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KRM22 plc secure new debt facility and outlook continues to be positive

KRM22 plc (LON:KRM), the technology and software investment company, with a particular focus on risk management in capital markets, has announced that it has entered into an agreement for a new £3.0m convertible loan facility arranged by Kestrel Partners LLP, the Company’s largest shareholder. The Facility will be drawn down immediately on satisfaction of the conditions precedent set out in the loan agreement in a single tranche and will replace the Company’s existing debt facility provided by Harbert European Growth Capital Fund II. It is intended that the balance of the outstanding debt and charges of approximately £0.85m under the existing Harbert debt facility will be repaid early using the proceeds of the Facility.

The Facility is being provided to strengthen the Company’s balance sheet and access to both working capital and growth capital in order to support the short to mid-term opportunities available to the Company.

The COVID-19 environment has reinforced the principle that companies need access to greater liquidity to address uncertainties and extending sales cycles, timing of contract signings and also to provide target customers with confidence in the financial strength of the Group.

Terms of the Facility

The Facility will be for a maximum of £3.0m and provided by funds managed by Kestrel Partners LLP. The Facility will be secured on certain Group assets and includes covenants based on the Group’s financial performance, based on ARR, solvency and profitability and will also be guaranteed by certain members of the Group

The interest rate payable on debt drawn down is 9.5 per cent. per annum payable in cash quarterly in arrears and carries an arrangement fee of 2 per cent. payable on drawdown by deduction/ retention from the drawn proceeds. The term of the Facility is 3 years.

The Facility can be converted into new Ordinary Shares in the Company at any time at a conversion price of 38p and conversion can be requested by Kestrel at any time. The Company has the right to request conversion 18 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 Kestrel Facility becoming effective and drawdown thereunder is conditional on the Company satisfying the conditions precedent set out in the agreement, including but not limited to the security for Harbert’s existing facility being released and the security for Kestrel’s Facility becoming effective.

Related Party Transaction

Kestrel is considered a “related party” as defined under the AIM Rules as a result of its substantial shareholding of 18.7 per cent. in the Company. The provision of the Facility by Kestrel constitutes a related party transaction for the purposes of Rule 13 of the AIM Rules.

The Directors consider, having consulted with the Company’s nominated adviser for the purposes of the AIM Rules, finnCap, that the terms of the Facility are fair and reasonable insofar as the Company’s shareholders are concerned.

Keith Todd CBE, KRM22 Executive Chairman and CEO commented:

“This Facility will support our current strategy and continued growth and will allow us to make small additional investments in critical resources and support our ongoing working capital requirements.”

Interim Results

The company went on to announce its unaudited interim results for the six months ended 30th June 2020. 

Highlights

Financial

·      Total revenue recognised of £2.3m (H1 2019: £1.8m)

·      Organic growth in revenue recognised of 19%

·      Undisputed Annualised Recurring Revenue* (“ARR”) of £4.0m at 30 June 2020 (H1 2019: £4.1m)

·      Adjusted EBITDA loss** of £0.3m (H1 2019: loss of £2.4m)

·      Loss before tax of £1.2m (H1 2019: £4.4m)

·      Cash and cash equivalents at 30 June 2020 of £0.8m (FY 2019: £1.1m)

·      Raised gross proceeds of £1.3m in the period through a placement and subscription for new ordinary shares

·      Converted £1.3m of debt and liabilities into equity, following the acquisition of the remaining 40% stake in Irisium

Operational

·      Acquisition of remaining 40% shareholding in Irisium by the Group

·      Managing the impact of COVID-19 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 £0.6m

Post-Period Events

·      Growth in undisputed ARR to £4.3m

·      R&D tax credit receipt of £0.1m

·      Entered into an agreement for a new £3.0m loan facility arranged by Kestrel Partners LLP to replace the existing Harbert debt facility

* Undisputed 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

** Adjusted EBITDA is the reported profit/(loss), adjusted for depreciation, amortisation, share-based payment charges and unrealised foreign currency gains/losses and non-recurring exceptional costs including impairment charges, reorganisation costs, gain on extinguishment of debt and acquisition and funding costs 

Commenting on the results, Executive Chairman and CEO of KRM22, Keith Todd CBE, said:

“The first half has naturally been impacted by the effects of COVID-19, with extending sales cycles and delays in decision making but we remain encouraged by our customer engagement and the pipeline remains strong which we are looking to convert in the second half of the year.  We have managed through these recent turbulent times and are on track to deliver full year market expectations.  The new convertible loan facility, with one of our substantial shareholders, will strengthen the capital base of the company as we drive growth.  The outlook for the second half of the year continues to be positive with a broad engagement of prospects in Europe, Asia and North America.”

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