contextual
market surveillance to help capital markets firms identify and
manage the potential risks of market abuse, fraud and operational
breaches.
Your risk and control team can:
•
Initiate their daily workflow through alerts
•
Identify the appropriate actions to manage alerts
• Configure and analyse alert scenarios in real-time
• Develop case management workflows
•
Investigate the risk profile of your firm
• Provide business intelligence by exploring the underlying data
Individual Accountability Regime
The Individual Accountability Regime allows financial institutions to
manage accountability throughout the firm, and comply with SMCR
and conduct rules, through governance tools and frameworks that
evolve as regulation and the business change.
Your compliance and HR teams can:
• Save time by automating IAR workflows
•
Increase visibility of responsibilities
• Understand certification position of individuals
• Trace workflows through time-stamped audit trails
• Drive culture and accountabilities
• Automate SMCR breach reporting
Client Onboarding
Digital client onboarding provides capital market firms with the tools
to make client onboarding as seamless as possible whilst allowing
them to fulfil their regulatory obligations.
Your credit and compliance teams can:
• Execute KYC and AML checks on new and existing clients
• Understand deep detail about clients through enhanced
checks
• Classify clients and investors to make risk-based decisions
• Check audit controls through supporting documentation
storage
• Ensure approval with declarations, terms and e-signatures
• Validate the data provided in real-time to make rapid choices
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KRM22 plc
ANNUAL REPORT 2020
Regulatory Reporting
Regulatory Reporting enables capital market firms to comply with its
regulatory reporting obligations across multiple jurisdictions
including EMIR, REMIT, FinfraG, MifIR, MiFIDII and SFTR.
Your operational teams can:
• Comply with complex reporting obligations including
reconciling data with trade repositories
• Validate data in seconds in order to take timely corrective
action
• Control remove the need to delegate providing you full
control
• Straight-through-processing with an end to end solution with
TR’s
• Monitor all reporting processes using intuitive dashboards
• Check audit controls and logs over every process
Enhanced Due Diligence
Enhanced Due Diligence enables firms to better understand online
reputational risks and evidence compliance, supporting the
mandatory due diligence requirements of a person’s honesty and
integrity as part of the Fit and Proper assessment.
Your compliance and HR teams can:
• Access data not visible to traditional web searches
• Eliminate false positives in due diligence
• Understand online reputational risks
• Confirm employee suitability
• Leverage AI techniques not bound by any single natural
language
• Remove bias from regulatory decisions
Regulatory Training
Regulatory training helps regulated firms address their mandatory
training requirements by ensuring individuals understand the
fundamentals of Market Abuse, Financial Crime and SM&CR.
Your regulated employees and managers can:
• Facilitate the prevention and detection of misconduct
through a framework for training
• Undertake simple interactive training delivered through on-
demand videos and handbooks
• Learn at their own pace with 24/7 access
• Understand key regulatory compliance obligations
• Access examination certificates to provide training evidence
• Track their completed and passed courses
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KRM22 plc
ANNUAL REPORT 2020
Post-Trade Risk - Stress
Post-Trade Stress scales the type and amount of risk calculations
performed against multiple set of limits and risk slides, offering a
unique “max risk calculation” for risk managers.
Your firm can:
• React to extreme volatility through intraday P&L
• Analyse multiple market stress scenarios in real-time
• Understand your exposure with multi-level margin
requirements
• Define single and multi-dimensional limit alerts
• Drill down into underlying alert conditions
• Establish an audit trail by commenting on alerts and
notifications
Post-Trade Risk - VaR
Post-Trade VaR provides the unique view of multiple VaR
calculations across a single account, product or the whole portfolio
in a single place.
Your risk and credit managers can:
• Manage multiple asset classes and portfolios
• Understand the components of a VaR calculation
• Establish portfolio positions for the VaR calculation
•
• Assign probabilities to possible risk factor values
• Create pricing functions for positions
• View three VaR models - Historic, Parametric and Monte
Identify the risk factors affecting valuation of positions
Carlo
At-Trade Risk
At-Trade Risk provides P&L and Exchange Margin for clearing
houses, clearing members, traders, brokers and other financial
institutions that make decisions based on the management of risk.
Your risk and credit managers can:
• Understand your true exposure at all times
• React to extreme volatility across the book
• Receive automatic alerts of limit violations
• Access a centralised source of market and trade information
• Obtain real-time data directly from Exchanges
• Monitor your firms margin requirements and P&L
information
• Generate multiple and flexible stress scenarios
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KRM22 plc
ANNUAL REPORT 2020
Pre-Trade Risk
Pre-Trade Risk helps combat time consuming and error prone
processes by maintaining pre-trade limits in one centralised
application.
Your risk and credit managers can:
• Reduce errors and manual input of limits
• View alerts of unauthorised limit changes made in the
trading venues
• Support multiple trading venues with ease
• Access all ISVs and proprietary trading systems in one place
• Create integrated reports with centralised monitoring
• Audit all events from one central place
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KRM22 plc
ANNUAL REPORT 2020
PRINCIPAL RISKS AND UNCERTAINTIES
The Board considers the risks set out below to be the principal risks to KRM22. The Board continually reviews
the risks facing KRM22, including the use of the Risk Cockpit to help monitor and manage these risks, and
ensures appropriate steps are taken to mitigate them. If more than one event occurs, it is possible that the
overall effect of such events would compound the possible adverse effects on KRM22. The Board recognises
that the nature and scope of risks can change and there may be other risks to which KRM22 is exposed so the
list is not intended to be exhaustive.
Potential impact
Mitigating actions
Risk and
uncertainty
COVID-19
Customer
retention
New contract
signings
The spread of coronavirus and resulting COVID-
19 global pandemic caused economic growth to
slow abruptly in 2020 with repercussions around
the world. Coronavirus and the related risks and
uncertainties continue to evolve and there is no
way of predicting with certainty the extent to
which it will impact stakeholders of the business.
impacted customer
In 2020 the pandemic
retention, delays
in new contract signings,
liquidity of customers and staff retention. The
potential impacts are detailed further under the
separate risk and uncertainty components.
Given KRM22’s strategic focus on Annualised
retention of key
the
Recurring Revenue,
customers is critical to the maintenance of
revenue streams. The loss of key customers
could adversely impact business results.
Delays in new customer contract signings will
impact business results and the cash position of
KRM22. Investors are expecting KRM22 to sign
new customer contracts and increase ARR and
any delays
impact shareholder
confidence.
in this will
Foreign exchange
KRM22 operates internationally and is therefore
exposed to fluctuations in foreign exchange rates.
The mitigating actions associated with COVID-19 related
risks and uncertainties are included in further detail
under each risk and uncertainty component listed below.
Every client has an account manager who regularly
the customer and who ensures
speaks with
requirements are met.
KRM22 also has a centralised customer support team
with defined service levels to ensure quality product
service to the customer.
All sales opportunities are assigned a business
development manager who updates the executive team
on a regular basis.
The CFO maintains detailed cash forecasts that include
sensitivity analysis applied to new sales opportunities
including delayed sales, reduced recurring and non-
recurring revenue values and no future sales growth.
These are reviewed and discussed on a regular basis
between the CFO and CEO so that they can manage the
cost base and cashflow accordingly. The forecasts are
also discussed at the monthly board meetings.
KRM22 relies on a partial natural hedge of GBP, EUR and
USD costs and revenue being in the same currencies.
KRM22 also continuously monitors its foreign exchange
exposure
forward currency
transactions are necessary.
to assess whether
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Risk and
uncertainty
Liquidity of
customers
KRM22 plc
ANNUAL REPORT 2020
Potential impact
Mitigating actions
KRM22 has a global customer base with these
customers being stakeholders in their own supply
chain. Our customer’s liquidity will be dependent
on a number of factors including the ability of their
own customers to pay sales
invoices, their
suppliers providing services that support their own
revenue and the availability of staff to perform the
work that drives their revenue and liquidity of the
business. The actions of these stakeholders will
impact our customers liquidity and their ability to
pay our sales invoices.
KRM22 has a centralised finance function with accounts
receivable balances reviewed on a regular basis with
account managers and executives of the Company. The
use of automated centralised systems allows AR
balances to be updated daily and, should an AR balance
become overdue, appropriate action can be taken to
resolve payment of any outstanding amounts.
Sensitivity analysis is included on AR payments when
preparing cash forecasts.
Compliance with
laws and
regulations
KRM22’s business is the sale of software that will
facilitate compliance with financial services laws
and regulations. A failure by KRM22 to comply
with laws and regulations in its own business
could lead to fines and revocation of business
licences, as well as significant reputational loss.
KRM22 employs fully qualified finance professionals
and external professional advisors, including legal and
tax, to ensure all relevant legal and regulatory codes are
fully complied with.
Staff recruitment
and retention
KRM22 is reliant on the skills and knowledge of
its people in a wide range of areas but especially
in executive management and software
development.
to recruit,
Failure
retain and motivate an
appropriate number of suitably qualified people
in critical areas could lead to a deterioration in
the quality of our products and services. This
could
its
customers’ needs resulting
loss of
business and a failure to deliver expected
financial returns.
lead to KRM22 failing to meet
in the
Debt facility
The Convertible Loan with Kestrel Partners
to adhere with various
requires KRM22
obligations including compliance with financial
covenants and the provision of forward looking
compliance information, payment of interest by
due dates and the reporting of management
information within agreed timeframes. Failure to
comply with a financial covenant will result in an
Event of Default which may result in Kestrel
Partners withdrawing the Convertible Loan with
all amounts accrued becoming immediately due
and payable which KRM22 would be unable to
settle.
reviews KRM22’s
The Remuneration Committee
compensation policies to ensure KRM22 continues to
attract, motivate and retain qualified personnel. All
employees are offered share options in KRM22 so that
they have a vested interest in the long-term success of
KRM22.
KRM22 is committed to the retention of staff by adopting
a friendly and flexible working environment and offering a
broad range of staff benefits.
There is regular staff engagement and communication
including formal bi-weekly internal company meetings
where the Executive team update all staff on business
wide issues and encourage team participation. In
addition, formal staff appraisals are completed three
times a year for employees and their managers to give
direct feedback and to understand staff morale, flight
risks and any gap in skills or qualifications. The output of
each appraisal is discussed by the Executive Directors
with any remedial action plans implemented accordingly.
The risk of failing to adhere with financial covenants is
mitigated by growth in ARR generated through new
customer agreements, management of the cost base and
ensuring that regular forecasts are maintained that
include sensitivity analysis applied
to new sales
opportunities. Forecasts, with specific reference to the
financial covenants are also reviewed and discussed at
each board meeting.
There are defined reporting obligations that KRM22 has to
Kestrel Partners and this includes a process to engage
together in advance of any forecasted issues and risks.
15
Risk and
uncertainty
Investor attitude
and confidence
Information
security
KRM22 plc
ANNUAL REPORT 2020
Potential impact
Mitigating actions
Investors lose faith in KRM22 and the ability to
grow the business at a rate that provides them
with a suitable return on investment.
The CEO and CFO meet institutional shareholders, fund
managers and analysts at least twice a year to understand
how the strategy and the Board’s decisions impact on and
are received by investors. In addition, the CEO and CFO
maintain regular contact with finnCap, as Broker and
NOMAD, who keep in regular contact with our investor
base.
To be a credible and competitive Software-as-a-
Service
stores,
(SaaS) organisation who
processes or transmits critical information, well
defined controls and procedures are required to
be defined and adhered to. Without these controls
and procedures, unauthorised access and theft of
customer and Company data could materialise
and be extremely damaging to the Company, both
financially and reputationally.
and
policies
security
SOC 2 requires organisations to establish and follow strict
information
procedures,
encompassing
the security, availability, processing,
integrity and confidentiality of customer data. After a
successful audit phase, the Company has obtained SOC 2
Type 1 accreditation. In addition to mitigating information
security risks, SOC 2 accreditation will also provide KRM22
with an edge over competitors who cannot show
compliance
Impact of
Brexit
The United Kingdom (“UK”) formally left the
European Union (“EU”) on 31 January 2020.
The Directors deem that the effects of the UK leaving the
EU has not had a significant
impact on KRM22’s
operations and the Directors, together with management,
are constantly monitoring the situation.
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KRM22 plc
ANNUAL REPORT 2020
SECTION 172 STATEMENT
Under section 172(1) of the Companies Act 2006, the Directors of a company have a duty to promote the
success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other
matters) to:
a) The likely consequences of any decision in the long-term;
b) The interests of the company’s employees;
c) The need to foster the company’s business relationships with suppliers, customers and others;
d) The impact of the company’s operations on the community and environment;
e) The desirability of the company maintaining a reputation for high standards of business conduct; and
f) The need to act fairly as between members of the company.
During the year ended 31 December 2020, the key decisions considered by the board were fundraising, cost
control and cash management, all of which were set against the backdrop of the COVID-19 global pandemic.
The key stakeholders considered as part of the decision-making process were KRM22’s shareholders,
customers, employees and providers of the Group’s debt facilities in the year.
COVID-19
In response to the impact of COVID-19, the business transitioned to home and flexible working, recognising
that employees had to adapt to new ways of working with the additional personal pressures of home schooling
and childcare. In addition, COVID-19, and the global economic uncertainty that ensued, extended the sales
cycle and time taken to close new sales. The closing of floor trading at the CME precipitated an unprecedented
level of churn with our trader customers as traders withdrew from trading while the trading pits were closed or
suspended. This created additional pressure on the Company’s cash position.
The Directors responded to this by implementing a range of cost control and cash management measures,
completed a equity fundraise of £1.3m and replaced the existing £10.0m Harbert Debt Facility, of which an
initial £1.0m was drawn down in 2019, with a new £3.0m Convertible Loan provided by Kestrel Partners.
Cost control and cash management
In March and April 2020, the Board considered a range of cost saving measures including short-term measures
through salary sacrifices in exchange for the grant of share options and long-term measures by reducing
headcount through employee redundancies. The Board considered how the proposal would impact the
affected stakeholders in terms of:
• Team motivation, as a result of staff taking temporary salary sacrifices;
• Team morale, as a result of staff redundancies;
• The reduction of headcount and the impact on customer deliverables and development of core
products which would help drive the Company’s ARR; and
Having considered the impact on the affected stakeholders, the Board were of the opinion that this was
necessary to ensure the long-term success of KRM22 and approved the cost management measures. There
is natural stakeholder conflict as employees want job security and to be remunerated accordingly whilst the
shareholders want a return from their investment and for KRM22 to be profitable.
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KRM22 plc
ANNUAL REPORT 2020
The Executive Directors engaged with employees through a consultation process and kept employees regularly
updated with anticipated timeframe for reinstatement of full salaries. KRM22 undertakes staff appraisals each
semester and used this form of stakeholder engagement to understand employee morale in response to the
temporary salary sacrifice. Having completed the assessment in the summer of 2020, the Directors made a
decision to reinstate full salaries for those employees who accepted a 10% salary sacrifice from October 2020
with all other employee salaries being reinstated to full salary from January 2021.
As part of the cost saving measures to reduce headcount, a formal redundancy consultation process was
followed in line with the relevant laws and regulations applicable to each geographical location where
redundancies were implemented.
The final decision made to reduce headcount promotes the short-term and long-term interest of KRM22 as it
allowed cost savings of approximately £0.7m to be made which improved cashflow, thus ensuring that the
Company remained solvent and it will help improve profitability in the long-term and ensure that KRM22
continues as a going concern.
Fundraising
In response to extended sales cycles, the Executive Directors, together with finnCap as broker, engaged with
KRM22’s existing shareholders and potential new investors in May 2020 to raise £1.3m of equity funding to
provide working capital to support the business.
On 15 September 2020, KRM22 replaced its existing £10.0m Harbert Debt Facility with a new £3.0m
Convertible Loan Facility provided by Kestrel Partners. The interest rate on the Convertible Loan is 9.5% per
annum, which is less than the interest rate of 11% per annum on the Harbert Debt Facility.
Repayment of the Harbert Debt Facility incurred an early repayment charge of 5% and the Convertible Loan
Facility included an arrangement fee of 2%, both of which impacted KRM22’s profitability. Whilst the short-
term impact of additional costs affects the Company’s profitability, there is no requirement for KRM22 to make
capital repayments which improves cashflow and provides stability during times of economic certainty, thus
helping to provide confidence and stability for all KRM22 stakeholders.
In addition, Kestrel Partners, including individual holdings, have a 20% shareholding in the Company which
means that the long-term goals of our debt provider and shareholders are aligned.
None of the key decisions considered by the Board in 2020 had an environmental impact and the Directors are
satisfied that decisions made by the Board promote the long-term interest of KRM22 for the benefit of its
members as a whole.
18
KRM22 plc
ANNUAL REPORT 2020
FINANCIAL REVIEW
Despite the challenging trading conditions in the year due to the COVID-19 pandemic, total revenue recognised
for the year was £4.6m, an increase of 11% on 2019 and adjusted EBITDA loss for the year was £0.2m, a
significant reduction on 2019 when the Company reported an adjusted EBITDA loss of £3.1m. The reduction
in adjusted EBITDA loss was a result of the continued tight control of the cost base, the full year effect of
company reorganisations completed in 2019, together with a further reorganisation in 2020, and short-term
cost savings through temporary salary sacrifices accepted by all staff in 2020.
Scope of financial results
This financial review focuses on the twelve month period ending 31 December 2020, whilst the prior year
comparatives include the seven months of revenue and costs for the Object+ group of companies from the
date of acquisition on 30 May 2019 and full year revenue and costs for all other KRM22 group companies.
Profit and Loss
Total revenue
Revenue recognised for the year to 31 December 2020 was £4.6m (2019: £4.1m), an increase of 11% compared
with the prior year, with 91% (2019: 91%) of total revenue generated from recurring customer contracts. Non-
recurring revenue the year ended 31 December 2020 totalled £0.4m (2019: £0.3m) and related principally to
customer implementations and proof of concept work.
Recurring revenue
A key revenue metric for KRM22 is ARR (Annualised Recurring Revenue) and as at 31 December 2020, ARR
was £4.1m at the year end FX rate or £4.3m at the FY20 average FX rate. KRM22 signed new contracted ARR
in 2020 of £0.8m (2019: £0.7m) with £0.1m generated from Enterprise Risk products, £0.5m from Market Risk
products and £0.2m from Compliance Risk products. The increase in ARR was offset by an increased level of
churn and also impacted by the increased strengthening of Sterling against the US dollar.
Gross profit
Gross profit for the year to 31 December 2020 was £4.2m (2019: £3.7m) and the consistent gross profit margin
of 90% continues to demonstrate the operating leverage of the business and indicates how the cost base can
be covered efficiently as new recurring revenue contracts are signed.
Capitalised research and development
A total of £1.0m (2019: £1.5m) of research and development was capitalised in the year to 31 December 2020.
Capitalised research and development is amortised over three years.
19
Impairment
KRM22 plc
ANNUAL REPORT 2020
In the year ended 31 December 2020, impairment costs of £2.7m were recognised in connection with the
recoverability of goodwill associated with the acquisition of KRM22 Market Surveillance, KRM22 ProOpticus
and Object+ and impairment on account of trademarks at £0.3m. The impairment reflects the uncertain
economic conditions in 2020 and in year revenue growth which was less than initial forecasts. The impairment
does not reflect a change in the overall Group’s strategic outlook.
Reorganisation costs
In response to delays in new customer contract signatures and general economic uncertainty as a result of
COVID-19, a total or 8 FTE roles were made redundant and our Spanish operations were closed. As a result of
the staff redundancies made in the year, a total of £0.4m (2019: £0.5m) of company reorganisation costs has
been recognised in the year ended 31 December 2020.
Extinguishment of debt
On 16 April 2020, the Group acquired the remaining 40% minority interest in KRM22 Market Surveillance
Limited (“KRM22 Market Surveillance”) from Cinnober Financial Technology AB (“Cinnober”). Under the terms
of the transaction, a total of £2.9m in debt due to KRM22 and Cinnober (together the “Parent Companies”)
together with £0.3m of other liabilities due to the Parent Companies was converted into ordinary shares in
KRM22 Market Surveillance immediately prior to KRM22 consolidating its ownership of KRM22 Market
Surveillance.
On completion of the debt to equity conversion in KRM22 Market Surveillance, KRM22 immediately acquired
the remaining 40% stake in KRM22 Market Surveillance for a total consideration of £0.6m payable to Cinnober
by way of a convertible loan note (CLN) provided by KRM22 to Cinnober. The CLN was for a one-year term and
could be satisfied by either the allotment and issue of ordinary shares by no later than 31 July 2020 or settled
by cash at any point in the CLN term, at the Company’s sole discretion. On 28 June 2020, the CLN was
converted into 1,454,434 new ordinary shares at 38.4p per share in the Company and therefore no cash
consideration was paid as part of the acquisition. The settlement of £1.3m of debt due to Cinnober, through
the issue of the CLN, resulted in a gain on extinguishment of debt of £0.7m which has been recognised in the
consolidated income statement for the year ended 31 December 2020.
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 costs.
