KRM22 plc (LON:KRM) the technology and software investment company that focuses on risk management for capital markets, has issued the following trading update for the 6 months to 30 June 2020.
The first half has been impacted by the effects of COVID-19 but progress has been made with two new customer wins and cost and debt reduction in the Period.
As described in the trading update of 2 April 2020, the Company has experienced slowed business activity and extended sales cycles as customers and prospects have transitioned to home working and with the increased operational burden resulting from market volatility. Notwithstanding the backdrop, the Company has secured two new customers in the period and sold additional products to an existing customer adding an aggregate of £0.3m in ARR in the period resulting in a total ARR as at 30 June 2020 of £4.0m (which excludes the disputed contract with ARR of £0.3m as described below). The new contracts include the purchase of Enterprise and Market Risk products.
The total ARR of £4.0m is after the loss of four institutional customers who have terminated their contracts with the Company in the Period amounting to an aggregate of £0.3m ARR. These terminations were due to a variety of market factors and COVID-19 but are not related to the performance of the Company. As detailed in the trading update of 2 April 2020, the Company had disputed ARR of £0.4m from two customers. With one of these customers, the Company has now negotiated a contract at a lower value to retain them as a customer and assist their early stage development and this contract is now included in the ARR of £4.0m as described above. Discussions continue with the other customer to try and find a commercial resolution for the remaining £0.3m.
The Company continues to have a strong pipeline of opportunities and is progressing well through the procurement process with two further tier one banks which the Company expects will close in the second half of the year. The UK Brokerage referenced in the Company’s trading update of 2 April 2020 is in the final stages of approval, will add a further £0.3m of ARR.
Costs and operations
As detailed in the update of 2 April 2020, the new contract wins, together with the cost reduction actions implemented, have resulted in a substantial reduction in adjusted EBITDA loss at the period end. This has been achieved through a combination of salary sacrifices across all staff in 2020, staff redundancies and general overhead reductions. The Company tracks the Group’s booked ARR when compared to the cash burn run rate within the business and reports that this ratio is 1.27 as at the period end (compared to 1.59 in January 2020). As a result, the Group’s total monthly cash recurring burn run rate in July from all operations will be £0.08m plus £0.03m for interest and capital repayments.
Cash as at 30 June 2020 was £0.8m (31 December 2019: £1.1m and 21 May 2020: £1.4m). The Group’s debt as at 30 June 2020 reduced to £0.8m (31 December 2019: £2.0m) after the conversion of the Convertible loan note. As detailed in the announcement of 29 June 2020, the CLN was converted into 1,454,434 ordinary shares in the Company. The Harbert Debt facility remains in place with the ability to drawdown on the facility until 31 December 2020. In addition, the Company is in the process of finalising a further R&D tax claim with an initial submission of c. £0.2m.
Outlook
The first half has been impacted by the effects of COVID-19 but the Company remains encouraged by its pipeline of opportunities. The Company is focused on continuing to drive organic growth and has made good progress in the Period and remains confident of meeting management expectations for the year.
Keith Todd CBE, Executive Chairman and Chief Executive Officer at KRM22 commented: “The first half has been impacted by the effects of COVID-19 but I remain encouraged by our customer engagement. We have managed through these recent turbulent times and are on track to deliver the full year expectations. The outlook for our offering continues to be positive with a broad engagement of prospects in Europe, Asia and USA.”
