Drumz plc (LON:DRUM) the investing company focused on building value in technology, has announced its final results for the year ended 31st December 2020.
- In the year the Company changed its investing policy to focus on the technology sector.
- First technology investment made in Acuity Risk Management Limited, an award winning cybersecurity software company.
- Despite COVID, Acuity announces new business wins and significant growth in forward contracted revenues.
Angus Forrest, Drumz Chief Executive commented on the results:
“We have made progress in the past six months and are increasingly confident that the promise shown by Acuity and its improved SaaS business model which is beginning to show with growth in new business should accelerate from here. Drumz has reviewed many new investment opportunities, and we are determined to focus on the opportunities which offer Drumz and its shareholders the best returns. We look forward to the future with optimism.”
Annual General Meeting
In view of the current prevailing guidance from the British Government in relation to the COVID-19 pandemic and specifically the restrictions on large gatherings, the 2021 AGM which will be held on 18 June will be convened with the minimum quorum of shareholders (which will comprise the Company’s directors) in order to conduct the business of the meeting.
This year, we are requesting that any relevant questions on the Annual Accounts or other business to be transacted at the meeting are submitted by shareholders in advance. Shareholders can do so by sending questions in writing to the Registered Office or by emailing email@example.com no later than 14 June (at least 4 days before the AGM). Prior to the meeting, answers to questions will be provided on the Investor Section of the Company’s website at www.drumzplc.com.
I am pleased to present the results of Drumz plc for the year ended 31st December 2020.
On 30 June 2020 shareholders approved changes to the Company’s strategic direction from a company, which had principally invested in real estate to one focused on the technology sector. Simultaneously there were a number of Board changes with Angus Forrest, John Wakefield and I being appointed and Stephen Wicks and John Depasquale stepping down. I would like to thank Stephen and John for their stewardship and collective contributions to the Company over the past few years.
Results and performance
The Group’s results for the year ended 31 December 2020 showed revenues of £12,000 (2019: £2,000) and an operating loss of £149,000 (2019: profit £43,000).
At 30 June the principal asset of the Group was its legacy holding in KCR Residential REIT plc (‘KCR’), which owns property in the private rented residential sector, in particular blocks of studio, one and two bedroom apartments which are rented to private tenants in the UK.
The share price performance of KCR has been disappointing over the year and the value of the KCR holding has declined from £1,181,000 to £573,000, equating to an unrealised loss of £608,000. I am also disappointed to report that the KCR share price has fallen further since the year end.
During the period under review Drumz made its first investment in Acuity Risk Management Limited (“Acuity”), an award winning business, specialising in risk management for cybersecurity. Acuity’s proprietary software platform STREAM™ provides its blue chip customer base on a SaaS basis, with a comprehensive view of risk and compliance on an enterprise wide basis. Drumz has invested £500,000 in cash for an initial 20 per cent. shareholding in Acuity and has an option to acquire an additional 5 per cent. shareholding for a further £125,000. Further details on the progress achieved by Acuity is in the CEO report and Investment report.
Therefore, the overall results of the Group for the year ended 31 December 2020 show a loss before taxation of £757,000 (2019: loss of £72,000), of which £608,000 (2019: £134,000) was due to the fall in value of the Group’s investment in KCR. The shareholders’ funds have increased to £1,518,000 (2019: £1,204,000), principally as a result of the two separate fund raisings undertaken by the Company in July and October 2020.
New investment Policy
The Company’s new investment policy is to invest principally, but not exclusively in the technology sector in Europe. The Directors consider that there are opportunities to invest in and acquire established technology businesses which own their own intellectual property and improve them through a combination of the management skills and expertise available from Drumz and further investment capital as required.
Whilst it is not possible to be entirely prescriptive, it is likely that the opportunities would generally have some or all of the following characteristics, namely:
- Established business
- Software is proven and a key tool for users
- SaaS (“Software as a Service”) business model
- Significant B2B market opportunity
During the current period there have been two major macroeconomic factors which have impacted the economy, namely:
- Brexit – as regulations change with Britain’s withdrawal from the EU, the software industry, particularly those selling on a SaaS basis, appear at present to be relatively unaffected by this new environment and
- COVID-19 – this global pandemic has had a major impact on the world economy and the ways in which people work. On the positive side, the software industry lends itself well to employees working effectively from remote locations, but the broader impact of the pandemic on global demand remains uncertain. At Acuity, there was a decline in new business sales in the second quarter of its financial year, after the first lockdown announced by the UK Government, but since then new business has picked up strongly.