20
KRM22 plc
ANNUAL REPORT 2020
Adjusted EBITDA for the year to 31 December 2020 was a £0.2m loss (2019: loss of £3.1m) and was in line
market forecasts and a significant reduction on prior year. The reduction in Adjusted EBITDA loss was driven
by new sales, tight management of the underlying cost base of the business, the full year impact of cost
savings plans and company reorganisations implemented in 2019, a further company reorganisation
implemented in June 2020 and reduced salaries paid in the year due to the voluntary temporary salary sacrifice
scheme. A reconciliation of Adjusted EBITDA loss to the reported operating loss is provided as follows:
Adjusted EBITDA loss
Depreciation and amortisation
Unrealised FX losses
Impairment of intangible assets
Contingent consideration write back
Acquisition and debt expenses
Gain on extinguishment of debt (net)
Group restructuring costs
Deferred salary bonus accrual write back
Share-based payment expense
Operating loss
Finance charges
2020
£’m
(0.2)
(1.7)
(0.2)
(3.0)
0.3
(0.4)
0.7
(0.4)
0.4
(0.9)
(5.4)
2019
£’m
(3.1)
(1.3)
–
(2.3)
1.5
(0.4)
–
(0.5)
–
(1.0)
(7.1)
Net finance expense in the year was £0.3m (2019: £0.2m) and includes:
•
•
•
Interest paid of £0.1m (2019: £0.1m), inclusive of early repayment charges of 5%, on the Harbert debt
facility;
Interest accrued/paid on the Kestrel Convertible Loan Facility of £0.1m; and
IFRS16 lease liability interest of £0.1m (2019: £0.1m).
Taxation
The tax credit in the year was £0.2m (2019: credit of £0.8m) which includes £0.1m (2019: £0.6m) R&D tax
credit received.
Reported operating loss
Reported operating loss for the year to 31 December 2020 was £5.5m (2019: loss of £6.5m).
Financial position
Assets
The cash balance as at 31 December 2020 was £2.0m (2019: £1.1m).
Current assets at 31 December 2020 include trade and other receivables of £1.4m (2019: £1.4m).
Non-current assets were £9.2m (2019: £13.1m) relating principally to: £6.7m for goodwill and assets acquired
(2019: £10.4m), £1.0m for right of use assets recognised under IFRS16 (2019: £1.6m) and £1.3m (2019:
£0.8m) for capitalised development costs.
21
Liabilities
KRM22 plc
ANNUAL REPORT 2020
As at 31 December 2020, our principal liabilities were:
• £3.0m Convertible Loan owed to Kestrel Partners LLP. The interest rate payable on the loan is 9.5%
payable in cash quarterly in arears. The loan can be converted into new Ordinary Shares in the
Company at any time at a conversion price of 38p and the conversion can be requested by Kestrel
Partners at any time. The Company has the right to request conversion eighteen months following the
date of the agreement, subject to certain conditions regarding the Company's share price at that time.
• £0.8m (US$1.1m) discounted contingent consideration (£1.1m (US$1.6m) undiscounted) for earn out
payments for the acquisition of Object+. The contingent consideration can be satisfied in either cash
or Company or ordinary shares at the Company’s discretion. The undiscounted contingent
consideration of US$1.6m was reduced by US$0.5m, reflecting re-appraisal of expected cash outflows
given probable conditions at the balance sheet date and this adjustment has been included in the
discounted liability of £0.8m recognised at the statement of financial position date.
• £1.0m for the right of use of assets relating to all future payments of leased-office rentals under IFRS16
‘Leases’ 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 2021, with the balance for periods
greater than one year.
• £1.5m of deferred revenue; contracted and paid services that will be released in a future period.
As a result of acquiring the remaining 40% shareholding in KRM22 Market Surveillance, by way of a Convertible
Loan Note (“CLN”) and the subsequent conversion of the CLN into ordinary shares in the Company, a total of
£1.3m in debt was removed from the statement of financial position in the year ended 31 December 2020.
Investors
As an AIM-listed business, a large proportion of KRM22’s shareholders are professional investment funds. In
addition, the Directors together owned 3,701,389 shares at the year end.
Funding
On 13 May 2020, the Company raised £1.3m gross proceeds in equity funding through a subscription and
placement of 4,266,664 new shares at 30 pence per share.
On 15 September 2020, KRM22 entered into an agreement for a new three year £3.0m convertible loan facility
(the “Convertible Loan”) with Kestrel Partners LLP (“Kestrel”), the Company’s largest shareholder following the
fundraise completed on 13 May 2020. The proceeds of the Convertible Loan were used to replace the
Company’s existing debt facility (the “Debt Facility”) provided Harbert European Growth Capital Fund II
(“Harbert”). The outstanding balance of the Debt Facility, inclusive of loan principal, accrued interest and early
repayment charges of 5%, was £0.8m.
In conjunction with the Debt Facility, the Company issued warrants over 495,049 new ordinary shares in the
Company to Harbert with an exercise price of £1.01 per ordinary share. Whilst the balance of the Debt Facility
was settled, the warrants remain in place and are exercisable by Harbert until 29 April 2029.
The interest rate payable on the Convertible Loan is 9.5% per annum, which compares favourably to the 11%
per annum interest rate on the Harbert Debt Facility, and is paid quarterly in arrears. Kestrel can convert the
Convertible Loan into new ordinary shares in the Company at any time at a conversion price of 38p. The
Company has the right to request conversion 18 months following the date of the agreement, subject to certain
22
KRM22 plc
ANNUAL REPORT 2020
conditions regarding the Company's share price at that time. Kestrel has the right to prevent any conversion
which would trigger a Rule 9 event under the Takeover Code.
The Convertible Loan is secured on certain KRM22 assets and includes covenants based on the Group’s
financial performance, based on ARR, solvency and profitability.
COVID-19 reinforced the principle that companies need access to greater to liquidity to address uncertainties,
extended sales cycles and provide potential customers with confidence in the financial strength of the Group.
In addition, the Convertible Loan strengthened the financial position of the Company and provides access to
working capital and growth capital.
Use of cash in the year
Our net cash inflow in the year was £0.9m, which included the £3.0m Kestrel Convertible Loan receipt, of which
£1.0m was used for capitalised research and development, £0.9m was used to settle the Harbert Debt Facility
and the balance was used to provide working capital for KRM22.
Going concern
As noted in our Chairman’s report, COVID-19 has impacted the Group. It is not yet clear when global economic
activity will return to normal, therefore we must prepare the business for varying levels of performance. To
that end, we have modelled the effects of differing levels of sales decline along with the measures we can take
to ensure that the Group remains within its available working capital, and we have prepared cash flow forecasts
for a period in excess of twelve months.
The Directors have no reason to believe that customer revenue and receipts will decline to the point that the
Group no longer has sufficient resources to fund its operations. However, in the unlikely event that this should
occur, the Group will have to manage its working capital positions, as well as making significant reductions in
its fixed cost expenses. Further, analysis of KRM22’s going concern position is detailed in the Directors report
on pages 43 - 44.
Shareholdings and Earnings per share
As at 31 December 2020, KRM22 had 26,719,127 shares in issue. The undiluted weighted average number of
shares for the period to 31 December 2020 was 24,414,093. The difference in the two numbers results from
the timing of shares issued for the equity fundraise completed on 13 May 2020 and the conversion of the
Cinnober Convertible Loan Note on 28 June 2020.
The resulting Earning per Share (“EPS”) is a 24.1p loss per share (2019: loss of 30.4p) on a weighted average
number of shares basis (equivalent to 24,414,093 on the shares in issue at year end). Due to the loss made,
diluted EPS is the same as EPS.
Dividend
We aim to deliver capital growth for shareholders to generate an attractive total return. However we do not
recommend a dividend for the year, but may choose to do so in future years.
23
Conclusion
KRM22 plc
ANNUAL REPORT 2020
Whilst 2020 has been challenging in terms of time taken to convert the sales pipeline and increased customer
churn, adjusted EBITDA loss has reduced to £0.2m from £3.1m in 2019 and total recognised revenue has
increased to £4.6m from £4.1m in 2019. The Kestrel Convertible Loan has helped strengthen the financial
position of KRM22 and this, together with the sales pipeline opportunities, means that KRM22 is well placed
for growth in 2021.
Approved by the Board and signed on its behalf by:
Kim Suter
CFO
15 March 2021
Corporate Governance
Corporate Governance
25
KRM22 plc
ANNUAL REPORT 2020
BOARD OF DIRECTORS
Keith Todd CBE
CEO and Chairman
Keith has 40 years of global technology business experience from publicly listed and large multi-nationals to
start-up businesses.
As well as being Executive Chairman and CEO of the Company, he is currently Non-Executive Chairman of
Blighter Surveillance, a private Radar business and a board Advisor to Horizon Software.
From 2002 to March 2017 he served as Executive Chairman of Aim listed FFastFill plc, provider of SaaS to the
global derivatives community and from 2013 to March 2017 Chairman of Ion Agency Trading.
He was Non-Executive chairman of AIM-listed Amino Technologies plc, a provider of digital TV entertainment
and cloud solutions to network operators from 2005 to 2017. He also served as Non-Executive Chairman of
UK Broadband Stakeholder Group (a UK Government advisory board), Easynet plc and Chief Executive of ICL
plc.
Stephen Casner
President
Stephen serves as President of KRM22 with specific responsibility for our North American business operations,
our market risk products as well as the Company’s mergers and acquisitions. He has led the acquisition and
integration of Prime Analytics in Chicago and Object+ in Amsterdam for KRM22.
Stephen has accumulated over 35 years of experience in the “Fin-Tech” industry. He has been as a senior
leader or CEO of 5 different start-ups; of which two are current industry leaders in their respective markets
(Quantra and HazelTree).
Kim Suter
CFO
Kim has significant experience in building and leading finance functions to support business growth.
He started his career in practice, covering all aspects of audit, financial reporting and tax for a range of clients,
providing him with a broad knowledge of how finance functions operate across different business sizes and
industries. Kim has since applied this knowledge to support structured growth at a number of start-up
organisations prior to joining KRM22. Kim joined KRM22 in July 2018 as Head of Finance to set up the finance
function for the KRM22 group and has served as CFO since July 2019. Kim is a qualified Chartered Certified
Accountant.
26
KRM22 plc
ANNUAL REPORT 2020
Sandy Broderick
Independent Non-Executive Director
Sandy was previously Non-Executive Director of AIM listed regulatory reporting and collateral risk management
solutions company, Lombard Risk Management plc, which was acquired by Vermeg Group.
Prior to Lombard Risk Management he was CEO of DTCC DerivSERV, where he led the roll out of its Global
Trade Repository in Europe and Asia, as well as holding the CEO position of New York Portfolio Clearing, where
he oversaw its development and successful sale to ICE.
During Sandy’s 23 year derivative trading career at Societe Generale and Bank of America, he was at the centre
of several industry initiatives in clearing and market infrastructure, including development of the LCH Clearnet
SwapClear system.
Sandy was Chairman of the OTC Derivnet Board from 2011 to 2012. Currently Sandy works with a number of
companies as an expert witness for Regulatory, Trading and Competition issues.
Garry Jones
Non-Executive Director
Garry Jones is currently CEO of Perfect Channel, a leading technology company operating in the marketplace
and auction technology space - overlaying platform technology with machine learning and artificial intelligence.
As well as being a Non-Executive Director of KRM22, he is a member of the Board of ICBCS, an emerging
markets investment bank.
With many years’ experience in financial services, Garry has been CEO of three of the largest derivatives and
OTC exchanges in Europe: BrokerTec, LIFFE and the LME, as well as taking leadership roles in the parent
companies of NYSE Euronext and HKEX.
Garry has contributed to the business change, growth, and globalisation in the exchange world as technology
has fundamentally changed the way that we trade, driving the momentum behind electronic trading and
increased efficiency in the post trade environment.
27
KRM22 plc
ANNUAL REPORT 2020
Steve Sparke
Non-Executive Director
Steve has over 35 years’ experience in Financial Services, trading Interest Rate products for the first 15 years,
and subsequently in the Exchange Traded Derivatives (“ETD”) and Commodity industry with extensive board-
level experience for global ETD and Commodities organisations.
Prior to his role as Vice Chairman, leading the Conduct and Culture initiatives of Marex Spectron, Steve spent
10 years as Group COO, responsible for the firm’s operating environment, including IT, Operations, Risk,
Compliance and HR.
Before joining Marex Spectron, Steve spent 20 years with UBS where he was Managing Director and Global
Head of Exchange-Traded Derivatives.
Steve also holds NED positions on the UK Regulated Entities of TP ICAP and was Non-Executive Chairman of
FIA’s European Advisory Board until the end of 2019, where he continues as a Board Advisor. Steve was
previously a NED of NYSE Euronext LIFFE (now ICE Europe) for over 10 years and was a NED at PATS Systems,
an AIM-listed DMA system provider.
Steve has a Law degree from Nottingham University.
Karen Bach
Non-Executive Director (previously Chief Operating Officer until 30 June 2019, resigned 2 April 2020)
28
KRM22 plc
ANNUAL REPORT 2020
CORPORATE GOVERNANCE STATEMENT
In applying a recognised corporate governance code, the Directors have adopted the Quoted Companies
Alliance’s (QCA) Corporate Governance Code for small and mid-sized quoted companies (“QCA Code”). The
principal means of communicating our application of the Code are detailed in this annual report and on our
website (www.krm22.com/investor-information/governance).
The Directors believe that, in addition to being responsible for setting the strategic direction and managing risk
across the business, they are responsible for good corporate governance, clear shareholder and stakeholder
communications and monitoring the effectiveness of the Executive Directors. The Directors believe that
effective corporate governance, appropriate to KRM22, considering its size and stage of development, will
assist in the delivery of corporate strategy, the generation of shareholder value and the safeguarding of
shareholders’ long-term interests.
This report follows the structure of the QCA Code guidelines and explains how the Board have applied the
guidance as well as the reasons for any departures from the guidance.
At the centre of KRM22’s philosophy are four groups of stakeholders:
• Customers: Customers should enjoy doing business with KRM22, receive value for money and
understand that KRM22 is aligned with their values.
Investors: Investors should receive superior returns from KRM22, governed along established lines.
•
• Team: The team should be highly motivated, well rewarded and believe in the Company vision.
• Community: The local and global community should see KRM22 as an asset.
In adopting QCA principles, the Directors have ensured alignment with the goals of the Company’s
stakeholders.
QCA PRINCIPLES
Principle 1: Establish a strategy and business model which promotes long-term value for shareholders
KRM22 listed on AIM, via an IPO, on 30 April 2018. As part of this process, the Board determined the long-term
vision of KRM22 and detailed the steps to achieve that strategy.
Since the IPO, the Board has refined the strategy, based on customer feedback, additional input from risk
management experts from the five KRM22 domains of risk: enterprise, market, compliance, operations and
technology, shareholder feedback, debt provider feedback and employee participation which has led to a
clearer definition of KRM22’s strategy.
Corporate status: KRM22 (KRM:L) is a closed-ended investment company (CEIC) listed on the AIM of the
London Stock Exchange. This means that the number of shares in the Company are known and the shares
are traded on AIM. KRM22 expects to convert to an operating company when its business develops to fit the
necessary criteria.
In adopting Principle 1, KRM22 is assisting investors to obtain superior returns.
Principle 2: Seek to understand and meet shareholder needs and expectations
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KRM22 plc
ANNUAL REPORT 2020
The Company’s CEO and CFO meet institutional shareholders, fund managers and analysts at least twice a
year to understand how the strategy and the Board’s decisions impact on and are received by investors.
The Annual General Meeting provides an opportunity for all shareholders to meet the Directors and raise any
questions.
finnCap act as the Company’s NOMAD and broker.
Nominated Advisor (NOMAD): NOMADs are approved by the London Stock Exchange and must meet
eligibility criteria set out in the AIM Rules for NOMADs. In their role, finnCap advises and guides the
KRM22 Board on its responsibilities as an AIM listed business and undertakes due diligence and works
as the primary advisor of the business.
Broker: finnCap is also the appointed broker of KRM22. In this role finnCap facilitate communications
with existing and potential new investors. The CEO and CFO regularly meet investors together with
representatives of the broker. finnCap also advise KRM22 on shareholder communications on its
website, all RNS releases (Regulatory News Service – AIM) and will guide communications within the
Annual Report.
Investor queries can be directed to KRM22 by email to InvestorRelations@krm22.com. All advisor details,
including those of KRM22’s NOMAD and Auditors can be found on the last page of this report.
In adopting Principle 2, KRM22 assures investors that the Company is aligned to their needs, expectations and
values.
Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-
term success
The Board believes that KRM22 should be seen as an asset to its stakeholders, aligned with their values. This
is why the Board plans to establish of an Environment, Social and Governance (“ESG”) programme in 2021.
The ESG programme will be centred around meeting the United Nations 17 Sustainable Development Goals
(“SDGs”) (https://sdgs.un.org/goals). In order to work towards these SDGs, KRM22 will promote a culture of
transparency and discussion amongst all four stakeholder groups.
The first phase of the ESG programme is an exercise to benchmark the Company against the SDGs with the
aim of establishing the areas of focus for the remainder of the programme. During this benchmarking phase,
each stakeholder group will be considered and if necessary, consulted to establish alignment with their views
and values.
In addition to the ESG programme, KRM22 continually gathers feedback from all stakeholder groups.
Methods of two-way communication include:
Investors: see Principle 10 below.
Customers: Regular meetings with existing and potential customers by the Business Development team in
Europe via London, North America via New York and Chicago, and Asia via Singapore and Australia.
Team: KRM22 communicates regularly with the cross-country, multi-national and diverse team in multiple
ways. Bi-weekly internal company meetings are held where the Executive team update all staff on business-
wide issues and encourage team participation. In addition, KRM22 uses centralised internal systems including
team-wide easy-to-use communication tools, formal performance appraisals are completed three times a year,
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KRM22 plc
ANNUAL REPORT 2020
with informal appraisals completed throughout the year, and “all-employee” announcements (for example, on
acquisitions/investments, new customer contract wins, customer projects and other business-wide news).
Principle 3 provides the main methodology of meeting KRM22’s ESG goals across all four stakeholder groups.
Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the
organisation
Good effective risk management is part of KRM22’s DNA and the Company has built the Enterprise Risk
Cockpit as a product to market and sell and also use internally to effectively manage risk throughout the
Company. Therefore, risk management is embedded in the culture of not only the KRM22 Board, but also the
whole team.
Director experience in risk management: All the Directors have experience of building growing multi-
national businesses and understand the risks and challenges that come with the journey. Their sector
and professional mix of skills is particularly relevant – see Principle 6.
Team experience in risk management: The subject matter expertise within the multi-national team is
very strong and includes market risk, compliance risk and enterprise risk experts. As a company
dedicated to risk management technology, the KRM22 team has a high understanding and experience
in managing risk.
Enterprise Risk Cockpit: The Enterprise Risk Cockpit is an application that KRM22 has developed to
allow CEOs and their teams to see real-time risk statuses and enable them to take action. KRM22 has
implemented the Enterprise Risk Cockpit internally to monitor and manage risks.
Controls and processes: The Directors are continually reviewing controls and processes in all key areas
on an ongoing basis. When an acquisition is completed, the acquired company’s control’s and
processes are reviewed and are aligned with group policy as quickly as possible, with a target of within
three months from the date of acquisition.
Principle 5: Maintain the Board as a well-functioning, balanced team led by the Chair
Role and composition of the board:
Keith Todd is the Executive Chairman and CEO and as such has two roles in the business:
• Chairman: The principal role of the Chairman is to manage and to provide leadership to the Board of
Directors of the Company. The Chairman is accountable to the Board.
• CEO: The principal role as the CEO is to make major corporate decisions, manage the overall operations
and resources and act as the ultimate point of communication with stakeholders.
Whilst QCA guidelines encourage the role of Chairman and CEO to be held by two different people, Keith Todd’s
experience helps him perform these two roles with self-challenge. In addition, the Board currently comprises
an equal number of executive and non-executives which encourages healthy challenge and debate with the
non-executives providing additional independence.
The Board believes strongly that a mix of professional skills, risk management experience and capital market
understanding make a difference, as does diversity, and one of the responsibilities of the Nomination
Committee is to undertake an annual assessment of Board Effectiveness which includes a review of skills,
experience and composition.
The KRM22 leadership is described on pages 25 – 27.
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KRM22 plc
ANNUAL REPORT 2020
Principle 6: Ensure that between them the Directors have the necessary up-to-date experience, skills and
capabilities
The Directors consider that the mix of professional skills, risk management experience and capital market
understanding is key to the effectiveness of the Board and its Committees. As such, the Board is very satisfied
that the resulting mix of skills is suited to the sector, to the maturity and growth stage and for an AIM-listed
business.
Skills: Of the six Directors, five have worked within capital markets, two are qualified accountants and one is a
qualified lawyer. All six Directors have experience of growing businesses and how risks need to be managed
within a fast-growth environment.
The Directors maintain their professional experience and skill set through Continued Professional Development
(legal and financial), and constant contact with customers, sector experts and industry influencers, and by
listening to feedback from all stakeholders.
Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continuous
improvement
The KRM22 Board has three Board Committees, each consisting of the two independent Non-Executive
Directors. See more details in Principle 9.
The responsibilities of the Nomination Committee include an annual assessment of Board Effectiveness. The
last assessment was completed in March 2020. The Directors assessed the Board on:
• Risk management (including Going Concern);
• Adequacy of management information to make decisions and manage risk;
• The effectiveness of decision processes and decision making;
• Board composition (mix of skills, experience, diversity, and adequate succession planning);
• The effectiveness of each Director on the Board, whether Executive or Non-Executive;
• Board communication and organisation; and
• Director induction and training.
