Drumz : Annual Report, December 2021

Drumz plc

Report and Accounts

For the year ended

31 December 2021

Contents

Strategic Report ................................................................................................................................................................... 1

Chairman's Statement ........................................................................................................................................................ 1

Chief Executive's Report .................................................................................................................................................... 3

Investment Report .............................................................................................................................................................. 7

Principal Risks and Uncertainties ....................................................................................................................................... 9

Governance ........................................................................................................................................................................ 10

Chairman's Introduction to Governance ........................................................................................................................... 10

Board of Directors ............................................................................................................................................................. 12

Corporate Governance Statement .................................................................................................................................... 13

Remuneration Report ....................................................................................................................................................... 21

Director's Report ............................................................................................................................................................... 23

Financial Statements ......................................................................................................................................................... 27

Group statement of comprehensive income ..................................................................................................................... 32

The accompanying accounting policies and notes form an integral part of these consolidated financial statements ...... 32

Group statement of financial position ............................................................................................................................... 33

Group statement of changes in equity .............................................................................................................................. 35

Company statement of changes in equity ........................................................................................................................ 36

Group statement of cash flows ......................................................................................................................................... 37

Company statement of cash flows .................................................................................................................................... 38

Notes to the Financial Statements .................................................................................................................................... 43

Additional Information ....................................................................................................................................................... 54

Advisers and Key Services Providers ............................................................................................................................... 54

Strategic Report

Drumz plc

Strategic Report

Chairman's Statement

I am pleased to present the results of Drumz plc ("Drumz" or "Company" or "Group") for the year ended 31 December 2021.

Results and performance

The Group's results for the year ended 31 December 2021 showed revenues of £44,000 (2020: £12,000) and an operating loss of £239,000 (2020: loss £149,000).

At the year end, the principal asset of the Group is its investment in Acuity Risk Management Limited ("Acuity"), valued at cost of £625,000. The Group's original investment was made in September 2020 and Drumz exercised its option to acquire another 5% of Acuity's equity for £125,000 in September 2021.

Acuity is an award winning business, specialising in risk management for cybersecurity. Acuity's proprietary software platform STREAM™ provides its blue chip customer base, on a Software as a Service ("SaaS") basis, with a comprehensive view of critical business risk and compliance on an enterprise wide basis. During the year, Acuity has widened its distribution channels including completing a new partnership agreement with an established developer, distributor and implementor of automated risk management software in the USA. Further details on the progress achieved by Acuity are included in the Chief Executive's report.

In addition, the Group continues to own 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 of KCR stands at a significant discount to the stated net assets per share. Notwithstanding, the share price performance of KCR has again been disappointing over the year and as a result, the value of the KCR holding has declined further from £573,000 to £390,000, equating to an unrealised loss of £183,000. I am also disappointed to report that the KCR share price has fallen a little further since the year end. Your Board is looking to dispose of this investment, which is no longer core to the Group's current investment policy, as soon as a buyer can be found. However, in common with many smaller companies, there is limited liquidity in the shares of KCR and therefore the Board is not able to give a view on when a disposal of this investment might be effected.

Therefore, the overall results of the Group for the year ended 31 December 2021, show a loss before taxation of £422,000 (2020: loss of £757,000), of which £183,000 (2019: loss of £608,000) was due to the fall in value of the Group's investment in KCR. No dividend is being declared for the year (2020: £nil).

Notwithstanding, shareholders' funds have increased to £1,547,000 (2020: £1,518,000), principally as a result of the fund raising undertaken by the Company in November 2021. The Group raised £450,000 (before expenses of the issue), by the issue of 75,000,000 ordinary shares at a price of 0.6 pence per ordinary share, together with a related warrants issue. I am pleased to be able to report that all the Drumz directors subscribed for new ordinary shares in this placing.

As a result, at the year end the Group had cash balances of £561,000 (2020: £491,000).

Investment Policy

The Company's investing policy is to invest principally, but not exclusively, in the technology sector within Europe. Drumz's strategy is to invest in and acquire technology businesses, where the Board believes they can be improved by a combination of our own management expertise and the provision of investment to improve the businesses growth prospects.

Although the Company intends the main focus of the investing policy to be on technology businesses, this will not preclude the Company from considering investment in suitable projects in other sectors or geographies, where the Directors believe that there are high-growth opportunities.

Macroeconomic impacts

During the current period there have been two major macroeconomic factors which have impacted the economy, namely:

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Strategic Report

Drumz plc

• • 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; and

• • further uncertainty to demand caused by rising global inflation and interest rates and disruption to global supply chains.

Outlook

The Board considers that the benefits of the actions already taken at Acuity will be seen over the coming months. We are now considering several new investment opportunities. I would like to thank all shareholders for their continuing support and to thank my colleagues and our advisors for their respective contributions. I look forward to further progress in the current financial year.

Simon Bennett

Chairman

20 April 2022

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Strategic Report

Drumz plc

Chief Executive's Report

Our strategy

Drumz' strategy is to invest and acquire, predominantly but not exclusively in the technology sector, in order to achieve capital growth in the medium term. We target operating companies whose activities include the sale of enterprise software or the use of software in B2B markets. The Board seeks opportunities where the value can be grown to achieve appropriate returns and risks are managed given the expertise available.

Over the past 12 months, whilst the focus has been on developing Acuity Risk Management Ltd, many other investment opportunities were reviewed to find a second investment for the Group. Proposals were made to acquire some interesting businesses, but on the final analysis none satisfied both our due diligence examination and value expectations.

Our business model

Our business model is to take established software companies with an excellent offering and potential to grow significantly in their market. We work with companies contributing skills, expertise and knowledge to the business to transform the value. The value will be realised either by way of trade sale or Initial Public Offer ('IPO') so Drumz and/or its shareholders can realise all or part of their holdings.

Established businesses not only reduce the risks for Drumz and its shareholders but with the track record and statistical evidence on which to base decisions there is a stronger and faster platform for growth and therefore value creation. It is important that all parties are incentivised and interests aligned to benefit from growth in value. Drumz' Board believes a combination of scale, growth rate, profitability and cash generation are the most important creators of value.

Investments and Portfolio update

Acuity Risk Management Limited

Acuity Risk Management's, STREAMÔ software platform was voted by users in Gartner's 2021 Peer Insights review as a top three risk management software. Acuity was shortlisted for Cyber security solution of the year at the National Technology Awards 2021.

It recently became part of the UK's space team, Athena. Athena is the UK's national consortium for the space industry bringing Acuity alongside many leading UK and US defence and space companies and therefore may provide Acuity with commercial opportunities.

Over the past 12 months several appointments were made including a new full time Commercial Director, who has reorganised all marketing, sales and other distribution activities. All marketing activities have been taken in house following which the number and quality of leads has increased and improved significantly. The sales team has been reorganised with further recruitment planned and the distribution channel using VARs strengthened with appointments made during the year, some of which were announced on the Stock Market's Regulatory News Service.

In September Drumz exercised its existing option to invest a further £125,000 for a further 5% of the equity taking its ownership to 25%.

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