The first phase of the planned change programme at Acuity, with a complete overhaul of its commercial infrastructure and strengthening of the sales and marketing operations has now been completed. The Board believe that the benefits of the actions already taken will be seen over the coming months. We are now considering several new investment opportunities. I would like to welcome all new shareholders and thank all shareholders for their continuing support. I should also like to thank my colleagues and our advisors for their respective contributions and look forward to further progress in the current financial year.
21 May 2021
Chief Executive’s Report
Since the 2020 AGM, when shareholders approved changes to the business to focus on the technology sector was one of change as your Company transitioned and made its first technology investment. In that time changes have been made to the Board of directors, a pipeline of technology investment opportunities has been generated and a new corporate name has been adopted.
Drumz’s strategy is to invest, predominantly but not exclusively in the technology sector, to achieve capital growth in the medium term, three to five years. We invest in operating companies whose activities include the sale of software or the use of software. The Board seeks to make investments where the associated risks are acceptable given the expertise available to the Company.
Our business model
Our business model is to identify established software companies with potential, that we can acquire or invest in and which would benefit from our expertise in order to exploit their market opportunity and thereby transform value. The skills and experience we inject, mainly relate to commercial, sales and marketing activities. Our objective is to transform the value of our investments by increasing growth rates and scale. Having achieved these goals the Company will determine whether the investee companies should be retained or whether it would be better to realise value by way of a trade sale or Initial Public Offering (“IPO”).
By acquiring established businesses whose software is valuable to its customers, Drumz is investing in businesses with a validated product / service so should be able to accelerate growth and value faster than for earlier stage companies, whilst being better able to identify and manage the associated risks.
Our business model is designed to allow all parties to benefit. It is achieved by investing in opportunities where the Board sees growth and if necessary, can provide expertise and assistance to management to accelerate growth and drive scale, two of the principal drivers of value for potential buyers.
In a typical scenario:
Year 1: Initial review with key changes identified, and actions taken to set the foundations (business model, pricing, marketing, sales channels, partners);
Year 2: Build on the initial changes with any necessary refinements and implementation of business drivers; and
Year 3: Continue to accelerate growth (by this stage the business will be bigger and is likely to be growing at a far faster rate than previously)
Investments and Portfolio update
Acuity Risk Management
This 15 year old company has developed a software platform which is used for risk management mainly for cybersecurity, but which also has the flexibility to be adapted for management of other risks including supplier management or health and safety. Acuity has won awards for its principal product STREAM™ which has a 5-star rating in Gartner’s 2021 Peer Insights review of recent software buyers and has won a five star rating for five consecutive years from leading security trade journal, SC MEDIA. The product is in use by Acuity’s customers in the UK, Europe and the United States.
There has been considerable progress at Acuity in the time Drumz has been involved and some of the resulting contract wins have been announced on the Stock Exchange’s Reach News Service. All sales are now made on a SaaS basis with improved commercial terms and new pricing structures, which has substantially improved the company’s recurring revenues and average order values. A new digital marketing agency is generating increased and better quality sales leads which are fed into the sales team, which has been grown over the past year to increase sales capacity. These measures are beginning to show benefits through faster rates of growth in both the numbers and value of orders and we look forward to continuing to work with Acuity to build on these foundations.
The biggest impact of COVID-19 on Acuity was felt in the quarter July to September 2020, when the Company found it difficult to get new customers to commit to new orders. However, since then, demand has recovered and continued to build in subsequent quarters. The increasing likelihood and impact of cyber attacks and consequently the relative importance of cyber security give the Board confidence to believe that the demand for Acuity’s services will continue to grow.
KCR Residential REIT
KCR is a legacy investment which owns a portfolio, mostly properties, which comprise residential and retirement flats. Whilst Savills reported the UK housing market performed strongly in 2020 and Nationwide reported growth in transaction numbers (13%) and annual price growth of 7.3 per cent, it is disappointing that the share price has declined over the second six months of 2020 and subsequently, such that it is now at a level which represents a discount of 50% to net asset value.
Summary and Outlook
In 2020 we achieved the requisite changes at Drumz and began the process of making the transformation necessary to drive value enhancement at Acuity, which is now attracting considerable interest. This demonstrates that our strategy is working and we continue to review a number of other possible investment opportunities.
21 May 2021