The Nomination Committee regarded the Board’s performance, effectiveness and composition as appropriate
considering the size and stage of KRM22’s development however they continue to monitor the Board’s
construction and remit as KRM22 develops and grows.
Principle 8: Promote a corporate culture that is based on ethical values and behaviours
KRM22 has grown fast and brought together different business and nationality cultures, through acquisitions
and its own organic growth, and therefore the Board is very people-focused, including all stakeholders whether
internal or external.
Team
The aim of the Directors is to build and maintain a culture of transparency and performance and the Directors
believe that empowerment of employees is key to delivering the strategy.
KRM22’s three key company values are:
• Focus wins;
• Business is a team game; and
32
KRM22 plc
ANNUAL REPORT 2020
• Clear accountabilities for all.
All employees have access to an internal HR system which provides the full organisation chart across KRM22.
This helps each employee understand where they fit within the organisation and how their work contributes to
KRM22’s growth and performance.
As the business has grown, KRM22 has adopted corporate policies, staff handbooks and accounting policies
which are aligned with the needs of the Group, each country and team. As each business is acquired, the team
is included in internal communications and is integrated/transitioned into the communication and systems of
KRM22. Each member of the team is expected to sign and adhere to certain policies, including the Business
Code of Conduct which outlines key responsibilities in terms or ethics.
In addition, for full transparency, the Board has adopted whistleblowing policies for employees and external
stakeholders, including the choice of reporting to and excluding the CFO.
As discussed in Principle 3, KRM22’s ESG programme is focused on meeting the United Nations 17 SDGs
which promotes a strong ethical culture within all areas of the Company.
Principle 9: Maintain governance structures and processes that are fit for purpose and support good
decision-making by the Board
The Board of Directors is responsible for setting the strategic direction of the business, managing risks and
monitoring performance and progress. To help fulfil these responsibilities, the Directors have implemented
independent Board Committees which together with the Matters Reserved for the Board, provide structure and
formalisation of corporate governance.
The Matters Reserved for the Board include Board approval for acquisitions. For the acquisitions completed
to date, the Board has received due diligence information undertaken by employees and external advisors to
provide the right information to make the right decisions for the business.
The Board is regularly provided with financial information for monitoring performance and to make strategic
decisions
Risk Management
The Company uses its own Enterprise Risk Cockpit software tool to assess and monitor risks. This has
gradually replaced any list of risks in Excel or Word (often the basis for a “Risk Register”) and deliver much
more visibility to the Directors of the performance KRM22 as a whole.
Independence
At 31 December 2020 the Board was comprised of three Executive Directors and three Non-Executive
Directors. Three of the Non-Executive Directors are considered independent as they have not previously
worked with the executive team.
Under their letters of appointment, the Non-Executive Directors have a time commitment of two days per
month and the executives are full-time (with time allowed for agreed external professional activities). All
Directors are able to allocate sufficient time to KRM22 to fulfil their responsibilities.
33
KRM22 plc
ANNUAL REPORT 2020
Nineteen scheduled board meetings were held during the year.
20
Board meeting
attendance 2020
Executive Directors
Keith Todd
Stephen Casner
Kim Suter
Non-Executive Directors
Sandy Broderick
Garry Jones
Steve Sparke
Former Non-Executive Directors
Karen Bach
Board committees
Maximum possible
meeting attendance
Number of meetings
attended
% of meetings
attended
19
19
15
19
19
19
4
19
17
15
19
17
18
4
100
89
100
100
89
95
100
The Directors have established an Audit Committee, a Nominations Committee and a Remuneration
Committee with formally delegated duties and responsibilities. None of the Executive Directors are members
of these Committees and, when invited to attend Committee meetings, it is to present information and not be
part of the decision making.
Principle 10: Communicate how the Company is governed and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
All financial reports and publicly-available information is published in the investor information section of the
KRM22 website (www.krm22.com). This includes AIM rule 26, significant shareholder information and details
of our Directors’ roles and experience.
The CEO and CFO meet with institutional fund investors to communicate progress and plans at least twice a
year and have met them at other times where appropriate. In addition, the CEO and CFO meet with Kestrel
Partners LLP (the “Security Agent”) to report on financial covenants and forward-looking compliance
information as part of the reporting obligations of the Convertible Loan Agreement dated 15 September 2020
(the “Convertible Loan”).
The Directors believe that these meetings provide valuable two-way communication and allow investors and
Security Agent to provide feedback. Other investors are provided a channel for communication via the KRM22
investor information on the website and via email contact at InvestorRelations@krm22.com.
The report of Board Committees is included in our Annual Report and Accounts each year. When General
Meetings are held, the Directors publish the results of votes on the KRM22 website in the Investor Information
section.
Internally KRM22 uses multiple team-tools to communicate – see Principle 3.
Board Committees and Secretary
The Board delegates authority to three committees to assist in meeting its business objectives while ensuring
a sound system of internal control and risk management. The committees meet independently of Board
meetings.
34
Audit Committee
KRM22 plc
ANNUAL REPORT 2020
The Audit Committee was established by a resolution of the Board on the recommendation of the Nomination
Committee. The Audit Committee, which meets at least three times a year, consisted of Steve Sparke and
Garry Jones, both of whom were non-executive directors of the Company. Steve Sparke chaired the Committee
and has extensive board level experience, having previously been the Chairman of the Audit and Risk
Committee at NYSE Euronext LIFFE (now ICE Europe).
The responsibilities of the Audit Committee are detailed in the Audit Committee report on page 35.
Remuneration Committee
The Remuneration Committee, which meets at least once a year, consisted of Sandy Broderick and Garry
Jones, both of whom were non-executive directors of the Company. The Committee was established by a
resolution of the Board on the recommendation of the Nomination Committee. During the year to 31 December
2020, and to date, the Committee was chaired by Sandy Broderick.
The responsibilities of the Remuneration Committee are detailed in the Remuneration Committee are detailed
in the Remuneration Committee report on page 37.
Nomination Committee
The Nomination Committee, which meets at least once a year, consisted of Sandy Broderick and Garry Jones,
both of whom are non-executive directors of the Company. The Committee was established by a resolution
of the Board. During the year to 31 December 2020, and to date, the Committee was chaired by Sandy
Broderick.
The responsibilities of the Nomination Committee are detailed in the Nomination Committee report on page
41.
For and on behalf of the Board
Keith Todd CBE
Executive Chairman and CEO
15 March 2021
35
KRM22 plc
ANNUAL REPORT 2020
AUDIT COMMITTEE REPORT
The Audit Committee is responsible for challenging the quality of internal and external controls and for ensuring
that the financial performance of KRM22 is properly reviewed and reported.
The Committee reviews reports on the interim and annual accounts, financial announcements, the Company’s
accounting and financial control systems, changes to accounting policies, the extent of non-audit services
undertaken by the external auditor and the appointment of the external auditor.
During the year the Audit Committee reviewed the 2019 annual report, 2020 interim report and the associated
announcements. The Audit Committee considered the accounting policies and principles adopted in these
accounts as well as significant accounting issues and areas of judgement and complexity.
Composition
The terms of reference for the Audit Committee require the committee to consist of preferably three members
but not less than two members and that a majority of the members shall be independent non-executives with
at least one of whom shall have recent relevant financial experience.
During 2020, and to date, the Audit Committee was composed of myself, Steve Sparke, as Chairman and Garry
Jones. I have extensive board-level experience and have previously been the Chairman of the Audit and Risk
Committee at NYSE Euronext LIFFE (now ICE Europe) and, whilst working at Marex Spectron, the Internal Audit
group reported to me and I was a standing attendee of the Audit and Compliance committee. The Board is of
the view that we have recent and relevant financial experience. Kim Suter (CFO) and Carol Tarpey (Financial
Controller) and other Executive Directors may attend Committee meetings by invitation. The Committee
formally met on three occasions during the year. However, other informal discussions were held by Committee
members during the year and since year end. I report to the Board following an Audit Committee meeting and
minutes are available to the Board.
Role of the Committee
The main duties of the Committee are set out in its terms of reference, which are available on KRM22’s website
and the main items of business considered by the Committee in the year included:
• Consideration of risk management and internal control systems;
• Review and approval of the 2019 audit plan and engagement;
• Review of the 2019 audited annual report;
• Consideration of key audit matters and how they are addressed;
• Review of the unaudited 2020 interim report;
• Review the suitability of the external auditor; and
• Meeting with the external auditor without management present.
Financial Reporting
The Committee reviews whether suitable accounting policies have been adopted and whether management
has made appropriate judgements and estimates. The Committee’s remit includes reviews of accounting
papers prepared by management providing details on the main financial reporting judgements as well as
assessments of the impact of potential new accounting standards.
36
KRM22 plc
ANNUAL REPORT 2020
There were no material changes in accounting policy for the Committee to consider during 2020 and the key
papers reviewed by the Committee included the accounting treatment for the acquisition of the remaining
shareholding in KRM22 Market Surveillance Limited, the Kestrel Loan and share-based payments. The
Committee have concluded that the annual report and financial statements are appropriately prepared and
provide the information necessary for shareholders to assess KRM22’s strategy and performance.
Risk management and interim controls
The risk and control management framework of KRM22 is designed to manage rather than eliminate the risk
of failure to meet KRM22’s objectives and the system can only provide reasonable and not absolute
assurances against material misstatement or loss. KRM22 faces a number of risks, the significant ones of
which are set out in the section on Principal risks and uncertainties on pages 13 - 15.
Through the control systems outlined in the Statement of Corporate Governance on pages 25 - 34, KRM22
operates an ongoing process of identifying, evaluating and managing significant risks faced by the business.
This process includes the following:
• Defined organisation structure and appropriate delegation of authority;
• Formal authorisation procedure for investments;
• Clear responsibility for management to maintain good financial control and the production and review
of detailed, accurate and timely financial information;
Identification of operational risks and mitigation plans developed by senior management; and
•
• Regular reports to the Board from Executive Directors.
During the year, internal control processes have been monitored and reviewed by the Committee and the Board
and, where necessary improvements, have been identified and implemented.
External Auditor
BDO was appointed auditor of KRM22 in 2018. The Committee considers that its relationship with the auditor
is working well and is satisfied with their effectiveness.
The Committee is responsible for implementing a suitable policy for ensuring that non-audit work undertaken
by the auditor is reviewed so that it will not impact their independence and objectivity. The breakdown of fees
between audit and non-audit services is provided in note 7 to KRM22’s financial statements. The non-audit
fees primarily relate to taxation advice and compliance.
As necessary, the Committee held private meetings with the auditor to review key items within its scope of
responsibility. Taking into account the auditor’s knowledge of KRM22 and experience, the Committee has
recommended to the Board that the auditor is reappointed for the year ending 31 December 2021.
For and on behalf of the Audit Committee
Steve Sparke
Audit Committee Chairman
15 March 2021
37
KRM22 plc
ANNUAL REPORT 2020
REMUNERATION COMMITTEE REPORT
The Board has prepared this report in relation to all Directors who have served during the year to 31 December
2020. As an AIM listed company KRM22 Plc is not required to provide the full disclosures required of fully
listed companies, however, the Board has chosen to provide the following details as a voluntary disclosure. As
a result, the Auditor is not required to and has not audited the information included in this report, unless
otherwise stated.
Composition
The terms of reference for the Remuneration Committee require the committee to consist of preferably three
members but not less than two members and that a majority of the members shall be independent non-
executives.
During 2020, and to date, the Committee was composed of myself (Sandy Broderick) as Chairman and Garry
Jones.
Role of the Committee
The purpose of the Committee is to ensure that the executive directors and other key employees of KRM22
(together, ‘Executive Directors’) are fairly rewarded for their individual contribution to the overall performance
of KRM22. The Committee’s main role and responsibilities are to:
• Have responsibility for setting the remuneration policy for Executive Directors and such other members
of the executive management as it is designated to consider;
• Recommend and monitor the level and structure of remuneration for senior management;
• Obtain reliable, up-to-date information about remuneration in other companies of comparable scale
and complexity in the light of reviewing the ongoing appropriateness of and relevance of remuneration
policy;
• Review the design of all share incentive plans for approval by the Board; and
• Approve the design of, and determine targets for, any performance-related pay schemes operated by
KRM22 and approve the annual payments made under such schemes.
Remuneration Policy
In setting the remuneration policy, the Committee recognises the need to be competitive in an international
market. The Committee’s policy is to set remuneration levels which ensure that the Executive Directors are
fairly rewarded in line with high levels of performance and not in excess of market rates for comparable
companies. Remuneration policy is designed to support business growth strategies and to create a strong
performance-oriented environment. The policy must also attract, retain, and motivate high calibre individuals.
The Remuneration Committee believes that a successful remuneration policy must ensure that a significant
proportion of the remuneration package is linked to the achievement of ambitious corporate performance
targets and a strong alignment with the interests of shareholders.
Consistent with the pay for performance policy, annual cash bonuses are linked to performance criteria. Share
option and warrant awards to Executive Directors are linked to performance as well as being time vested.
38
Annual salary
KRM22 plc
ANNUAL REPORT 2020
Salaries are set at a level appropriate for the role and the individual and are reviewed annually with effect from
1 January. Adjustments are made, if required, to reflect company and individual performance and competitive
pay levels. No salary increases were made during the year or on 1 January 2021 and, in fact, a substantial
proportion of executive salaries were only partially paid in the year or replaced with share options. Further
detail on share options granted to senior executives are detailed below.
Performance bonus
These are designed to reflect KRM22’s performance taking into account the performance of its peers, the
markets in which KRM22 operates and the Executive Directors’ contribution to that performance. No bonuses
were paid to the Directors in the year.
Share Options, Restricted Stock and Warrants
The following share options, restricted stock and warrants were held by Directors in the year.
Option holder
name
Keith Todd
Kim Suter
Sandy Broderick
Garry Jones
Date of grant
18/09/2020
Exercise price
£0.380
Vesting period
18/09/2020 – 17/09/2023
28/09/2018
10/06/2019
10/06/2019
23/12/2019
22/07/2020
18/09/2020
01/10/2020
10/06/2019
18/09/2020
01/10/2020
10/06/2019
01/10/2020
£1.000
£0.850
£0.850
£0.525
£0.300
£0.380
£0.380
£0.850
£0.380
£0.380
£0.850
£0.380
28/09/2018 – 27/09/2021
10/06/2019 – 10/06/2022
10/06/2019 – 01/03/2020
23/12/2019 – 22/12/2022
22/07/2020 – 22/08/2020
18/09/2020 – 17/09/2023
01/10/2020 – 31/10/2020
10/06/2019 – 03/04/2022
18/09/2020 – 17/09/2023
01/10/2020 – 31/12/2020
10/06/2019 – 03/04/2022
01/10/2020 – 31/12/2020
Steve Sparke
01/10/2020
£0.380
01/10/2020 – 31/12/2020
Total
Restricted stock
holder name
Stephen Casner
Total
Warrant holder
name
Keith Todd
Stephen Casner
Karen Bach
Total
Date of award
18/09/2020
Exercise price
£0.380
Vesting period
18/09/2020 – 17/09/2023
Date of grant
30/04/2018
24/04/2018
24/04/2018
Exercise price
£1.00
£1.00
£1.00
Vesting period
30/04/2018 – 29/04/2021
24/04/2018 – 23/04/2021
24/04/2018 – 23/04/2021
Number of ordinary
shares under option
287,831
287,831
50,000
50,000
30,000
60,000
21,875
124,342
17,270
353,487
10,000
59,210
59,211
128,421
176,471
49,342
225,813
59,211
59,211
1,054,763
Number of ordinary
shares under option
253,162
253,162
Warrants
held
3,300,000
1,200,000
900,000
5,400,000
39
KRM22 plc
ANNUAL REPORT 2020
During the year, a range of measures were implemented to mitigate the cash impact of COVID and delayed
sales including staff accepting a temporary salary sacrifice of between six and nine months. In lieu of staff
receiving a reduced level of remuneration, a total of 867,923 share options were granted, of which 206,909
options were granted to the Directors.
In addition, a further 1,187,322 share options and a restricted stock award of 253,162 was awarded in exchange
for salary deferrals, and the related accrued repayment bonuses, undertaken by certain employees in March
2019 for twelve months as part of the Company’s management of cashflows. The accrued repayment
bonuses were due to be repaid at an uncommitted future date however, in conjunction with the Convertible
Loan with Kestrel, it was agreed that the accrued deferred salary bonus would be converted to share options.
Of the total 1,187,322 share options granted to staff, 471,383 share options were granted to the Directors.
Further information on warrants and share options issued is detailed in note 0 to the financial statements.
Service contracts
The Executive Directors have employment contracts which are subject to between 3- and 12-months’ notice
from either the executive or KRM22 at any given time.
Non-Executive Directors’ fees are determined by the Executive Directors having regard to the need to attract
high calibre individuals with the right experience, the anticipated time commitment to fulfil their duties and
comparative fees paid in the market to which KRM22 operates. They may be invited to participate in the
KRM22 share options scheme.
Directors’ Emoluments
The remuneration of the Executive and Non-Executive Directors (audited) for the year ended 31 December
2020 was as follows:
2020
2019
Salary
& Fees
£’000
12
45
56
5
6
8
13
–
–
–
145
Benefits
£’000
8
–
2
–
–
–
–
–
–
–
10
Share
based
payments
£’000
372
143
13
5
12
4
25
–
–
–
574
Bonus
£’000
–
–
–
–
–
–
–
–
–
–
–
Pension
£’000
–
–
3
–
–
–
–
–
–
–
3
Total
£’000
392
188
74
10
18
12
38
–
–
–
732
Salary
& Fees
£’000
175
226
–
30
17
2
110
10
4
28
602
Benefits
£’000
8
–
–
–
–
–
6
–
–
–
14
Bonus
£’000
(6)
–
–
–
–
–
(5)
–
–
–
(11)
Share
based
payments
£’000
518
188
–
–
5
–
141
–
8
–
860
Pension
£’000
–
1
–
–
–
–
11
–
–
–
12
Total
£’000
695
415
–
30
22
2
263
10
12
28
1,477
Keith Todd
Stephen Casner
Kim Suter
Sandy Broderick
Garry Jones
Steve Sparke
Former Directors
Karen Bach
David Ellis
Jim Oliff
Matt Reed
Total
During the year ended 31 December 2020, the Directors waived some of their salary through a voluntary salary
sacrifice scheme and some of the Directors were granted share options in lieu of the reduced salary.
The benefits relate to private medical insurance, life insurance, critical illness cover and income protection
insurance for Directors and their immediate families.
40
Directors’ Interests
KRM22 plc
ANNUAL REPORT 2020
The Directors who held office at 31 December 2020 had the following interest in the ordinary share capital of
the Company as at that date:
Director
Keith Todd
Stephen Casner
Kim Suter
Sandy Broderick
Garry Jones
Steve Sparke
At 31 December 2020
No. of ordinary shares of 10p each
At 31 December 2019
No. of ordinary shares of 10p each
2,700,108
513,143
26,666
11,765
176,471
273,236
2,347,052
513,143
10,000
11,765
176,471
189,903
Sandy Broderick
Remuneration Committee Chairman
15 March 2021
41
KRM22 plc
ANNUAL REPORT 2020
NOMINATION COMMITTEE REPORT
During 2020, and to date, the Committee was composed of Sandy Broderick, as Chairman, and Garry Jones.
The main duties of the Committee are set out in its terms of reference, which are available on KRM22’s website.
The Committee met on two occasions in 2020 to undertake an annual review of Board performance and to
consider the appointment of Kim Suter to the Board as an Executive Director.
The annual review of Board performance was undertaken in March 2020 and considered the time spent by
Non-Executive board members, the structure, size and composition of the Board, the Board’s performance and
the Nomination Committee’s performance. The Committee concluded that the Board’s performance,
effectiveness and composition was appropriate considering the size and stage of KRM22’s development and
would continue to monitor the Board’s construction and remit as KRM22 grows. In considering the
performance of the Nomination Committee, the Committee deemed their performance as satisfactory, given
the non-expansionary phase of KRM22, and therefore lack of significant work for the Committee to consider.
Sandy Broderick
Nomination Committee Chairman
15 March 2021
42
KRM22 plc
ANNUAL REPORT 2020
DIRECTORS’ REPORT
The Directors present their report and the audited financial statements of KRM22 Plc (‘the Company’) and its
subsidiary companies, together called ‘KRM22’, for the year ended 31 December 2020. An indication of likely
future developments in the business is set out in the Strategic Report.
Principal activities
The principal activity of KRM22 is the development and sale of risk management software to the financial
services industry.
Directors
The Directors of the Company who served throughout the year and to the date of signing this report, except as
noted below were:
Keith Todd CBE
Chairman and CEO
Stephen Casner
President
Kim Suter
CFO (appointed 2 April 2020)
Sandy Broderick
Non-Executive Director
Garry Jones
Non-Executive Director
Steve Sparke
Non-Executive Director
Karen Bach
Non-Executive Director (resigned 2 April 2020)
Director indemnification and insurance
KRM22 maintains Directors’ and Officers’ liability insurance for each of its directors. The insurance covers any
liabilities that may arise to a third party, other than KRM22 or Company, for negligence, default or breach of
trust or duty.
Financial risk management objectives and policies
Further detailed commentary on financial risk management is included in note 26.
43
Liquidity risk
KRM22 plc
ANNUAL REPORT 2020
KRM22 seeks to manage financial risk by ensuring adequate liquidity is available to meet foreseeable needs
and to invest cash assets safely and profitably. Short-term flexibility is achieved by holding significant cash
balances in KRM22’s main operational currencies, notably UK Sterling, US Dollar, Euro and Czech Kroner.
Foreign exchange risk
KRM22 has significant operations in both the UK and overseas. Revenue and costs are exposed to variations
in exchange rates and therefore reported losses. There is some natural hedging of transactional foreign
exchange risk, however KRM22 remains subject to translation exchange risk.
COVID-19 risk
The global COVID-19 pandemic has created increased levels of risk to due to the difficulty in being able to
predict the timing and certainty of events affecting KRM22 and its stakeholders. Delays in the conversion of
sales pipeline opportunities impact cashflow and, whilst KRM22 cannot control external factors around the
timing and certainty of new contract sales, actions have been taken during 2020 to manage cashflow including
the arrangement of the Convertible Loan with Kestrel and managing the underlying cost base of the business.
Overseas branches
KRM22 has one branch outside the UK located in Czech Republic.
Research and Development
KRM22 continues to dedicate resource to develop the Global Risk Platform and its suite of risk management
products including Enterprise (Risk Cockpit), Market (Pre-Trade, At-Trade and Post-Trade) and Compliance
(Market Surveillance).
In accordance with IAS38 ‘Intangible Assets’, expenses are capitalised when it is probably that future economic
benefits will be attributable to the asset and these costs can be measured reliably (see note 3). For the year
ended 31 December 2020, total expenditure that has been capitalised on these projects totalled £1.0m (2019:
£1.5m).
Going Concern
KRM22’s business activities, together with the factors likely to affect its future development, performance and
position are set out in the Strategic report on pages 6 - 23 and the financial position of KRM22, its cash flows,
liquidity position and borrowing facilities are described in the notes to the financial statements, in particular in
the consolidated cash flow statement on page 64 and in note 26 (financial instruments).
These financial statements have been prepared on the going concern basis. The Directors have reviewed
KRM22’s going concern position taking account of its current business activities, budgeted performance and
the factors likely to affect its future development, as set out in its 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.
44
KRM22 plc
ANNUAL REPORT 2020
The COVID-19 pandemic impact on our business have been appropriately managed and the Board believes
that the business is able to navigate through the impact of COVID-19. Taking account of this, the Directors
have undertaken a significant assessment of the cashflow forecasts covering a period of at least twelve
months from the date of approval of the financial statements. Cashflow forecasts has been prepared based
on a range of scenarios including, but not limited to, existing customer churn at different churn rates, no new
contracted sales revenue, delayed sales, cost reductions and a combination of these different scenarios.
Having assessed the sensitivity analysis on cashflows, the key risks to KRM22 remaining a going concern
without implementing extensive cost reduction measures is existing customers paying on payment terms and
within 45 days of invoice, customer churn of up to 10%, conversion of some of the sales opportunities that are
currently at contract negotiation stage and maintaining control of the cost base.
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 individually as high value and low
volume, is key. As such, there is a risk that KRM22’s working capital may prove insufficient to cover both
operating activities and the repayment of its debt facility. In such circumstances, KRM22 would be obliged to
seek additional funding through a placement of shares or other sources of funding. There is no certainty that
such funds could be raised.
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 a going concern. However
the Directors expect to be able to raise funds through a placement of shares or other source of funding and
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, being twelve months from their signing of their financial statements.
The financial statements do not include the adjustments that would be required if the Company and Group
were unable to continue as a going concern.
See note 3 on page 68 for further information on going concern.
Post year-end reporting date events
On 4 March 2021, the Company signed an addendum (the “Addendum”) to the Object+ Share Purchase
Agreement dated 29 May 2019. Under the terms of the Addendum, the undiscounted deferred consideration
of US$1.6m (£1.2m) associated with the third performance milestone was reduced by US0.5m (£0.4m) to
US$1.1m (£0.8m) in return for a cash payment of US$0.1m (£0.1m) to the Seller of Object+ and the Company
waiving the US$0.1m (£0.1m) promissory loan note due from the Seller to the Company. As of the statement
of financial position date the Director’s expectation was that such a position was probable taking account of
the performance of the Group and engagement with the seller.
45
KRM22 plc
ANNUAL REPORT 2020
Substantial Shareholders
As at 31 December 2020, the Shareholders listed below had a disclosable interest of 3% or more in the nominal
value of the ordinary share capital of the Company.
Kestrel Partners
KRM22 Concert Party
Canaccord Genuity Wealth Management
Cinnober Financial Technology AB
Herald Investment Management
Octopus Investments
Gresham House
Energy and carbon
Number of
ordinary shares
5,366,657
4,317,532
3,112,859
2,654,434
2,431,456
1,134,308
1,000,000
Percentage of
ordinary shares %
20.1
16.2
11.7
9.9
9.1
4.3
3.7
The 2018 Regulations introduced requirements under Part 15 of the Companies Act 2006 for an enhanced
group of companies, which are defined as large by the Companies Act 2006, to disclose their annual energy
use and greenhouse gas emissions, and related information. The Group is not currently defined as large.
However given the Group’s values and taking account of its energy consumption has chosen to apply the 2018
Regulations. KRM22 plc, itself consumes less than 40MWh and therefore as a low energy user, which negates
the need to make detailed disclosures of its energy and carbon information. Furthermore and taking account
of this, it has applied the option permitted by the 2018 Regulations to exclude any energy and carbon
information relating to its subsidiaries where the subsidiary would not itself be obliged to include if reporting
on its own account; this applies to all subsidiaries within the group.
Brexit
The United Kingdom (‘UK’) formally left the European Union (‘EU’) on 30 January 2020. The period from when
the UK voted to exit the EU on 23 June 2016 and the formal process initiated by the UK government to withdraw
from the EU, or Brexit, created volatility in the global financial markets. The UK entered a transition period,
being an intermediary arrangement covering matters like trade and border arrangements, citizens’ rights and
jurisdiction on matters including dispute resolution, taking account of The EU (Withdrawal Agreement) Act
2020, which ratified the Withdrawal Agreement, as agreed between the UK and the EU. The transition period
ended on 31 December 2020, where upon the UK-EU Trade & Cooperation Agreement (together with other
connected Agreements concluded on by the UK and EU, which includes the Exchanging and Protecting of
Classified Information Agreement) signed on the 24 December 2020, with UK Parliament approval on 30
December 2020.
As such, the Directors deem that the adoption of the UK-EU Trade & Cooperation Agreement will not have a
significant impact on the Company’s operations nor consider it likely that the Company will be significantly
impacted as it is not an importer or exporter of goods across EU borders. However, the Directors and senior
leadership team are closely monitoring the situation to be able to manage the risk of any volatility in global
financial markets and impact on global economic performance due to Brexit.
Corporate governance
The Company adopts the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies (“QCA
guidelines”) as set out on pages 28 - 34.
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Dividends
KRM22 plc
ANNUAL REPORT 2020
No interim dividends were paid and the Directors do not recommend payment of a final dividend.
Share options schemes
Details of employee share schemes are set out in note 0 to the financial statements.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the annual report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law,
Directors have prepared the Group and Company financial statements in accordance with international
accounting standards in conformity with the requirements of the Companies Act 2006. Under company law
the Directors must not approve the financial statements unless they are satisfied that they give a true and fair
view of the state of the affairs of KRM22 and the Company and for the profit or loss of KRM22 and the
Company for that period. The Directors are also required to prepare financial statements in accordance with
the rules of the London Stock Exchange for companies trading securities on the AIM.
In preparing these financial statements, the Directors are also required to:
• Select suitable accounting policies and apply them consistently;
• Make judgements and estimates that are reasonable and prudent;
• State whether they have been prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006; and
• Prepare the financial statements on the going concern basis, unless it is inappropriate to presume the
Group and Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the requirements of the
Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring that the annual report and the financial statements are made
available on the Company’s website. Financial statements are published on the Company’s website in
accordance with legislation in the United Kingdom governing the preparation and dissemination of financial
statements, which may vary from legislation in the United Kingdom governing the preparation and
dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance
and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also
extends to the ongoing integrity of the financial statements contained therein.
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Disclosure of information to the auditor
Each of the Directors of the Company at the time when this report was approved confirms that:
• So far, as the Director is aware, there is no relevant audit information which the Company’s auditor is
unaware; and
• He or she has taken all the steps that he or she ought to have taken as a Director in order to make
himself or herself aware of any relevant audit information and to establish that the Company’s auditor
is aware of that information. This confirmation is given in accordance with Section 418(2) of the Act.
Auditor
BDO LLP was appointed as auditor to the Company and in accordance with Section 485 of the Companies Act
2006, a resolution proposing that they be reappointed will be tabled at a General Meeting.
Approval
The Directors’ Report was approved on behalf of the Board by:
Kim Suter
Company Secretary
15 March 2021
FINANCIAL STATEMENTS
Financial Statements
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ANNUAL REPORT 2020
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF KRM22 PLC
Opinion on the financial statements
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent
Company’s affairs as at 31 December 2020 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act 2006;
the Parent Company financial statements have been properly prepared in accordance with
international accounting standards in conformity with the requirements of the Companies Act 2006
and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements of KRM22 Plc (the ‘Parent Company’) and its subsidiaries (the
‘Group’) for the year ended 31 December 2020 which comprise the consolidated income statement and the
statement of comprehensive income for the Group, the consolidated statement of financial position for the
Group, the Company statement of financial position, the consolidated statement of changes in equity for
the Group, the Company statement of changes in equity, the consolidated statement of cash flows for the
Group and the Company statement of cash flows and notes to the consolidated financial statements,
including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and
international accounting standards in conformity with the requirements of the Companies Act 2006 and, as
regards the Parent Company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs(UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as
applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
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Material uncertainty related to going concern
We draw attention to note 3 in the financial statements which indicates that the Group may need to raise
further finance within the next 12 months to enable it to cover its operating expenses, especially in light of
the current continuous COVID-19 pandemic causing economic uncertainty and making accurate
forecasting even more judgemental and complex. There is no certainty that such funds could be raised.
These events or conditions, along with the other matters as set out in note 3, indicate that a material
uncertainty exists that may cast significant doubt about the Group’s and the parent company ability to
continue as a going concern. Our opinion is not modified in respect of this matter.
The calculations supporting the going concern assessment require management to make highly subjective
judgements. We have therefore spent significant audit effort in assessing the appropriateness of the
assumptions involved, and as such this has been identified as a Key Audit Matter.
Our audit procedures included the following:
• Review of the internal forecasting process to confirm the projections are prepared by an appropriate
level of staff that are aware of the detailed figures included in the forecast but also have an
understanding of the entity’s market, strategy and changes in the customer base and the potential
impact that Covid-19 might have on these projections;
• Reviewing management’s assessment of going concern through analysis of the Group’s cash flow
forecast and other projections through to 30 June 2022, including assessing and challenging the
assumptions as to determine whether there is adequate support for the assumptions underlying the
forecasts and comparison against post yea -end results to date and performing sensitivity analysis
to consider cash flow changes if the level of revenue and costs. This includes, taking account of
the Covid-19 pandemic, reverse stress testing to ascertain what levels of cost increases or revenue
decline cause a cash shortage at any point in management’s post balance sheet assessment period
and considering the likelihood that those fact patterns could occur;
• Reviewing the terms of the Group’s existing financing and covenants attached to it and plans for
future fund raising;
• Reviewing post-balance sheet events, specifically the actual cash flow position against that
budgeted; and
• Considering the adequacy of the disclosures in the financial statements against the requirements
of the accounting standards.
Overview
Coverage
86% (2019: 86%) of Group loss before tax
89% (2019: 93%) of Group revenue
90% (2019: 95%) of Group total assets
Key audit matters
2020
2019
KAM 1
KAM 2
Going Concern
Going Concern
Revenue
Recognition
Revenue Recognition
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KAM 3
KAM 4
Acquisition of
remaining
the
40%
of
subsidiary
(KRM22 Market
Surveillance Ltd,
previously
Irisium Ltd)
Acquisition of Object
+
BV
Holding
(‘Object+’):
Accounting
for
acquisition and the
business
combination
Impairment of
intangible
assets
(including
Goodwill)
-
KAM 3 in 2019 is no longer considered to be a key audit matter because it
was a specific transaction/event during that year. It has been replaced by a
specific transaction/event that occurred in 2020. KAM 4 has been added
considering
testing
management’s assessment of impairment of the intangibles and the
amounts, judgements and estimates relating to these are significant.
there have been
identified while
indicators
Materiality
Group financial statements as a whole
£244,000 (2019: £336,000) based 5% of average loss before tax for last 3
years (2019: 5% of loss before tax in 2019)
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the
Group’s system of internal control, and assessing the risks of material misstatement in the financial
statements. We also addressed the risk of management override of internal controls, including assessing
whether there was evidence of bias by the Directors that may have represented a risk of material
misstatement.
In establishing the overall approach to the Group audit, we assessed the audit significance of each
component in the Group by reference to both its individual financial significance to the Group or other
specific nature or circumstances. We identified seven individually significant components, which makes up
86% of Group loss before tax and also covers 90% of the total assets of the Group.
The significant components in all territories were audited by the Group audit team, as the Group’s finance
team and information for all territories are based within the UK and to this extent:
• The Group audit team performed full scope audits for KRM22 Plc and its subsidiaries KRM22
Central Limited, KRM22 Development Limited, and KRM22 Market Surveillance Ltd (previously
known as Irisium Ltd);
• The Group audit team performed specified audit procedures for KRM22 Americas Inc, KRM22
ProOpticus LLC, and Object+ Financial Services BV due to their significance to the Group, focussing
on Group risk areas; and
• The remaining components not subject to full scope audit or specific procedures have been
reviewed for Group reporting purposes, by the Group auditor, using analytic procedures to
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ANNUAL REPORT 2020
corroborate the conclusions reached that there are no significant risks of material misstatement of
the aggregated financial information of these components.
The Group audit team performed the audit of 86% of the Group revenue and 100% of the intangible assets
using the materiality levels set out above.
Key audit matters
In addition to the matter described in the material uncertainty related to going concern section, key audit
matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
Revenue
Recognition
How the scope of our audit addressed the
key audit matter
•
We performed the following specific testing:
The Group, as a software business,
generates revenue primarily from the sale of
recurring software as a service licenses, and
non-recurring software implementation and
set up services too. Details of the Group’s
revenue streams and accounting policies
applied during the period are given in note 3.
•
We considered there to be a significant audit
risk arising from inappropriate or incorrect
recognition of revenue.
•
to ensure each revenue stream had a
standalone value and that revenue is
not
/
recorded
recognised prematurely.
The key audit matters related to revenue
recognition are as follows:
inaccurately
•
•
•
•
to
• The risk of material misstatement in
relation
recognition
revenue
concerns the recognition around the
year end, particularly in relation to
license sales. License sales require an
activations code to be provided to the
customer, which enables access. This
in turn provides evidence of delivery to
the
in
the customer
contractual performance obligation;
and
relation
to
• There is also a risk that all revenue
streams have not been recognised in
line with the revenue recognition policy,
in particular the unbundling of any
contracts in line with their performance
obligations, to ensure each revenue
stream had a standalone value and that
revenue is not recorded inaccurately /
recognised prematurely.
receipt
• Verified a sample of Software-as-a-
Service (‘SaaS’) license fees recognised
in the year, reconciling to underlying
agreements,
and
cash
appropriate trigger events (performance
obligations) for revenue recognition;
• Agreed a sample of the Group’s non-
recurring
(mainly
revenue
implementation fees) received through
to delivery order confirmation and
ultimate cash receipt and confirm that it
has a standalone value; and
• Cut-off procedures
to
including testing
invoices raised in December 2020 and
to
January 2021, verifying back
underlying agreements,
check
revenue has been recognised within the
correct period.
checked
completeness,
the
existence and accuracy of accrued
income and deferred revenue balances
shown in the statement of financial
position at year end. We selected a
sample
transactions
revenue
occurring either side of the year-end
reporting date across all
revenue
streams and checked that the revenues
recognised for the year under audit and
accrued income and deferred revenues
recognised at the year end reporting
date had been recorded appropriately
with reference to the sampled revenue
contract
of
• We
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ANNUAL REPORT 2020
Acquisition
the
of
remaining
40%
non-
controlling
interest
KRM22
Market
Surveillance
Ltd
in
• We assessed whether the revenue
recognition policies adopted by the
Group
accounting
standards.
comply with
Key observations:
revenue has been
Based on the work performed we consider
that
recognised
appropriately and in accordance with the
Group’s revenue recognition accounting
policy.
See accounting policy
in note 3, the
operating expense (note 6) and the business
combinations note (note 27).
We performed the following substantive
audit procedures :
interest
On 16 April 2020, the remaining 40%
in KRM22 Market
minority
Surveillance Limited (‘the subsidiary’) was
acquired for a total consideration of £0.55m
by way of a convertible loan note (‘CLN’).
The transaction also involved historic debt
due being converted into ordinary shares in
to
the subsidiary
consolidating
the
subsidiary.
its ownership of
immediately prior
There are risks present as a result of
management’s
to make
significant judgements in assessing the fair
values of consideration and treatment of the
loans extinguished.
requirement
The inherent complexity of the judgements
involved in assessing the fair values have
led us to assess this as a key audit matter
along with the related disclosures.
• Obtained the share purchase agreement,
related to the transaction and ensured
in
the
accordance with the relevant terms of
the agreement.
accounting
treatment
is
• Obtained the CLN agreement entered
between the parties and agreed the
accuracy and completeness of the
relevant terms of the agreement. The
terms of the CLN were verified to ensure
in
instrument was accounted
the
accordance with
the
calculation for conversion into ordinary
shares was arithmetically checked and
agreed.
IFRS 9 and
• Tested the accuracy of accounting
treatment applied, taking account of
IFRIC 19, where upon equity instruments
are issued to settle financial liabilities
and measured at fair value and audited
the calculated of the resultant gain on
extinguishment being recorded in the
consolidated income statement.
• We evaluated the disclosures provided in
the financial statements and checked
that these are consistent with the terms
of
the acquisition and amounts
disclosed accurately reflect the value of
the
the
assets
requirements of IFRS.
acquired
and
Key observations
Based on the procedures performed, we
noted no instances of material numerical or
presentational misstatements in the year
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ANNUAL REPORT 2020
Impairment
of
intangible
assets
(including
Goodwill)
Taking account of the Group’s accounting
policy in note 3, and as disclosed in note 12,
the Directors have determined that an
impairment of intangible assets (including
goodwill) does exists, amounting
to
£3,022k. This has been determined based
on a value in use model, which includes
consideration of probability adjusted
scenarios based on difference revenue and
cost growth assumptions, to assess the
recoverability of
intangible assets
the
(including goodwill).
There are significant judgements involved in
the estimation of the recoverable amount of
the intangibles (including goodwill). The
adequacy of related disclosures also needs
to be assessed.
relating to the accounting for remaining 40%
non-controlling interest of the subsidiary.
The senior members of the audit team were
responsible for completing the work in
relation to the assessment of impairment of
intangibles (including goodwill) and our
audit procedures included the following:
• We reviewed management’s impairment
assessment, based on our knowledge of
the Group’s business, performance to
from discussions with
date and
management.
• We have considered whether
to value
the
the
methodology applied
recoverable amount of the intangibles
appropriately supports the asset value.
• We reviewed and challenged of the
assumptions underpinning the forecasts
and the other inputs into the value in use
model. This included a recalculation of
the discount rate applied.
• We checked that the forecast figures
included within the model had been
approved by the Board and the base
case scenario was consistent with
in other audit
information obtained
procedures.
• We have also reviewed the different
scenarios used by management and ran
evaluate
our own
management’s assessment of
the
recoverability of intangibles (including
goodwill).
sensitives
to
• We assessed the adequacy of the related
accounting policies and disclosures in
the financial statements.
Key observations
Based on the procedures performed, we
consider management’s
judgements
relating to the impairment of intangible
assets to be appropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect
of misstatements. We consider materiality to be the magnitude by which misstatements, including
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KRM22 plc
ANNUAL REPORT 2020
omissions, could influence the economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality,
we use a lower materiality level, performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also
take account of the nature of identified misstatements, and the particular circumstances of their
occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole
and performance materiality as follows:
Group financial statements
Parent company financial statements
2020
2019
2020
2019
Materiality
£ 244,000
£ 336,000
£ 126,000
£ 176,000
Basis for
determining
materiality
5% of three year’s
average of losses
before tax
5% of in year Loss
before tax
2% of total assets
1% of total assets
Rationale for the
benchmark
applied
Performance
materiality
Basis for
determining
performance
materiality
A primary KPI used by management to
assess the performance of the business.
As the parent primarily acts as a holding
company for the Group’s investments.
£ 170,000
£ 235,000
£ 88,200
£ 123,000
including
a number of factors
the
expected total value of known and likely
misstatements
past
factors) and
experience and other
management’s
towards
proposed adjustments
attitude
(based
on
including
a number of factors
the
expected total value of known and likely
misstatements
past
factors) and
experience and other
management’s
towards
proposed adjustments
attitude
(based
on
Component materiality
The individual component materiality values used for the individual overseas components were set at 50%-
75% Group materiality, dependent on the size and our assessment of the risk of material misstatement of
that component, at £122,000 - £183,000 for overseas components. For UK components, this was set at
5% of loss before tax, which ranged between £26,000 to £104,000. In the audit of each component, we
further applied performance materiality levels of 70% of the component materiality to our testing to ensure
that the risk of errors exceeding component materiality was appropriately mitigated.
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Reporting threshold
KRM22 plc
ANNUAL REPORT 2020
We agreed with the Audit Committee that we would report to them all individual audit differences in excess
of £12,200 (2019: £10,100). We also agreed to report differences below this threshold that, in our view,
warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report 2020 other than the financial statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information
is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit,
or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this gives rise to a material misstatement in
the financial statements themselves. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we
are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as
described below.
Strategic report
and Directors’
report
Matters on
which we are
required to
report by
exception
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the Strategic report and the Directors’ report for the
financial year for which the financial statements are prepared is consistent with
the financial statements; and
the Strategic report and the Directors’ report have been prepared in accordance
with applicable legal requirements.
In the light of the knowledge and understanding of the Group and Parent Company
and its environment obtained in the course of the audit, we have not identified material
misstatements in the strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which the
Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or
returns adequate for our audit have not been received from branches not
visited by us; or
the Parent Company financial statements are not in agreement with the
accounting records and returns; or
•
• certain disclosures of Directors’ remuneration specified by law are not made;
or
• we have not received all the information and explanations we require for our
audit.
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Responsibilities of Directors
As explained more fully in the Statement of Directors’ responsibilities statement set out on page 46, the
Directors are responsible for the preparation of the financial statements and for being satisfied that they
give a true and fair view, and for such internal control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below:
• We identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, and then design and perform audit procedures responsive to those risks, including
obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.
• We have identified and assessed the potential risks related to irregularities, including fraud, by
considering the following:
o Enquiries of management regarding: the compliance with laws and regulations; the
detection and response to the risk of fraud and any knowledge of actual, suspected or
alleged fraud; and the controls in place to mitigate risks related to fraud or non-compliance
with laws and regulations;
o Obtaining an understanding of the legal and regulatory framework in which the Group
operates. The key laws considered are accounting standards and the Companies Act 2006.
• We have responded to risks identified by performing procedures including the following:
o Enquiry of in-house management and external legal counsel concerning actual and potential
litigation and claims;
o Performing analytical procedures to identify any unusual or unexpected relationships which
may indicate risks of misstatement due to fraud; and
o Reading the minutes of meetings of those charged with governance.
o Review of financial statements disclosures and testing to supporting documentation.
• We have also considered the risk of fraud through management override of controls by:
o Testing on a sample basis the appropriateness of journal entries and other adjustments;
o Assessing whether the judgements made in making accounting estimates are indicative of
potential bias;
indicative of potential bias;
o
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Our audit procedures were designed to respond to risks of material misstatement in the financial
statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than
the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for
example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit
procedures performed and the further removed non-compliance with laws and regulations is from the
events and transactions reflected in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the
Parent Company’s members those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Iain Henderson (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
Date: 15 March 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
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KRM22 plc
ANNUAL REPORT 2020
CONSOLIDATED INCOME STATEMENT AND
STATEMENT OF COMPREHENSIVE INCOME
FOR THE GROUP
For the year ended 31 December 2020
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss before interest, taxation, depreciation, amortisation, share
based payment and exceptional items (‘Adjusted EBITDA’)
Depreciation and amortisation
Impairment of intangible assets
(Loss)/profit disposal of tangible/intangible assets
Contingent consideration write back
Gain on extinguishment of debt (net)
Unrealised foreign exchange loss
Acquisition and debt related expenses
Company reorganisation costs
Deferred salary bonus accrual write back
Share-based payment charge
Operating loss
Finance charge (net)
Loss before taxation
Taxation credit
Loss for the year
Loss for the year attributable to:
Equity shareholders of the parent
Non-controlling interest
Other comprehensive income
Item that may be reclassified subsequently to profit and loss:
Exchange (loss)/gain on translation of foreign operations
Total comprehensive loss for the year
Total comprehensive loss for the year attributable to:
Equity shareholders of the parent
Non-controlling interest
Loss per ordinary share
Basic earnings per share
Diluted earnings per share
Note
5
6
9
10
11
11
All amounts relate to continuing activities.
The notes on pages 66 to 99 form part of these financial statements.
2020
£’000
4,594
(440)
4,154
(9,570)
(167)
(1,688)
(3,022)
(63)
342
677
(160)
(401)
(430)
381
(885)
(5,416)
(324)
(5,740)
246
(5,494)
(5,879)
385
(5,494)
(117)
(5,611)
(5,996)
385
(5,611)
(24.1p)
(24.1p)
2019
£’000
4,143
(434)
3,709
(10,830)
(3,072)
(1,259)
(2,344)
22
1,493
–
–
(413)
(527)
–
(1,021)
(7,121)
(196)
(7,317)
792
(6,525)
(5,648)
(877)
(6,525)
33
(6,492)
(5,615)
(877)
(6,492)
(30.4p)
(30.4p)
60
KRM22 plc
ANNUAL REPORT 2020
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION FOR THE GROUP
As at 31 December 2020
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right of use assets
Other receivables
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Lease liabilities
Loans and borrowings
Derivative financial liability
Net current assets/(liabilities)
Non-current liabilities
Trade and other payables
Lease liabilities
Loans and borrowings
Deferred tax liability
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Convertible debt reserve
Foreign exchange reserve
Share-based payment reserve
Retained earnings
Note
12
12
13
19
15
15
17
18
19
20
20
18
19
20
21
23
24
2020
£’000
4,937
3,065
136
1,041
–
9,179
1,434
1,974
3,408
12,587
2,539
456
97
45
3,137
271
882
549
2,664
405
4,500
7,637
4,950
2019
£’000
7,667
3,562
233
1,642
42
13,146
1,358
1,076
2,434
15,580
2,954
488
388
45
3,875
(1,441)
1,179
988
1,597
536
4,300
8,175
7,405
2,672
16,676
(190)
224
108
2,563
(17,103)
4,950
–
4,950
2,100
15,435
(190)
–
(9)
1,678
(10,871)
8,143
(738)
7,405
Non-controlling interest
Total equity
The financial statements were approved by the Board and authorised for issue on 15 March 2021 and are
signed on its behalf by:
Kim Suter
Company Secretary
The notes on pages 66 to 99 form part of these financial statements.
61
KRM22 plc
ANNUAL REPORT 2020
COMPANY STATEMENT OF FINANCIAL
POSITION
As at 31 December 2020
Non-current assets
Investments
Intercompany loans
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Loans and borrowings
Net current (liabilities)/assets
Non-current liabilities
Loans and borrowings
Total liabilities
Net (liabilities)/assets
Equity
Share capital
Share premium
Convertible debt reserve
Share-based payment reserve
Retained earnings
Total equity
Note
14
15
15
17
18
20
20
23
24
2020
£’000
489
737
1,226
76
157
233
1,459
150
97
247
(14)
2,664
2,664
2,911
(1,452)
2,672
16,676
224
2,563
(23,587)
(1,452)
2019
£’000
301
1,297
1,598
290
88
378
1,976
366
–
366
12
–
–
366
1,610
2,100
15,435
–
1,678
(17,603)
1,610
As permitted by s408 Companies Act 2006, the Company has not prepared its own statement of
comprehensive Income and related notes. The Company’s loss for the year was £5,984,000 (2019: loss of
£16,469,000).
The financial statements were approved by the Board and authorised for issue 15 March 2021 and are
signed on its behalf by:
Kim Suter
Company Secretary
The notes on pages 66 to 99 form part of these financial statements.
62
KRM22 plc
ANNUAL REPORT 2020
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY FOR THE GROUP
For the year ended 31 December 2020
Ordinary
Shares
£’000
2,100
–
Share
premium
£’000
15,435
–
Merger
reserve
£’000
(190)
–
Convertible
debt reserve
£’000
–
–
Foreign
exchange
reserve
£’000
(9)
–
SBP
Reserve
£’000
1,678
–
Retained
losses
NCI
£’000 £’000
(738)
385
(10,871)
(5,879)
Total
equity
£’000
7,405
(5,494)
–
–
–
–
–
–
–
–
572
1,241
–
–
–
–
–
–
–
–
–
–
–
224
–
–
117
117
–
–
–
–
–
–
–
–
–
885
–
–
117
(5,879)
385
(5,377)
(353)
353
–
–
–
–
–
–
–
–
224
1,813
885
4,950
2,672
16,676
(190)
224
108
2,563
(17,103)
At 1 January 2020
Loss for the year
Other
comprehensive
loss
Total
comprehensive
loss
Non-controlling
interest
Convertible debt
option
Allotment of share
capital
Share-based
payments
At 31 December
2020
For the year ended 31 December 2019
Ordinary
Shares
£’000
1,638
–
Share
premium
£’000
12,659
–
Merger
reserve
£’000
(190)
–
Foreign
exchange
reserve
£’000
24
–
–
–
462
–
2,100
–
–
2,776
–
15,435
–
–
–
–
(190)
(33)
(33)
–
–
(9)
At 1 January 2019
Loss for the year
Other comprehensive
income
Total comprehensive loss
Allotment of share capital
Share-based payments
At 31 December 2019
SBP
reserve
£’000
657
–
Retained
losses
£’000
(5,223)
(5,648)
–
–
–
1,021
1,678
–
(5,648)
–
–
(10,871)
NCI
£’000
139
(877)
–
(877)
–
–
(738)
Total
equity
£’000
9,704
(6,525)
(33)
(6,558)
3,238
1,021
7,405
The notes on pages 66 to 99 form part of these financial statements.
63
KRM22 plc
ANNUAL REPORT 2020
COMPANY STATEMENT OF CHANGES IN
EQUITY
For the year ended 31 December 2020
As at 1 January 2020
Loss for the period
Convertible debt option
Allotment of share capital
Share-based payments
As at 31 December 2020
Ordinary
shares
£’000
2,100
–
–
572
–
2,672
Share
premium
£’000
15,435
–
–
1,241
–
16,676
Convertible
debt reserve
£’000
–
–
224
–
–
224
SBP
Reserve
£’000
1,678
–
–
–
885
2,563
Retained
losses
£’000
(17,603)
(5,984)
–
–
–
(23,587)
For the year ended 31 December 2019
As at 1 January 2019
Loss for the period
Allotment of share capital
Share-based payments
As at 31 December 2019
Ordinary
shares
£’000
1,638
–
462
–
2,100
Share
premium
£’000
12,659
–
2,776
–
15,435
SBP
reserve
£’000
657
–
–
1,021
1,678
Retained
losses
£’000
(1,134)
(16,469)
–
–
(17,603)
Total
equity
£’000
1,610
(5,984)
224
1,813
885
(1,452)
Total
equity
£’000
13,820
(16,469)
3,238
1,021
1,610
The notes on pages 66 to 99 form part of these financial statements.
64
KRM22 plc
ANNUAL REPORT 2020
CONSOLIDATED STATEMENT OF CASH
FLOWS FOR THE GROUP
For the year ended 31 December 2020
Cash flows from operating activities
Loss for the year
Adjustments for:
Tax credit
Net finance expense
Amortisation of intangible assets
Depreciation of property, plant and equipment and right of use assets
Impairment of intangible assets
Loss/(profit) on disposal of intangible/tangible assets
Write back of contingent consideration
Gain on extinguishment of debt (net)
Unrealised foreign exchange loss
Deferred salary bonus accrual write back
Equity-settled share-based payment expense
Bad debt provision
Income taxes received
(Increase)/decrease in trade and other receivables
(Decrease)/Increase in trade and other payables
Net cash flows used in operating activities
Cash flows from investing activities
Acquisition of subsidiary undertakings (net of cash acquired)
Purchase of intangible assets
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Costs of issue of shares
Lease payments principal
Lease payments interest
Receipts from borrowings
Repayments of borrowings
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Bank overdraft
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
The notes on pages 66 to 99 form part of these financial statements.
2020
£’000
2019
£’000
(5,494)
(6,525)
(246)
324
1,018
670
3,022
63
(342)
(677)
160
(381)
885
340
121
(537)
(76)
(329)
(405)
(942)
–
(959)
(2)
(961)
1,280
(25)
(458)
(84)
3,000
(874)
2,839
936
1,076
–
(38)
1,974
(792)
196
672
587
2,344
(22)
(1,493)
–
85
–
1,021
–
562
(3,365)
98
8
106
(3,259)
(379)
(1,599)
(16)
(1,994)
2,787
(65)
(559)
(93)
1,056
(203)
2,923
(2,330)
3,355
22
29
1,076
65
KRM22 plc
ANNUAL REPORT 2020
COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
Cash flows from operating activities
Loss for the year
Adjustments for:
Net finance income
Deferred salary bonus accrual write back
Increase in provisions against intra-group loans
Equity-settled share-based payment expense
Decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Net cash outflows used in operating activities
Cash flows from investing activities
Advance of loans to subsidiaries
Net cash outflow used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Costs of the issue of shares
Receipts from borrowings
Repayments of borrowings
Net cash inflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at the end of the year
2020
£’000
2019
£’000
(5,984)
(16,469)
(1,381)
(107)
6,186
697
(589)
214
(187)
27
(562)
(3,620)
(3,620)
1,280
(25)
3,000
(4)
4,251
69
88
157
(1,119)
–
15,927
946
(715)
16
123
139
(576)
(4,268)
(4,268)
2,787
(65)
–
–
2,722
(2,122)
2,210
88
The notes on pages 66 to 99 form part of these financial statements.
66
KRM22 plc
ANNUAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the year ended 31 December 2020
1. General information
KRM22 Plc, (the ‘Company’), is a public company, limited by shares and is listed on the Alternative
Investment Market (AIM). The Company is incorporated and domiciled in the UK. The registered office is
5 Ireland Yard, London, EC4V 5EH.
The principal activity of the Company, and together with its subsidiaries (‘KRM22’, the ‘Group’), is to develop
and invest in leading risk tools to support enterprise, market, compliance, operational and technology risks.
2. Basis of Preparation and Consolidation
Basis of preparation
The financial reporting framework that has been applied in their preparation is applicable law and
international accounting standards in conformity with the requirements of the Companies Act 2006 and, as
regards the Parent Company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
The financial information has been prepared on the historical cost basis except that financial instruments
are stated at the fair value.
The financial statements are prepared in Sterling, which is the functional currency of the Parent Company
too. Monetary amounts in these financial statements are rounded to the nearest £’000.
KRM22 applied all standards and interpretations issued by the IASB that were effective as of 1 January
2020. The accounting policies set out below have, unless otherwise stated, been applied consistently to all
years presented in this financial information.
The preparation of the financial statements, in conformity with IFRS, requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in the process of applying
KRM22’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the consolidated financial statements, are disclosed in
note 4.
Adoption of new and revised standards
There are no new standards impacting the Group that have been adopted in the annual financial statements
for the year ended 31 December 2020, which have given rise to material changes in the Group's accounting
policies.
67
KRM22 plc
ANNUAL REPORT 2020
Standards, amendments and interpretations to published standards not yet effective
There are a number of new standards and amendments to and interpretations of existing standards, which
have been published and are not yet mandatory and which the Group has decided not to adopt early, as
below:
Effective date for
annual periods
beginning
on/after
Issue
date
Expected
impact
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
(not EU endorsed)
23-Jan-20
01-Jan-23
None
Basis of consolidation
The financial information represents the consolidated financial information of the Company and its
subsidiaries (‘KRM22’, the ‘Group’) as if they are formed as a single entity. Intercompany transactions and
balances between KRM22 companies are therefore eliminated in full. The results of subsidiary
undertakings are included in the consolidated statement of comprehensive income from the date that
control commences until the date that control ceases. The Company controls a subsidiary if all three of
the following elements are present:
• power over the investee;
• exposure to variable returns from the investee; and
•
the ability of the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate that there may be a change in any of
these elements of control. In assessing control, KRM22 takes into consideration potential voting rights that
are currently exercisable.
On 19 April 2018, KRM22 Plc, a company under common control of the KRM22 Central Limited
shareholders, acquired KRM22 Central Limited from its shareholders in return for an issue of shares. As a
combination of entities under common control, the transaction falls outside the scope of the standard IFRS
3 ‘Business Combinations’.
Paragraph 10 of IAS8 Accounting Policies, Changes in Accounting Estimates and Errors requires
management to use its judgement in developing and applying a policy that is relevant, reliable, represents
faithfully the transaction, reflects the economic substance of the transaction, is neutral, is prudent and is
complete in all material respects when selecting appropriate methodology for consolidation accounting.
In the absence of IFRS guidance, KRM22 has applied merger accounting in accordance with ‘FRS102:
Section 19 Business Combinations and Goodwill’, as the business combination meets the requirements set
out in paragraph 27, namely:
•
•
the use of the merger accounting method is not prohibited by company law or other relevant
legislation;
the ultimate equity holders remain the same, and the rights of each equity shareholder, relative to
others before and after the acquisition are unchanged; and
• no non-controlling interest in the net assets of KRM22 is altered by the transfer.
In accordance with merger accounting, consolidated accounts have been prepared for the restructured
Group as if it has always been in existence. The carrying value of assets and liabilities have not been
68
KRM22 plc
ANNUAL REPORT 2020
adjusted to fair value. The difference between the nominal value of the shares issued and the nominal value
of the shares received has been recorded in the merger reserve.
3. Accounting policies
Going concern
These 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 Group and Company meets their day-to-day working capital requirements through cash generated from
the capital it has raised on AIM, and a Convertible Loan facility with Kestrel Partners LLP (“Kestrel”). On 15
September 2020 KRM22 signed a three-year convertible loan agreement with Kestrel for £3.0m with some
proceeds of the loan being used to settle the existing Debt Facility with. At 31 December 2020 KRM22 had
£2.0m of cash at bank and debt due to Kestrel of £3.0m (gross).
The Directors have undertaken a significant assessment of the cashflow forecasts covering a period of at
least twelve months from the date of approval of the financial statements. Cashflow forecasts have been
prepared based on a range of scenarios including, but not limited to, existing customer churn at different
churn rates, no new contracted sales revenue, delayed sales, cost reductions and a combination of these
different scenarios.
Having assessed the sensitivity analysis on cashflows, the key risks to KRM22 remaining a going concern
without implementing extensive cost reduction measures is, existing customers paying on payment terms
and within 45 days of invoice, customer churn of up to 10%, conversion of some of the sales opportunities
that are currently at contract negotiation stage and maintaining control of the cost base.
If the forecasts are 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 individually as high value and
low volume, is key. As such, there is a risk that KRM22’s working capital may prove insufficient to cover
both operating activities and the repayment of its debt facility. In such circumstances, KRM22 would be
obliged to seek additional funding, through a placement of shares or other source of funding. There is no
certainty that such funds could be raised.
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 a going concern.
However the Directors expect to be able to raise funds through a placement of shares or other source of
funding and 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, being twelve months from their signing of their
financial statements. The financial statements do not include the adjustments that would be required if the
Company and Group were unable to continue as a going concern.
69
Revenue recognition
KRM22 plc
ANNUAL REPORT 2020
Revenue comprises recurring revenue, non-recurring revenue and other revenue and is stated exclusive of
VAT and sales tax.
All revenue is only recognised to the extent when services have been delivered and the revenue can be
reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value
of the consideration received or receivable.
The following specific recognition criteria are applied to each revenue stream:
Recurring revenue
Recurring revenue comprises Software-as-a-Service (SaaS) license fees which give the licensee a
right to access the software for a fixed period of time together with ongoing post-contract customer
support services comprising customer support (including designated contacts, telephone and
onsite support), hosting and maintenance services, enhancements and minor and major upgrades.
All of the post-contract customer support services are bundled into one service and are not readily
distinguishable in terms of apportioning the license fee between its constituent parts.
In applying the principles of IFRS15 ‘Revenue from Contracts with Customers’ the Directors consider
that SaaS licenses provide the customer with a right to access the software over a period of time
and that revenue generated from sales of software licenses is recognised over the term of the
license.
Where license fees are invoiced in advance, the income is deferred and released over the term of
the license with the balance recorded within accruals and deferred income in the statement of
financial position.
Non-recurring revenue
Non-recurring revenue comprises one-off pieces of work including implementation fees related to
initial set-up services and ad-hoc development services which are outside the scope of post-contract
customer services covered by the license fee.
Where implementation fees have only been partially completed at the statement of financial position
date, revenue represents the value of service provided to date based on completed implementations
as defined in the contract. Where payments have been received from customers in advance of
services provided, the amounts are recorded within accruals and deferred income in the statement
of financial position. The implementation fee is a distinct obligation and therefore recognised at a
point in time.
Other revenue
Other revenue comprises miscellaneous revenue that is not part of providing SaaS services, either
as recurring revenue or non-recurring implementation fees, and is not part of KRM22’s core
business. Turnover represents the value of service provided and where payments have been
received from customers in advance of services provided, the amounts are recorded within accruals
and deferred income in the statement of financial position.
70
Deferred revenue
KRM22 plc
ANNUAL REPORT 2020
At 31 December 2020, the balance of deferred revenue was £1.5m (2019: £1.1m) and this will be
released to the income statement in full within one year of the statement of financial position date.
Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s
chief operating decision maker (CODM). The CODM, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the Chief Executive Officer.
Business combinations and goodwill
KRM22 applies the acquisition method to account for business combinations. The consideration transferred
for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities assumed by the
former owners of the acquiree and the equity interests issued by KRM22. The consideration transferred
includes the fair value of any asset or liability resulting from a contingent consideration arrangement.
Identifiable assets and liabilities acquired, and liabilities assumed are measured initially at their fair values
at the acquisition date. Goodwill is measured as the excess of the sum of the consideration transferred, the
amount of any non-controlling interests in the acquired entity measured on the proportionate net asset basis,
over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed. If,
after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities
assumed exceeds the sum of the consideration transferred, the excess is recognised immediately in the
income statement as a bargain purchase gain.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the
purposes of impairment testing, goodwill acquired in a business combination is, from the acquisition date,
allocated to the KRM22’s cash-generating unit that is expected to benefit from the combination, irrespective
of whether other assets of liabilities of the acquiree are assigned to that unit.
Intangible assets
Research expenditure is expensed to the income statement in the year in which it is incurred. Expenditure
on internal projects is capitalised if it can be demonstrated that:
it is technically and commercially feasible to develop the asset for future economic benefit;
•
• adequate resources are available to maintain and complete the development;
• KRM22 is able to use the asset;
• use of the asset will generate future economic benefit;
• expenditure on the development of the asset can be measured reliably; and
•
it is KRM22’s intention to complete the development and use or sell it.
Other development expenditure is recognised in the income statement as an expense as incurred.
Capitalised development expenditure is stated at cost less accumulated amortisation and less
accumulated impairment losses.
71
KRM22 plc
ANNUAL REPORT 2020
Amortisation is charged to the income statement on a straight line basis over the estimated useful lives of
intangible assets. Intangibles assets are amortised from the date they are available for use. The estimated
useful lives are as follows:
Acquired software
Capitalised development costs
Customer contracts and relationships
Brand (including trademarks)
-
-
-
-
straight line over 5 - 10 years
straight line over 3 years
straight line over 10 years
straight line over 3 - 10 years
The basis for choosing these useful lives is with reference to the years over which they can continue to
generate value for KRM22.
Amortisation charges are included within administrative expenses in the consolidated statement of income
statement. KRM22 reviews the amortisation year and methodology when events and circumstances
indicate that the useful life may have changed since the last reporting date.
Property, plant and equipment
Property, plant and equipment are initially measured at historical cost and subsequently measured at
historical cost, net of depreciation and any impairment losses.
Depreciation on other assets is calculated on a straight-line method to allocate their cost or revalued
amounts to their residual values over their estimated useful lives, as follows:
Fixtures and fittings
Office and computer equipment
-
-
straight line over 4 years
straight line over 4 years
The gain or loss arising on the disposal of an asset is determined as the difference between the sale
proceeds and the carrying value of the asset and is recognised in the income statement.
Right of use assets
KRM22 recognises right of use assets for all applicable leases at the lease liability commencement date.
The right of use asset is initially measured at cost, and consists of the amount of:
the initial measurement of lease liability, plus
•
• any lease payments made to the lessor at or before the commencement date, less
• any lease incentives received;
•
the initial estimation of restoration costs; and
• any initial direct costs incurred by the lessee.
Depreciation on right of use assets is calculated on a straight line method over the lease term.
Non-current assets
The Company’s interests in subsidiaries are initially measured at cost and subsequently measured at cost
less accumulated impairment losses.
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ANNUAL REPORT 2020
Impairment of tangible and intangibles assets
All tangible and intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount might not be recoverable. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely
independent cash inflows or Cash Generating Units (CGUs).
Financial assets
Financial assets are recognised in KRM22 and the Company’s statement of financial position when KRM22
and the Company becomes party to the contractual provisions of the instrument. Under IFRS 9 the
classification of financial assets is based both on the business model and cash flow type under which the
assets are held. There are three principal classification categories for financial assets: amortised cost; fair
value through other comprehensive income; and fair value through profit or loss. KRM22 has not classified
any of its financial assets as fair value through other comprehensive income.
Amortised cost
These assets are non-derivative financial assets held under the ‘held to collect’ business model and
attracting cash flows that are solely payments of principal and interest. They comprise trade and other
receivables and cash and cash equivalents. They are initially measured at fair value plus transaction costs
and are subsequently carried at amortised cost using the effective interest rate method, less provision for
impairment.
Impairment provisions for trade and other receivables are calculated using an expected credit loss model.
Under this model, impairment provisions are recognised to reflect expected credit losses based on a
combination of historic and forward-looking information, the amount of such a provision being the
difference between the net carrying amount and the present value of the future expected cash flows
associated with the impaired receivable. For trade receivables, which are reported net; such provisions are
recorded in a separate allowance account. On confirmation that the trade receivable will not be collectable,
the gross carrying value of the asset is written off against the associated provision.
Cash and cash equivalents include cash in hand, deposits held at call with banks and other short term highly
liquid investments with maturities of three months or less.
Financial liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other
financial liabilities.
(a) Financial liabilities at fair value through profit or loss
Financial liabilities are stated at fair value with differences taken to the consolidated income statement.
Interest on financial liabilities up to maturity are included as a finance expense in the consolidated income
statement.
Financial liabilities are classified as at FVTPL when the financial liability is held for trading or is a derivative
(except for effective hedge) or are designated upon initial recognition as FVTPL.
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ANNUAL REPORT 2020
Gains or Losses, including any interest expense on liabilities held for trading or a derivative, are recognised
in the consolidated income statement.
(b) Trade and other payables
Trade payables and other payables are not interest bearing and are stated at their full value on initial
recognition. For disclosure purposes, the fair values of trade and other payables are estimated at the
present value of future cash flows, discounted at the market rate of interest at the reporting date. As trade
payables and other payables are short term in nature at the reporting date, the carrying value is considered
to be a reasonable approximation of fair value.
(c) Other financial liabilities
Other financial liabilities are initially measured at fair value, net of transaction costs. They are subsequently
measured at amortised cost using the effective interest method, with interest recognised on an effective
rate basis.
Fair value measurement
Fair value is measured using the following fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The different levels can be defined as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
• Level 2: inputs other than quoted prices included within level that are observable for the asset or
liability, either directly (i.e. prices) or indirectly (i.e. derived from prices); and
• Level 3: inputs for the asset or liability that are based on observable market data (unobservable
inputs).
Taxation
The tax expense represents the sum of tax currently payable and deferred tax.
(a) Current tax
Any current tax payable is based on taxable profit for the year. Taxable profit differs from net profit as
reported in the income statement because it excludes certain items of income or expense that are either
taxable or deductible in other years and it further excludes items that are never taxable or deductible. The
Company’s liability for current tax is calculated using tax rates that have been enacted or substantively
enacted by the reporting end date.
Companies within the group may be entitled to claim special tax allowances in relation to qualifying
research and development expenditure, e.g. R&D tax credits. The Group accounts for such allowances as
tax credits which means they are recognised when it is probable that the benefit will flow to the group and
that the benefit can be reliably measured. R&D tax credits reduce current tax expense and, to the extent the
amounts are due in respect of them and not settled by the statement of financial position date, reduce
current tax payable.
(b) Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts
of assets and liabilities in the financial statements and the corresponding tax bases used in the computation
of taxable profit and is accounted for using the liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that
74
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ANNUAL REPORT 2020
it is probable that taxable profits will be available against which deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or
the initial recognition (other than in a business combination) of assets and other liabilities in a transaction
that affects neither the tax profit or loss nor the accounting profit or loss.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent
that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset
to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the year when the
liability is settled or the asset is realised. Deferred tax is charged or credited to the income statement,
except when it relates to items charged or credited directly to ‘other comprehensive income’, in which
case the deferred tax is dealt with in ‘other comprehensive income’. Deferred tax assets and liabilities are
offset when the Company has a legally enforceable right to offset current tax assets and liabilities and
the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
Provisions
Provisions are recognised when KRM22 has a legal or constructive present obligation as a result of a past
event, it is probable that KRM22 will be required to settle that obligation and a reliable estimate can be made
of the amount of KRM22’s obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the
present obligation at the reporting end date, taking into account the risks and uncertainties surrounding the
obligation. Where a provision is measured using the cash flows estimated to settle the present obligation,
its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from
a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be
received and the amount of the receivable can be measured reliably.
Employee benefits
The costs of short-term employee benefits are recognised as a liability and as an expense, unless those
costs are required to be recognised as part of the cost of inventories or non-current assets. The cost of
any unused holiday entitlement is recognised in the year in which the employee’s services are received.
Retirement benefits
KRM22 operates a defined contribution plan, under which KRM22 pays contributions to independently
administered pension plans on a mandatory, contractual or voluntary basis. KRM22 has no further payment
obligations once the contributions have been paid. The contributions are recognised as an employee benefit
expense in the income statement when they are due.
Share-based payments
The Company issues equity-settled share-based payments to certain employees and these payments are
measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of the grant
using appropriate pricing models. The fair value determined at the grant date of the equity-settled share-
based payments is expensed on a straight-line basis over the vesting period, based on the Company’s
estimate of shares that will eventually vest and adjusted for the effect of non-market-based vesting
conditions.
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ANNUAL REPORT 2020
At the date of each statement of financial position, the Company revises its estimate of the number of
equity instruments that are expected to become exercisable. It recognises the impact of the revision of
original estimates, if any, in the income statement, and a corresponding adjustment is made to equity over
the remaining vesting period. The fair value of the awards and ultimate expense are not adjusted on a
change in market vesting conditions during the vesting period.
The value of share-based payment is taken directly to reserves and the charge for the period is recorded in
the income statement.
KRM22’s scheme, which awards shares in the parent entity, includes recipients who are employees in all
subsidiaries. In the consolidated financial statements, the transaction is treated as an equity-settled share-
based payment, as KRM22 has received services in consideration for KRM22’s equity instruments. An
expense is recognised in the Group income statement for the fair value of share-based payment over the
vesting year, with a credit recognised in equity.
In the subsidiaries’ financial statements, the awards, in proportion to the recipients who are employees in
said subsidiary, are treated as an equity-settled share-based payment, as the subsidiaries do not have an
obligation to settle the award. An expense for the grant date fair value of the award is recognised over the
vesting period, with a credit recognised in equity. The credit is treated as a capital contribution, as the
parent is compensating the subsidiaries’ employees with no cost to the subsidiaries as there is no
expectation to recharge the cost. In the parent company’s financial statements, there is no share-based
payment charge where the recipients are employed by a subsidiary, with the parent company recognising
an increase in the investment in the subsidiaries as a capital contribution from the parent and a credit to
equity.
Earnings per share
Earnings per share are calculated by dividing profit or loss after tax attributable to equity shareholders of
the parent company by the weighted average number of ordinary shares in issue during the period.
Diluted earnings per share requires that the weighted average number of ordinary shares in issue is adjusted
to assume conversion of all dilutive potential ordinary shares. These arise from awards made under share-
based incentive schemes. Instruments that could potentially dilute basic earnings per share in the future
have been considered but were not included in the calculation of diluted earnings per share because they
are anti-dilutive for the periods presented. This is due to the KRM22 incurring losses on continuing
operations for the year.
Leases
Under IFRS16 ‘Leases’, KRM22 recognises a lease liability at the commencement date of the lease at an
amount equal to the present value of the lease payments during the lease term that are not yet paid. The
present value of the lease payments is based on applying a discount rate which is either the interest rate
implicit in the lease or the incremental borrowing rate. The interest rate is treated as an interest expense
and charged to the income statement.
KRM22 also recognises a right of use asset at the lease liability commencement date and is measured at
cost as detailed in the Right of use assets accounting policy. The right of use asset is depreciated over the
term of the lease.
Where a lease has less than twelve months until the lease expiry date from the date of commencement,
KRM22 continues to classify these as operating leases and are charged as an expense to the income
statement on a straight line basis.
76
Foreign currency
KRM22 plc
ANNUAL REPORT 2020
Foreign currency transactions are translated at the exchange rates prevailing at the date of transactions.
Monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange at the
statement of financial position date. Any gain or loss arising from a change in the exchange rates of
exchange subsequent to the date of the transaction is included as a gain or loss in the income statement.
The statement of financial position of the foreign subsidiaries are translated into Sterling at the exchange
rate at the year end. The results of foreign subsidiaries are translated into Sterling at the average rate of
exchange during the financial year. Exchange differences which arise from the translation of opening net
assets or the foreign subsidiary undertakings are included in the consolidated statement of comprehensive
income and transferred to the KRM22’s translation reserve.
Descriptions of nature of each component of equity
The components of KRM22’s equity can be described as follows:
• Share capital – The amount for the nominal value of shares issued.
• Share premium – The amount subscribed for share capital in excess of nominal value after
deducting certain costs of issue.
• Foreign exchange reserve – This reserve relates to exchange differences arising on the translation
of the statement of financial position of the KRM22’s foreign operations at the closing rate and the
translation of the income statement of those operations at the average rate.
• Merger reserve – See note 2.
• Convertible debt reserve – This relates to the residual amount of any liability component from the
fair value of debt instruments as a whole where the debt instrument includes a liability and
embedded equity feature.
• Share-based payment (SBP) reserve – This relates to the fair value of share options and warrants
determined at the grant date of the equity- settled share-based payments.
• Retained deficit – The net gains and losses recognised in the consolidated statement of
comprehensive income.
4. Critical accounting judgements and key sources of estimation uncertainty
IAS 1 requires disclosure of the judgements, apart from those involving estimations, that management has
made in the process of applying the entity’s accounting policies that have the most significant effect on the
amounts recognised in the financial statements.
In the application of KRM22 and Company’s accounting policies, the Directors are required to make certain
judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these
estimates. The Directors believe that there are five areas within the financial statements which constitute
critical accounting judgements as follows:
I.
Contingent consideration
When KRM22 acquires subsidiary undertakings, the total consideration to be paid can include a
combination of initial cash consideration, Company ordinary shares and contingent consideration
that can be settled in either in the form of cash or Company ordinary shares at the Company’s
discretion.
77
KRM22 plc
ANNUAL REPORT 2020
The contingent consideration is dependent on the acquired subsidiary undertaking achieving certain
performance conditions at a future date and as specified in the relevant share purchase agreement.
As the performance conditions are based on a future date, management are required to apply a
significant amount of judgement in determining the likelihood of whether the performance criteria
will be achieved.
II.
Revenue
The allocation and timing of the recognition of revenue requires management judgement. Contracts
can include both the sale of licences and the provision of services including integration and
development.
The point at which the significant risks and rewards of ownership transfer is dependent on the
contractual terms and on this basis an analysis is made of each separable component of revenue.
In respect of a licence, this would usually be across the license term as the license is deemed to
provide a ‘right of access’ to the customer. In respect of provision of services and integration and
development this would usually be the period of time in which the integration and development
services were completed.
III.
Capitalisation of development costs
Development costs are capitalised based on an assessment on whether they meet the criteria
specified in IAS 38 for capitalisation. During each reporting period, an assessment is performed by
management to determine time spent developing the intangible assets as a proportion of total time
spent in the year. This represents an area of judgement and impacts the value of intangible costs
capitalised.
IV.
Leases
The recognition of leases in line with IFRS 16 requires significant judgement around the interest rate
used to calculate the discount rate of the present value of future cash flows.
V.
Business combinations
The valuation of contingent consideration based on the future performance of acquired businesses
relies upon significant judgments made by management.
In addition, IAS 1 requires disclosure of information about the assumptions the entity makes about
the future, and other major sources of estimation uncertainty at the end of the reporting period, that
have a significant risk of resulting in a material adjustment to the carrying amounts of assets and
liabilities within the next financial year. In respect of those assets and liabilities, the notes to the
financial statements include details of their nature and carrying amount at the end of the reporting
period.
In addition, judgments are made around the fair value of certain acquired assets to disclose their
fair value, based on areas such as expected credit risk of assumptions around performance.
VI.
Impairment of goodwill and other intangible assets
The Group has carried out an impairment review of its cash generating unit (“CGU”) and recognised
an impairment loss on goodwill and trademarks in the year. The recoverable amount of the CGU is
based on estimates of future cash flows discounted using an appropriate discount rate. Estimates
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KRM22 plc
ANNUAL REPORT 2020
of future cash flows are inherently uncertain as the long-term impact of the Covid-19 pandemic on
the general economy is unclear. To take account of this uncertainty, management have used the
“expected cash flow approach” which involves probability weighting several alternate scenarios.
It is possible that changes in economic conditions or deviations in actual performance from forecast
could result in a material adjustment to the carrying value of the CGU within the next financial year.
The key estimates made by management are set out in note 12. The information in note 12 given
on each scenario also provides an indication of the amount of any further impairment for other
reasonably possible outcomes.
5. Segmental reporting
The Board of Directors, as the chief operating decision maker in accordance with IFRS 8 Operating
Segments, has determined that KRM22 have identified five risk domains as operating segments, however
for reporting purposes into a single global business unit and operates as a single operating segment, as the
nature of services delivered are common.
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.
KRM22’s revenue from external customers and information about its non-current assets, excluding
deferred tax, by geography is detailed below:
UK
Europe
USA
Rest of world
Total
2020
Revenue
£’000
990
763
2,383
458
4,594
2020
Non-current
assets
£’000
3,973
1,911
3,294
1
9,179
2019
Revenue
£’000
422
798
2,489
434
4,143
2019
Non-current
assets
£’000
5,151
2,463
5,531
1
13,146
The Directors consider that the business has five risk domains: Enterprise, Market, Compliance, Operations
and Technology as is described in Strategic Report. Within these five risk domains, there are three revenue
streams with different characteristics, which are generated from the same assets and cost base.
For the years ended 31 December 2020 and 2019, no customer generated more than 10% of total revenue.
Non-current assets include goodwill and intangible assets recognised on consolidation and are classified
by reference to the geographical location of the KRM22 group company which initially acquired the
acquiree.
Recurring revenue is recognised over the period of time and non-recurring revenue is recognised at a point
in time. Other revenue comprises miscellaneous revenue that is not part of KRM22’s core business.
Recurring revenue
Non-recurring revenue
Other revenue
Total revenue
2020
£’000
4,193
401
–
4,594
2019
£’000
3,753
305
85
4,143
KRM22 plc
ANNUAL REPORT 2020
79
Enterprise
Market
Compliance
Other
Total
6. Operating loss
2020
£’000
420
2,476
1,673
25
4,594
2020
£’000
93
577
1,018
3,022
401
430
(342)
(677)
(381)
23
260
2019
£’000
81
2,447
1,530
85
4,143
2019
£’000
92
495
672
2,344
413
527
(1,493)
–
–
41
111
Operating loss for the year has been arrived at after charging the following:
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible assets
Impairment of intangible assets
Acquisition and debt expenses (refer to note below)
Company reorganisation costs (refer to note below)
Contingent consideration written back (refer to note below)
Gain on extinguishment of debt (net) (refer to note below)
Deferred salary bonus accrual write back
Operating lease costs
Foreign currency exchange losses
I.
II.
III.
Acquisition and debt related costs
Total acquisition and debt related costs in the year ended 31 December 2020 of £0.4m (2019:
£0.4m) were recognised and related to the acquisition of the remaining 40% shareholding in KRM22
Market Surveillance and the replacement of the Harbert Debt Facility with the Kestrel Convertible
Loan facility.
Company reorganisation costs
Reorganisation costs in the year ended 31 December 2020 of £0.4m (2019: £0.5m) were recognised
and related to staff redundancy costs as a result of KRM22 scaling back certain business
operations.
Contingent consideration write back
A contingent consideration write back of £0.3m (2019: £1.5m) was recognised in connection the
write back of previously recognised contingent consideration associated with the acquisition of
Object+. The Directors believe that the second tranche of contingent consideration will not be
payable and, as detailed in note 29, part of value of the third tranche of contingent consideration
was reduced. The Directors have therefore written back this element of consideration from the fair
value of the total consideration that could have been paid under the terms of the share purchase
agreement.
The contingent consideration write back recognised in the year ended 31 December 2019 was in
connection with the acquisition of KRM22 ProOpticus.
80
KRM22 plc
ANNUAL REPORT 2020
IV. Gain on extinguishment of debt (net)
On 15 April 2020, £1.3m of debt due from KRM22 Market Surveillance to Cinnober Financial
Technology AB (“Cinnober”) was settled through the issue of a £0.6m convertible loan note (“CLN)
provided by KRM22 to Cinnober which resulted in the recognition of a gain on extinguishment of
debt in the year ended 31 December 2020 of £0.7m (2019: £nil).
V.
Deferred salary bonus accrual write back
Total accrued salary bonuses of £0.4m were written back during the year ended 31 December 2020
(2019: £nil) and resulted from employees waiving any entitlement to bonuses accrued in the year
ended 31 December 2019 in exchange for the grant of share options (see note 24). The bonuses
were in connection with a deferred salary bonus scheme between KRM22 and certain employees in
the year ended 31 December 2019.
7. Auditor’s remuneration
For audit services
Audit of the financial statements of the Company
Audit of the financial statements of the Company’s subsidiaries
For other services
Tax services of the Company
Tax services for the Company’s subsidiaries
Tax services around acquisitions
8. Employee information
2020
£’000
95
8
103
12
14
2
28
2019
£’000
115
13
128
8
15
3
26
I.
Employee numbers
The average monthly number of people, including Executive Directors, employed by KRM22 during
the year was as follows:
UK
Europe
USA
Rest of world
Total
II.
Employee benefits
The aggregate payroll cost of these persons were as follows:
Wages and salaries
Social security costs
Pension costs to defined contribution schemes
Share-based payments
Total
2020
No.
22
17
11
2
52
2020
£’000
2,520
85
101
886
3,592
2019
No.
35
20
15
2
72
2019
£’000
3,818
189
175
1,021
5,203
81
III.
KRM22 plc
ANNUAL REPORT 2020
Directors’ remuneration
The remuneration of the Directors, who also represent the key management personnel of KRM22,
during the year was as follows:
Remuneration for qualifying services
Pension contributions to defined contribution schemes
Share-based payments
Total
2020
£’000
155
3
574
732
2019
£’000
603
12
860
1,475
Full details of Directors’ remuneration is presented in the Remuneration Committee report on page 39.
Remuneration disclosed above includes the following amounts paid to the highest paid director:
Remuneration for qualifying services
Total
2020
£’000
61
61
2019
£’000
228
228
The number of Directors for whom retirement benefits are accruing under defined contribution schemes
amounted to 1 (2019: 1).
9. Finance expense
Interest income
Interest expense on financial liabilities
Interest expense on lease liabilities
Net finance expense
10. Taxation
Current tax
UK Corporation tax at 19% on loss for the year (2019: 19%)
Prior year adjustment to deferred tax
Research and Development tax credits
Total current tax
Deferred tax
Origination and reversal of temporary differences
Intangible assets recognised on acquisition
Total deferred tax (note 21)
Total tax credit
2020
£’000
(5)
243
86
324
2020
£’000
–
11
(121)
(110)
(14)
(122)
(136)
(246)
2019
£’000
(1)
101
96
196
2019
£’000
–
(28)
(562)
(590)
(37)
(165)
(202)
(792)
82
KRM22 plc
ANNUAL REPORT 2020
The tax expense differs from the standard rate of corporate tax in the UK for the year of 19% for the following
reasons:
Losses before tax
Loss before tax based on corporation tax 19% (2019: 19%)
Accelerated capital allowances
Expenses not deductible for tax purposes
Intangible assets recognised on acquisition
Adjustments to brought forward values
Losses carried forward
Total tax credit
2020
£’000
(5,740)
(1,091)
(14)
78
(122)
11
892
(246)
2019
£’000
(7,317)
(1,390)
(37)
86
(165)
(28)
742
(792)
For information on the Group’s total available tax losses, see note 21.
11. 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, restricted stock awards and share 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.
Loss for the year attributable to equity holders of the parent
Basic weighted average number of shares in issue
Diluted weighted average number of shares in issue
12. Intangible assets
2020
£’000
(5,879)
24,414,093
33,256,848
(24.1p)
2019
£’000
(5,648)
18,552,176
25,933,265
(30.4p)
Goodwill on
Consolidation
£’000
Acquired
software and
related assets
£’000
Trademarks
and licences
£’000
Capitalised
development
costs
£’000
Cost
At 1 January 2020
Additions
Disposals
Foreign exchange movements
At 31 December 2020
Accumulated amortisation
At 1 January 2020
Amortisation for the year
Impairment charge for the year
Disposals
Foreign exchange movements
At 31 December 2020
At 31 December 2019
7,667
–
–
(11)
7,656
–
–
2,719
–
–
2,719
7,667
2,856
–
–
(4)
2,852
640
451
–
–
(6)
1,085
2,216
At 31 December 2020
4,937
1,767
704
–
(169)
(19)
516
180
80
303
(38)
(9)
516
524
–
Total
£’000
14,547
959
(169)
(36)
15,301
3,318
1,018
3,022
(38)
(21)
7,299
3,320
959
–
(2)
4,277
2,498
487
–
–
(6)
2,979
822
11,229
1,298
8,002
83
KRM22 plc
ANNUAL REPORT 2020
Goodwill that arose in prior periods is not amortised. Impairment testing is carried out at Cash Generating
Units (CGU) level on an annual basis.
During the year ended 31 December 2020, the Group’s share price declined and management are now
projecting lower revenue growth than that used in last year’s impairment assessment. Accordingly, the
Company has reassessed the recoverability of goodwill and intangible assets and this resulted in an
impairment of £3.0m.
The Company has estimated the recoverable amount at £8.0m using a value-in-use model by projecting
cashflows for the next five years together with a terminal value using a growth rate. The five-year
projections used in the model are based on the FY21 budget approved by the Directors. Given the
uncertainty involved in predicting long-term projections, management developed expectations of future
performance under a range of scenarios with different levels of future revenue growth. The value in use
was estimated by probability weighting the value in use under each scenario as summarised below.
Scenario
Upside
Base case
Downside
Severe downside
Probability weighted average
Annual
Revenue growth
FY21 to FY25
%
23%
18%
11%
5%
Annual
cost growth
FY21 to FY25
%
5%
3%
2%
1%
Headroom/
Value in use
£’000
17,078
11,044
2,864
(4,242)
8,002
(Impairment)
£’000
6,054
20
(8,160)
(15,266)
(3,022)
Probability
%
8%
55%
30%
7%
100%
The single most likely scenario assumed revenue growth of 18% per annum over the period (2019: 25%).
The other key assumptions used were:
• The discount rate (WACC) of 12% (2019: 14%). An increase of 1% in WACC rate would result in a
£1.2m increase in the impairment required.
• Long-term growth rate of 1.5% (2019: 1.0%). An increase of 1%, in the long-term growth rate would
result in a £1.0m reduction in the impairment recognised
13. Property, plant and equipment
Cost
At 1 January 2020
Additions
Disposals
Foreign exchange movements
At 31 December 2020
Accumulated depreciations
At 1 January 2020
Depreciation charge for the year
Disposals
Foreign exchange movements
At 31 December 2020
Net book value at 31 December 2019
Net book value at 31 December 2020
Fixtures and
fittings
£’000
Office
equipment
£’000
Total
£’000
261
–
(1)
(4)
256
101
66
–
(4)
163
160
93
129
2
(11)
(1)
119
56
27
(7)
–
76
73
43
390
2
(12)
(5)
375
157
93
(7)
(4)
239
233
136
84
KRM22 plc
ANNUAL REPORT 2020
14. Investment in subsidiaries
Cost
At 1 January 2020
Additions
At 31 December 2020
Carrying amount
At 1 January 2020
At 31 December 2020
£’000
2020
£’000
301
188
489
301
489
2019
£’000
)
£’000
225
76
301
225
301
The additions in 2020 represents share capital contributions made to the Company’s subsidiaries in respect
of the share option expense recognised on share options issued by the Company to employees of the
appropriate subsidiaries. The capital contribution transaction is a non-cash transaction.
Details of the Company’s subsidiaries at 31 December 2020 are as follows:
Name of undertaking
Registered office
KRM22 Central Limited *
KRM22 Development Limited
KRM22 Development Spain SL**
KRM22 Singapore Pte Limited
KRM22 Americas Inc.
KRM22 ProOpticus LLC
KRM22 Netherlands B.V.
KRM22 Market Surveillance
Limited
5 Ireland Yard
London, EC4V 5EH
England
5 Ireland Yard
London, EC4V 5EH
England
Travessera de Gràcia, 11
5th floor
08021, Barcelona
Spain
10 Anson Road, #23-02
International Plaza
079903
Singapore
444 Madison Ave
Suite 2801, New York
NY, 10022
USA
111 West Jackson Blvd.
Suite 1310, Chicago
IL, 60604
USA
Max Euweplein 26
1017MB, Amsterdam
The Netherlands
5 Ireland Yard
London, EC4V 5EH
England
Ownership interest and
voting rights
Nature of business
100%
Administrative and sales
company
100%
Development services
100%
Development services
100%
Sales company
100%
100%
100%
100%
Administrative and sales
company
Administrative and sales
company
Non-trading intermediate
holding company
Administrative and sales
company
85
KRM22 plc
ANNUAL REPORT 2020
Name of undertaking
Registered office
Ownership interest and
voting rights
Nature of business
Object+ Holding B.V.
Object+ B.V.
Object+ Financial Services B.V.
Object+ Financial Products B.V.
Object+ Americas LLC
Max Euweplein 26
1017MB, Amsterdam
The Netherlands
Max Euweplein 26
1017MB, Amsterdam
The Netherlands
Max Euweplein 26
1017MB, Amsterdam
The Netherlands
Max Euweplein 26
1017MB, Amsterdam
The Netherlands
111 West Jackson Blvd.
Suite 1310, Chicago
IL, 60604
USA
* Shares held directly by KRM22 Plc
** In liquidation
15. Trade and other receivables
100%
100%
100%
100%
Non-trading intermediate
holding company
Non-trading intermediate
holding company
Administrative and sales
company
Administrative and sales
company
100%
Sales company
Trade receivables disclosed below are classified as loans and receivables and are therefore measured at
amortised cost.
Amounts falling due within one year:
Trade receivables
Other receivables
Prepayments and accrued income
Total trade and other receivables due within one year
Amounts falling due after more than one year:
Amounts due from group undertakings
Other receivables
Total trade and other receivables due in more than one year
2020
Group
£’000
980
232
222
1,434
–
–
–
2020
Company
£’000
2019
Group
£’000
2019
Company
£’000
–
29
47
76
737
–
737
620
243
495
1,358
–
42
42
–
10
280
290
1,297
–
1,297
The carrying value of trade and other receivables approximates fair value.
At 31 December 2020, the Group had trade receivables falling due within one year of £1.0m including
provisions of £0.3m (2019: £0.6m with provisions of £nil), other receivables falling due within one year of
£0.2m including provisions of £0.03m (2019: £0.2m with provisions of £nil) and other receivables falling
due after more than one year of £nil including provisions of £0.03m (2019: £0.04m with provisions of £nil).
At 31 December 2020, the Company had amounts due from group undertakings falling due after more than
one year of £0.7m including provisions of £6.2m (2019: £1.3m with provisions of £15.9m).
KRM22 has elected to apply the simplified approach available under IFRS 9:5.5.15 for its trade receivables.
KRM22’s trade receivables result from transactions in the scope of IFRS 15 ‘Revenue from Contracts with
Customers’. Under this simplified approach, a lifetime expected loss allowance is always recognised (both
at initial recognition and throughout the life of the trade receivable).
86
KRM22 plc
ANNUAL REPORT 2020
KRM22’s trade receivables have a short duration of less than twelve months, and do not have a contractual
interest rate. Therefore an EIR of zero has been applied to cash flows. KRM22 has used a provision matrix
to determine the lifetime ECL of the portfolio. It is based on KRM22’s historical, observed default rates, and
is adjusted by a forward looking estimate of future economic conditions.
KRM22 group revenue was derived from organic customer growth and acquired customer growth through
the previous acquisitions: KRM22 Market Surveillance, KRM22 ProOpticus and the Object+ Group. Based
on historical observed default rates of the acquired companies, the estimated impairment loss is
immaterial. Furthermore, since acquisition the Group has managed customer credit risk in line with Group
policy and outstanding receivables are actively monitored and discussed by management. There are no
doubts as to the future recoverability of these balances. Therefore, any impairment would be immaterial.
Amounts due from group undertakings have been classified as falling due after more than one year based
on the agreed terms of repayment by subsidiaries in future periods. The Company provides regular funding
to KRM22 Central Limited at an appropriate interest rate of 8.14%. The Directors consider the terms of the
transaction to be at arm’s length.
There are significant doubts as to the future recoverability of these intercompany balances, and as such, a
provision for bad and doubtful debts of £6.2m (2019: £15.9m) has been raised against the amounts due
from group undertakings in the Company statement of financial position and recorded as a charge in the
Company income statement.
16. Trade receivables – credit risk
Aging of due and past due but not impaired receivables
0 – 30 days
31 – 60 days
61 – 90 days
91 – 120 days
120 + days
Total trade and other receivables due in less than one year
17. Cash and cash equivalents
Cash at banks and on hand
2020
£’000
897
9
–
–
74
980
2019
£’000
566
–
51
3
–
620
2020
Group
£’000
1,974
1,974
2020
Company
£’000
157
157
2019
Group
£’000
1,076
1,076
2019
Company
£’000
88
88
87
KRM22 plc
ANNUAL REPORT 2020
18. Trade and other payables
Amounts falling due within one year:
Bank overdraft
Trade payables
Accruals and deferred income
Social security and other taxation
Other payables
Total due within one year
Amounts falling due after more than one year:
Contingent consideration
Provision for dilapidations
Total due in more than one year
2020
Group
£’000
2020
Company
£’000
2019
Group
£’000
2019
Company
£’000
–
373
1,821
253
92
2,539
828
54
882
–
28
89
–
33
150
–
–
–
22
867
1,829
131
105
2,954
1,110
69
1,179
–
109
117
–
140
366
–
–
–
The fair value of trade and other payables are the same as the carrying values.
Provisions for dilapidation for expected future expenditure in accordance with lease obligations are based
on the Group’s best estimate of the likely committed cash outflow. These costs are expected to be incurred
at the end of the lease and therefore have been classified as non-current.
19. Leases – right of use assets and lease liabilities
Right of use assets
Cost
At 1 January 2020
Disposals
Foreign exchange movements
At 31 December 2020
Accumulated depreciation
At 1 January 2020
Depreciation charge for year
Disposals
Foreign exchange movements
At 31 December 2020
Net book value at 31 December 2019
Net book value at 31 December 2020
Lease liabilities
Cost
At 1 January 2020
Interest expense
Lease payments
Foreign exchange movements
At 31 December 2020
Total
£’000
2,022
(188)
(52)
1,782
380
577
(188)
(28)
741
1,642
1,041
Total
£’000
1,476
86
(548)
(9)
1,005
88
KRM22 plc
ANNUAL REPORT 2020
The maturity of the lease liabilities is as follows:
Amounts payable under leases
Within one year
In two to five years
KRM22’s leases relate to various office leases held by subsidiary undertakings.
20. Loans and borrowings
Current
Secured loans
Non-Current
Secured loans
Unsecured loans
2020
£’000
456
549
1,005
2020
£’000
97
97
2,664
–
2,664
2,761
2019
£’000
488
988
1,476
2019
£’000
388
388
435
1,162
1,597
1,985
The fair value of loans and borrowings are the same as the carrying values.
On 15 September 2020, the Company entered into an agreement for a new three year £3.0m convertible
loan facility (the “Convertible Loan”) with Kestrel Partners LLP (“Kestrel”). The proceeds of the Convertible
Loan were used to replace the Group’s existing secured debt facility (the “Debt Facility”) provided Harbert
European Growth Capital Fund II (“Harbert”) to KRM22 Central Limited. The outstanding balance of the
Debt Facility, inclusive of loan principal, accrued interest and early repayment charges of 5%, was £0.8m.
The interest rate payable on the Convertible Loan is 9.5% per annum, which compares favourably to the
11% per annum interest rate on the Harbert Debt Facility, and is paid quarterly in arrears. Kestrel can convert
the Convertible Loan into new ordinary shares in the Company at any time at a conversion price of 38p. The
Company has the right to request conversion eighteen months following the date of the agreement, subject
to certain conditions regarding the Company's share price at that time. Kestrel has the right to prevent any
conversion which would trigger a Rule 9 event under the Takeover Code.
The Convertible Loan contains a host liability and embedded (fixed-for-fixed) equity conversion feature on
the basis that there is a contractual cash obligation to pay quarterly interest and a requirement to repay the
principal amount at the end of three-year Convertible Loan term, subject to the conversion option not being
exercised by either Kestrel or KRM22. The Convertible Loan is classified as being a compound financial
instrument and on this basis IAS 32 requires that the Convertible Loan is split into equity and liability
components. The fair value of the liability component, included in current and non-current borrowings, at
initial recognition was calculated using a market interest rate that would apply to a stand-alone loan without
a conversion feature (12.65%). The equity component is assigned as the residual amount of £0.2m (see
SOCE on page 62), by deducting the amount calculated for the liability component from the fair value of the
instrument as a whole. As the Convertible Loan is not quoted on an active market, the transaction price of
£3.0m for the instrument is its fair value. The carrying amount of the liability component of the Convertible
Loan is adjusted for total transaction costs incurred of £0.1m.
89
KRM22 plc
ANNUAL REPORT 2020
Whilst the balance of the Debt Facility was settled during the year ended 31 December 2020, the warrants
over 495,049 new ordinary shares in the Company, that were issued in conjunction with the Debt Facility,
remain in place and are exercisable by Harbert until 29 April 2029. The warrants are treated as a financial
instrument and recorded at fair value as a current liability amounting to £0.04m (2019: £0.04m) (see note
26).
At 31 December 2019 KRM22 had an unsecured loan of £1.2m relating to shareholder loans provided to
KRM22 Market Surveillance Limited (“KRM22 Market Surveillance”), a subsidiary of KRM22 Central Limited,
by Cinnober Financial Technology AB (“Cinnober”) who owned 40% of the issued share capital of KRM22
Market Surveillance at 31 December 2019. The shareholder loans provided from Cinnober to KRM22
Market Surveillance were subject to an interest rate of 5% and the loan was repayable on 31 December
2023.
On 16 April 2020, the loan due to Cinnober from KRM22 Market Surveillance, which totalled £1.3m, was
converted into ordinary shares in KRM22 Market Surveillance. Immediately following the debt to equity
conversion, the Company acquired the remaining 40% stake in KRM22 Market Surveillance for a total
consideration of £0.6m payable to Cinnober by way of an unsecured convertible loan note (“CLN”) provided
by KRM22 to Cinnober. The interest rate payable on the loan was 8% per annum.
On 28 June 2020, the CLN was converted into 1,454,434 new ordinary shares at 38.4p per share in the
Company and therefore no cash consideration was paid to settle the CLN. The settlement of £1.3m debt,
through the issue of the CLN, resulted in a gain on extinguishment of debt of £0.7m (refer note 6) which
has been recognised in the income statement for the year ended 31 December 2020.
21. Deferred tax
Deferred tax liability at 1 January 2019
On acquisition
Income statement credit
Deferred tax liability at 31 December 2019
Income statement (credit)
Foreign exchange movements
Deferred tax liability at 31 December 2020
Intangible assets recognised
on acquisition
£’000
559
119
(165)
513
(122)
5
396
Accelerated capital
allowances
£’000
60
–
(37)
23
(14)
–
9
Total
£’000
619
119
(202)
536
(136)
5
405
KRM22 has tax losses of £14.7m (2019: £13.6m) that are available for offset against future taxable profits
of those subsidiary companies in which the tax losses arose. Deferred tax assets have not been recognised
in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group and they
have arisen in subsidiaries whose future taxable profits are uncertain. The estimated value of the deferred
tax asset not recognised is £2.9m (2019: £2.6m).
In addition to the above operating tax losses, a potential deferred tax asset, could relate to pre-acquisition
tax losses of KRM22 ProOpticus. The availability and future utilisation of these losses remains under
consideration, taking account of both its legacy ownership structure and Section 382 of the US Internal
Revenue Code, whereby the ability to utilise net operating losses arising prior to a change of ownership is
limited to a percentage of the entity value of the entity at the date of change of ownership. These potential
operating tax losses (and related potential deferred tax asset) have not been included in the available
operating tax losses (and related deferred tax asset) owing to current uncertainties on their actual usability.
90
KRM22 plc
ANNUAL REPORT 2020
A deferred tax liability of £0.4m (2019: £0.5m) has been recognised in relation to intangible assets of £2.9m
(2019: £3.3m) that arise on the acquisition of KRM22 Market Surveillance, KRM22 ProOpticus and the
Object+ group in prior periods.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in that jurisdiction
in the year when the asset is realised or the liability settled, based on tax rates that have been enacted or
substantively enacted at the statement of financial position date and therefore these have been measured
at 19% UK and an effective rate of 23% on our overseas jurisdictions.
22. Operating leases
KRM22 operates from various leased properties around the world and the terms of property leases vary by
location. Any property leases that have less than twelve months at the date of inception until termination
date are deemed to be short–term leases and recognised as operating leases.
KRM22 has total minimum future lease commitments under non–cancellable operating leases as set out
below:
Due within one year
23. Share capital
Issue and fully paid 10p Ordinary shares
At 1 January
Issued for cash during the year*
Issued for other consideration
At 31 December
2020
£’000
2
2
2020
No.
20,998,029
4,266,664
1,454,434
26,719,127
2020
£’000
2,100
427
145
2,672
2019
No.
16,376,388
4,014,732
606,909
20,998,029
2019
£’000
25
25
2019
£’000
1,638
401
61
2,100
The following movements in the ordinary share capital of the Company occurred during the year:
• On 14 May 2020, the Company issued 3,816,666 new ordinary shares of 10 pence each at a placing
price of 30 pence per share through a placement and subscription. On the same date a subscription
was made for further 449,998 new ordinary shares of 10 pence each at a price of 30 pence per share,
to be settled on completion of the requisite subscription paperwork. The subscription was settled on
27 May 2020. The total number of shares issued as part of this share issue was 4,266,664 ordinary
shares of 10 pence (nominal value) each to raise £1.3m.
• On 29 June 2020, the Company issued 1,454,434 new ordinary shares at a price of 38.4 pence per
share as consideration for settlement of the £0.6m convertible loan note due to Cinnober Financial
Technology AB for the acquisition of the remaining stake in KRM22 Market Surveillance.
The share premium account represents the premium arising on the issue of equity shares, comprising 10
pence ordinary shares, net of share issue expenses. Total costs relating to the share placement and
subscription of £0.03m have been recognised within share premium.
91
KRM22 plc
ANNUAL REPORT 2020
24. Share–based payments
Warrants
On 24 April 2018, the Company passed a resolution for a total of 6,000,000 warrants to be granted to certain
directors and members of staff conditional on the Company’s admission to the AIM. The warrants are
exercisable in full in three equal tranches, in the event that the Company’s share price equals or exceeds
three separate hurdles at the relevant testing or vesting date. The earliest testing date for tranche one is
two years following admission to the AIM, i.e. 30 April 2020, with the earliest testing date for tranche two
and three being one year later, i.e. 30 April 2021.
If these conditions are met the warrants are exercisable at a 100 pence per share. The vesting period is
three years and the warrants can be exercised if, at a testing date, the specific performance conditions are
met, or the Directors, in their absolute discretion, determine that an option may be exercised at any other
time and in any other circumstances. If the options remain unexercised after a period of ten years from the
date of the grant the options expire.
Employee share option plan
The KRM22 Employee Share Option Plan (“ESOP”), a UK tax authority approved Enterprise Management
Incentive (“EMI”), was set up on 24 April 2018. During the year the Company granted a total of 2,058,242
options to employees of KRM22 and this included 1,187,322 options (the “Salary Deferral Bonus Options”)
granted to employees who waived their right to receive a salary deferral bonus and 870,920 options (the
“Salary Sacrifice Options”) granted to employees who waived a proportion of their salary. Both the Salary
Deferral Bonus Options and Salary Sacrifice Options were granted to help the Company’s cashflow.
The Salary Deferral Bonus Options vest over a three-year period in thirty-six equal monthly instalments and
do not lapse if an employee ceases to be employed by KRM22. The Salary Sacrifice Options granted to
Executive Directors and employees vest over a one-month period from the date of grant and the Salary
Sacrifice Options granted to Non-Executive Directors vest over a three-month period from the date of grant.
All Salary Sacrifice Options lapse on termination of employment with the Company and are not subject to
any share price performance conditions.
With the exception of the Salary Deferral Bonus Options and Salary Sacrifice Options granted in 2020,
together with Salary Deferral Options granted in 2019 which are not subject to any share price performance,
all share options vest over a three–year period and are exercisable on the third anniversary of the grant date
provided that the share price has increased by 5% compounded during the period and provided the
employee remains employed by KRM22.
All options unexercised after a period of ten years from the date of grant expire. KRM22 has no legal or
constructive obligation to repurchase or settle the options for cash.
Options are exercisable at a range of between 30.0 pence per share and 109.5 pence per share. The
weighted average remaining contractual life of the share options outstanding at 31 December 2020 is 1
year and 7 months (2019: 2 years and 3 months).
92
KRM22 plc
ANNUAL REPORT 2020
Outstanding at 1 January
Granted during the year – warrants
Granted during the year – ESOP
Forfeited during the year – ESOP
Exercised during the year
Expire during the year
Outstanding at 31 December
Weighted
average
exercise price
£
0.81
–
0.36
0.76
–
–
0.72
2020
Number
7,839,471
–
2,058,242
(193,997)
–
–
9,703,716
Weighted
average
exercise price
£
1.00
–
0.70
1.01
–
–
0.81
2019
Number
7,086,000
–
1,156,471
(403,000)
–
–
7,839,471
The fair value of options subject to non–market based vesting conditions are measured using a Black
Scholes model and those options with market based conditions are measured using a Monte Carlo pricing
model.
The fair value of the outstanding options without performance conditions was measured using the Black
Scholes options valuation model. The inputs to that model in respect of the share options outstanding
under each issue were as follows:
Grant month
Weighted average share price at grant date
Exercise price
Weighted average contractual life
Expected volatility
Expected dividend growth rate
Risk-free interest rate
Grant month
Weighted average share price at grant date
Exercise price
Weighted average contractual life
Expected volatility
Expected dividend growth rate
Risk-free interest rate
Sep
2018
£1.0950
£1.000
3 years
30%
–
0.86%
Dec
2019
£0.525
£0.525
3 years
30%
–
0.86%
Jun
2019
£0.770
£0.850
3 years
30%
–
0.86%
Jul
2020
£0.280
£0.300
3 years
30%
–
0.86%
Jun
2019
£0.770
£0.850
1 year
30%
–
0.86%
Sep
2020
£0.380
£0.380
3 years
30%
–
0.86%
Nov
2019
£0.535
£0.850
3 years
30%
–
0.86%
Oct
2020
£0.380
£0.380
3 year
30%
–
0.86%
The fair value of the outstanding warrants with performance conditions was measured using the Monte
Carlo simulation model and the inputs to that model in respect of the share options outstanding under each
issue were as follows:
Weighted average share price at grant date
Exercise price
Weighted average contractual life
Expected volatility
Expected dividend growth rate
Risk-free interest rate
2018
£1.3198
£1.00
3 years
30%
–
0.8287%
The total expense recognised for the year ending 31 December 2020 arising from equity-settled share-
based payment transactions amounted to £0.9m (2019: £1.0m) and the share-based payment reserve as
at 31 December 2020 amounted to £2.6m (2019: £1.7m).
93
25. Capital commitments
KRM22 plc
ANNUAL REPORT 2020
At 31 December 2020 KRM22 had no material capital commitments (2019: £nil).
26. Financial instruments and financial risk management
KRM22’s principal financial liabilities comprise trade and other payables and borrowings. The primary
purpose of these financial liabilities is to finance the operations. KRM22 has trade and other receivables
and cash that derive directly from its operations.
The Company has limited financial liabilities as its primary purpose is to hold investments in other group
companies. The Company’s receivables largely relate to its funding of the operations of KRM22. All items
below are stated at amortised cost unless explicitly stated. The Company measures fair values using the
following fair value hierarchy that reflects the significance of the inputs used in making the measurements.
The table below analyses financial instruments carried at fair value by hierarchy level.
Financial assets
Cash at banks and on hand – unrestricted
Trade receivables group companies
Trade and other receivables
Financial liabilities
Bank overdraft
Trade and other payables
Accruals
Contingent consideration at FVTPL (Level 3)
Borrowings
Derivative financial liability at FVTPL (Level 1)
Finance lease obligations
2020
Group
£’000
2020
Company
£’000
2019
Group
£’000
2019
Company
£’000
1,974
–
1,212
3,186
–
519
355
828
2,761
45
1,005
5,513
157
737
–
894
–
61
89
–
–
–
–
150
1,076
–
905
1,981
22
1,041
717
1,110
1,985
45
1,476
6,396
88
1,297
–
1,385
–
109
257
–
–
–
–
366
The Directors consider that the carrying amount for all financial assets and liabilities which are not held at
fair value through profit or loss approximates to their fair value.
In conjunction with the Harbert Debt Facility, the Company has constituted warrants over 495,049 Ordinary
shares. Whilst the balance of the Debt Facility was settled during the year ended 31 December 2020, the
warrants remain in place and are exercisable by Harbert until 29 April 2029. The warrants are treated as a
derivative financial instrument and recorded at fair value as a current liability with any adjustment in fair
value at the statement of financial position dated recognised within finance charge on financial liabilities in
the income statement.
94
KRM22 plc
ANNUAL REPORT 2020
The fair value of the warrant instrument was measured using the binomial option valuation model. The
inputs to the model are as follows:
Share price at grant date
Exercise price
Contractual life
Expected volatility
Expected dividend growth rate
Risk-free interest rate
Financial risk management
2019
£0.82
£1.01
10years
30%
–
0.84%
KRM22 is exposed to market risk, which includes interest rate risk and currency risk, credit risk and liquidity
risk. The senior management oversees the management of these risks and ensures that the financial risk
taken is governed by appropriate policies and procedures and that financial risks are identified, measured
and managed in accordance with KRM22’s policies and risk appetite.
The Board of Directors review and agree polices for managing each of these risks, which are summarised
below:
a) Market risk
KRM22’s activities expose it primarily to the financial risks of changes in foreign currency exchange
rates and interest rates.
Financial currency risk management
KRM22 is exposed to transactional exchange risk. Transactional foreign exchange risk arises from
sales or purchases by a group company in a currency other than that Company’s functional
currency. Further the Group and the Company have inter-company loans made in currencies other
than their functional currency.
Year ended 31 December 2019
Average rate
Year-end spot rate
Year ended 31 December 2020
Average rate
Year-end spot rate
Foreign currency sensitivity analysis
USD
EUR
CZK
SGD
1.28
1.31
1.29
1.36
1.14
1.17
1.12
1.11
29.30
29.78
29.73
28.95
1.74
1.77
1.77
1.80
The following table details KRM22’s sensitivity analysis to a 5% decrease in Sterling against the
relevant foreign currencies which the Directors believe could have the most significant impact on
the performance of KRM22. For a 5% strengthening of Sterling against the relevant currency there
would be a comparable impact on financial performance.
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US Dollar
Euros
Czech Kroner
Singapore Dollar
Interest rate risk
Loss
2020
£’000
(43)
(7)
(48)
(3)
(101)
Other equity
2020
£’000
(68)
(7)
(103)
–
(178)
Loss
2019
£’000
(124)
(29)
(44)
12
(185)
Other equity
2019
£’000
13
(18)
(58)
3
(60)
Interest rate risk is the risk that the fair value of future cash flows or a financial instrument will
fluctuate because of changes in market interest rates. The Directors do not believe the interest rate
risk to be material and therefore no sensitivity analysis has been prepared.
b) Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or
customer contract, leading to a financial loss. KRM22 is exposed to credit risk from its operations,
primarily from trade receivables, and from loans provided to related parties.
Trade receivables
Customer credit risk is managed subject to KRM22’s established policy, procedures and control
relating to customer credit risk management. Outstanding receivables are regularly monitored and
discussed at executive management and Board level of group companies.
Financial instruments and cash deposits
Credit risk from cash balances with banks and financial institutions is managed in accordance with
KRM22 policy. Credit risk with respect to cash is managed by carefully selecting the institutions
with which cash is deposited.
Impairment
The financial assets of the Group comprise cash at banks, trade receivables and other receivables.
Having reviewed the recoverability of KRM22’s financial assets since the reporting date, as well as
the likelihood of future losses over the next twelve months and the lifetime of the assets, the
Directors have recognised credit losses in respect of other receivables, as detailed in note 15.
c) Liquidity risk
KRM22 is not currently cash generative, however funds were raised as part of the IPO, subsequent
share placements and the Kestrel Convertible Loan facility. The Board carefully monitors the levels
of cash and is comfortable that it has sufficient cash for normal operating requirements. KRM22
has no committed lines of credit.
The following table details KRM22’s remaining contractual maturity for its financial liabilities based
on contractual payments:
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ANNUAL REPORT 2020
At 31 December 2019
Trade and other payables
Contingent consideration
Secured loans (gross)
Unsecured loans
Finance lease obligations
At 31 December 2020
Trade and other payables
Contingent consideration
Secured loans (gross)
Finance lease obligations
Capital risk management
Within 1 year
£’000
1 to 2 years
£’000
2 to 5 years
£’000
1,842
–
388
–
488
2,539
–
356
459
–
86
388
–
400
–
828
285
283
–
1,024
164
1,162
588
–
–
3,214
375
Total
£’000
1,842
1,110
940
1,162
1,476
2,539
828
3,855
1,117
KRM22 manages its capital to ensure that it will be able to continue as a going concern while also
maximising the operational potential of the business. The capital structure of KRM22 consists of
cash and cash equivalents and equity attributable to equity holders of the Company, comprising
issued capital and reserves as disclosed in the consolidated statement of changes in equity. KRM22
is not exposed to externally imposed capital requirements.
27. Business combinations
KRM22 Market Surveillance Limited
On 16 April 2020, KRM22 Central Limited acquired the remaining 40% issued share capital in KRM22 Market
Surveillance for a total consideration of £0.6m payable to Cinnober by way of a convertible loan note (“CLN”)
provided by the Company to Cinnober. On 28 June 2020, the CLN was converted into 1,454,434 new
ordinary shares at 38.4p per share in the Company and therefore no cash consideration was paid as part
of the acquisition.
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). The acquisition was for an initial
consideration of US$3.5m (£2.6m) cash and US$1.0m (£0.8m) in the Company’s ordinary shares together
with contingent consideration of US$3.0m (£2.3m). The contingent consideration, which could be satisfied
either cash or Company ordinary shares at the Company’s discretion, was payable in two equal tranches of
US$1.5m each in the event that KRM22 ProOpticus achieved US$3.0m revenue in the year ended 31
December 2019 and US$3.3m revenue in the year ended 31 December 2020.
The two performance milestones were not achieved and on this basis the Directors excluded this element
of consideration from the fair value of the total consideration that could have been paid under the term of the
share purchase agreement. The adjustment for the write back of contingent consideration of £1.5m was
recognised in the consolidated income statement for the year ended 31 December 2019.
Object+ Holding B.V.
On 30 May 2019 KRM22 Netherlands B.V., a wholly owned subsidiary of KRM22 Central Limited, acquired
Object+ Holding B.V. and its subsidiaries Object+ B.V., Object+ Financial Services B.V., Object+ Financial
Products B.V. and Object+ Americas LLC (collectively “Object+”), a risk management and post-trade services
technology business focused on capital markets.
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ANNUAL REPORT 2020
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 together with
contingent consideration of US$2.7m (£2.3m).
The contingent consideration is payable in three tranches subject to earn-out conditions. The first tranche
of contingent consideration of US$0.6m (£0.4m) was payable in the event that the ARR of Object+ native
products exceeds US$1.0m (£0.8m) on the first anniversary of acquisition. The second tranche of
contingent consideration of US$0.6m (£0.4m) is payable in the event that the ARR of Object+ native
products exceeds US$1.5m (£1.1m) on the second anniversary of acquisition. The third and final tranche
of contingent consideration of US$1.6m (£1.2m) is payable in the event that US$0.3m (£0.2m) of ARR can
be generated by sales of Object+ native products to new customers by the third anniversary of acquisition.
The third tranche contingent consideration can be paid at any point between the first and third anniversary
date of acquisition.
The contingent consideration can be satisfied in either cash or Company ordinary shares at the Company’s
discretion. If contingent 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 consideration of
£2.3m has been discounted to a present value of £1.3m based on a WACC of 13.8%.
The first performance milestone of US$1.0 (£0.7m) ARR by the first anniversary of acquisition was not
achieved and therefore the first tranche of contingent consideration was excluded from the initial fair value of
the total consideration that could have been paid under the terms of the share purchase agreement.
Based on the current financial performance of Object+, the Directors do not believe that Object+ will achieve
the second performance milestone of US$1.5m (£1.1m) ARR target on the second anniversary of acquisition.
On this basis the Directors believe that the second tranche of contingent 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.
The Directors believe that the third and final performance milestone was achieved at the statement of financial
position date. As detailed in note 29, the third and final tranche of contingent consideration of US$1.6m was
reduced by US$0.5m on 4 March 2021 in consideration for a cash payment of US$0.1m (£0.1m) and KRM22
waiving a US$0.1m (£0.1m) promissory loan note due from the seller of Object+. The fair value of the third
tranche of consideration has been reduced to reflect the reduced consideration.
A total adjustment for the write back of contingent consideration of £0.3m has been recognised in the
consolidated income statement.
Fair value of consideration paid
Cash
KRM22 Plc shares
Contingent consideration
Adjustment to contingent consideration
£’000
390
514
1,150
2,054
(342)
1,712
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ANNUAL REPORT 2020
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill
are as follows:
Non-current assets
Property, plant and equipment
Software
Customer relationships
Brand
Current assets and liabilities
Receivables
Cash and cash equivalents
Payables
Deferred tax
Net identifiable (liabilities)/assets acquired
Goodwill
Total consideration paid by the Group
Book value
£’000
Fair value
adjustments
£’000
Fair value
under IFRS
£’000
29
–
–
–
29
326
28
(605)
–
(251)
(222)
–
421
28
27
476
–
–
–
(122)
(122)
354
29
421
28
27
505
326
28
(605)
(122)
(373)
132
1,922
2,054
Goodwill is recognised on the acquisition as a result of Object+ 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 for the year ended 31 December 2019.
The fair value of receivables acquired was £0.3m 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.
Object+ has contributed £0.5m to group revenues (2019: £0.5m) and a profit of £0.1m to group loss (2019:
loss of £0.1m). For comparative purposes, had the transaction been undertaken at 1 January 2019, Object+
would have contributed £0.8m to group revenues and £0.1m to group loss.
28. Related party transactions
Remuneration of key management personnel
The remuneration of key management personnel, including Directors, is set out in aggregate for each of the
categories specified in IAS 24 Related Party Disclosures as follows:
Short-term employee benefits
Retirement benefits
Share-based payment benefits
Total
2020
£’000
155
3
574
732
2019
£’000
603
12
860
1,475
99
Related party transactions
KRM22 plc
ANNUAL REPORT 2020
On 5 June 2018 the Group acquired a 60% shareholding in KRM22 Market Surveillance Limited from
Cinnober Financial Technology AB (“Cinnober”). In addition to the acquisition, Cinnober together with
KRM22 each provided loans to KRM22 Market Surveillance and the loans were subject to an interest rate
of 5% per annum.
On 16 April 2020, KRM22 Central Limited acquired the remaining 40% minority interest in KRM22 Market
Surveillance from Cinnober. Under the terms of the transaction, a total of £2.9m in debt due to KRM22 and
Cinnober (together the “Parent Companies”) together with £0.3m of other liabilities due to the Parent
Companies was converted into ordinary shares in KRM22 Market Surveillance immediately prior to KRM22
consolidating its ownership of KRM22 Market Surveillance.
On completion of the debt to equity conversion in KRM22 Market Surveillance, the Company immediately
acquired the remaining 40% stake in KRM22 Market Surveillance for a total consideration of £0.6m payable
to Cinnober by way of a convertible loan note (CLN) provided by KRM22 to Cinnober. The CLN was for a
one-year term and could be satisfied by either the allotment and issue of ordinary shares of the Company
by no later than 31 July 2020 or settled by cash at any point in the CLN term, at the Company’s sole
discretion. The interest rate payable on the CLN was 8% per annum payable quarterly.
On 28 June 2020, the CLN was converted into 1,454,434 new ordinary shares at 38.4p per share in the
Company and therefore no cash consideration was paid as part of the acquisition. The settlement of £1.3m
of debt, through the issue of the CLN, resulted in a gain on extinguishment of debt of £0.7m which has been
recognised in the income statement.
At 31 December 2020, the balance of loans due from the Group to Cinnober was £nil (2019: £1.2m).
During the year, KRM22 Market Surveillance charged goods and services to Cinnober of £0.2m (2019: £0.3m)
under normal commercial terms. At 31 December 2020, the balance due to KRM22 Market Surveillance
from Cinnober was £0.1m (2019: £0.1m). Cinnober is currently a 9.9% shareholder of the Company.
On 15 September 2020, KRM22 entered into an agreement for a new three year £3.0m convertible loan
facility (the “Convertible Loan”) with Kestrel Partners LLP (“Kestrel”). The interest rate payable on the
Convertible Loan is 9.5% per annum payable quarterly in arrears. Kestrel can convert the Convertible Loan
into new ordinary shares in the Company at any time at a conversion price of 38p. The Company has the
right to request conversion eighteen months following the date of the agreement, subject to certain
conditions regarding the Company's share price at that time. Kestrel has the right to prevent any conversion
which would trigger a Rule 9 event under the Takeover Code. The Convertible Loan is secured on certain
KRM22 assets and includes covenants based on the Group’s financial performance, based on ARR,
solvency and profitability. Kestrel, inclusive of beneficial interests, is a 20.1% shareholder of the Company.
29. Events after the reporting date
On 4 March 2021, the Company signed an addendum (the “Addendum”) to the Object+ Share Purchase
Agreement dated 29 May 2019. Under the terms of the Addendum, the undiscounted deferred
consideration of US$1.6m (£1.2m) associated with the third performance milestone was reduced by
US$0.5m (£0.4m) to US$1.1m (£0.8m) in return for a cash payment of US$0.1m (£0.1m) to the Seller of
Object+ and the Company waiving the US$0.1m (£0.1m) promissory loan note due from the Seller to the
Company. As of the statement of financial position date the Director’s expectation was that such a position
was probable taking account of the performance of the Group and engagement with the seller.
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ANNUAL REPORT 2020
COMPANY INFORMATION
The board of directors
Registered office
Keith Todd CBE
Chairman and CEO
Stephen Casner
President
Kim Suter
5 Ireland Yard, London, EC4V 5EH
Company number
11231735
Company secretary
Kim Suter
CFO (appointed 2 April 2020)
Nominated Adviser and Broker
Sandy Broderick
Non-Executive Director
Garry Jones
Non-Executive Director
Steve Sparke
Non-Executive Director
Karen Bach
Non-Executive Director (resigned 2 April 2020)
finnCap, 1 Bartholomew Close, London, EC1A 7BL
Solicitors
Fieldfisher LLP, Riverbank House, 2 Swan Lane,
London, EC4R 3TT
Auditor
BDO LLP, 55 Baker Street, London, W1U 7EU
Registrars
Equiniti, Aspect House, Spencer Road, Lancing,
West Sussex, BN99 6D
ANNUAL REPORT 2020 |
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