KR1 Plc - Interim Report for the Half Year Ended 30 June 2023

 

28 September 2023

 

 

KR1 plc

(“KR1”, the “Company)

 

Interim Report for the Half Year Ended 30 June 2023

 

KR1 plc (KR1:AQSE), a leading digital asset investment company, today announces its half year results for the six months ended 30 June 2023 (HY23).

 

Financial Highlights

 

·        Net assets of £90.7 million, +94% on HY22; +29.5% on FY22

·        NAV per share of 51.12p as at 30 June 2023, +67.1% on HY22; +29.5% on FY22

·        Income from digital assets of £3.9 million, -76.4% on HY22

Investment Highlights

·        Investment pipeline and access to projects remains strong

·        Investment in Anoma, building a next generation blockchain with an intent-centric architecture

·        Investment in Hydra Ventures, a newly launched investment Decentralised Autonomous Organisation (“DAO”)

·        Further investments in Code & State, a Web3 venture studio, and others

 

 Strategic Highlights

·        Continuously strong staking activities through Polkadot, Cosmos, Moonbeam and others

·        Recent addition of Ethereum as a staked asset to the Company’s staking strategy

·        Lido, a major portfolio projects, remains market share leader for Ethereum staking (with Rocket Pool, another portfolio project competing)

·       Polkadot, a major portfolio project, unveiled its plans for a future Polkadot version 2.0 to accelerate its potential for many developers

·        Cosmos, another major portfolio project, releasing ‘Mesh Security’ to increase the economic security of Cosmos ecosystem chains while allowing them to retain complete sovereignty

Markets Outlook

·        The upcoming mainnet launch for Celestia (formerly LazyLedger) is very promising for the KR1 portfolio, continuing to build a high-quality, diversified portfolio of innovative digital assets

·        Bitcoin halving narrative starting to form again while numerous Bitcoin spot ETF applications were filed by Wall Street heavyweights such as Blackrock, suggesting potential for significant institutional adoption of the asset class.

 

George McDonaugh and Keld van Schreven, Managing Directors of KR1 plc, commented:

“With some positive market momentum as well as major new investments that were announced since the year end, the Company’s net assets have grown substantially to £90.7 million at the end of June, providing shareholders with capital growth, which remains our main long-term focus. The year-on-year decline in income from digital assets, driven by various factors, including stagnant prices over the relevant period, was expected, while still being of great benefit to the Company. A major event coming up for the Company will be the launch of Celestia (formerly LazyLedger). The outlook is promising, as we continue strengthening our organisation, keep building a high quality ‘long-only’ portfolio of innovative digital assets and monitor interesting developments in the wider digital asset market.”

Managing Directors’ Report

The start of 2023 saw a resurgence in interest in digital assets after the previous period of chaos and destruction precipitated by the aftermaths of the collapses of various entities in the industry. Looking forward, we note that the Bitcoin halving narrative has started forming, with the upcoming halving expected to occur in the second quarter of next year. Further, Bitcoin Exchange Traded Funds (“ETFs”) have come back to the fore with applications from Blackrock, Fidelity and other Wall Street heavyweights making headlines. While the US regulatory stance remains uncertain with more and more eyes on the US SEC Bitcoin ETF approval (or denial) processes, the recent judicial landscape seems to be clearing up with the ongoing Ripple and Coinbase court proceedings.

 

As per the interim results, the net asset value of the Company at 30 June 2023 was £90.7 million, as compared with £70.0 million as at 31 December 2022, which resulted in a net asset value per share of 51.12 pence as of 30 June 2023, compared with 39.47 pence per share as at 31 December 2022.

Throughout 2023 our investment pipeline and access to projects remained strong and the Company continued to invest in new exciting projects including Anoma, Hydra Ventures, Code & State, Side Protocol and, most recently, Interop Ventures, all of which were largely funded through partial disposals of extremely successful investments from the existing portfolio, such as Lido and Rocket Pool (while still retaining these as major position of the Company as per the unaudited monthly NAV updates).

 

As mentioned previously in our full-year results report, a major upcoming event for the Company is going to be the mainnet launch of Celestia (formerly LazyLedger), a project that received investment from KR1 during its initial seed funding round a few years ago. With the digital asset landscape becoming more complex, fragmented and diverse, Celestia is leading a ‘new generation’ of emerging modular blockchain architectures, and we are excited to witness the growth of an ecosystem around that.

 

Further major developments of existing portfolio projects are the unveiling of Polkadot’s roadmap towards a future Polkadot 2.0, which will be more flexible and accelerate the adoption of Polkadot’s technology to many more developers. Similarly, the Cosmos ecosystem continues iterating with its release of ‘Mesh Security’, which provides projects with higher economic security while allowing them to retain complete sovereignty. Another project previously mentioned in our full-year results report, Vega Protocol, successfully launched its mainnet and has been going from strength to strength with continuously increasing trade volume being executed through the platform, which is a healthy sign for Vega to capture further market share in 2024 and beyond.

 

While still a great benefit to the Company, income from digital assets in the six months up until 30 June 2023 was £3.9 million, being down considerably from the full-year results as, firstly, it relates to an interim period of only six months but further as the ‘tail-end’ of rewards still being distributed from parachains in the Polkadot ecosystem has generally been lower compared to initial rewards. Other contributing factors were fairly stagnant prices across the entire crypto ecosystem, affecting the GBP equivalent for income from digital assets over the period as well as no additional rewards from ‘special situations’ such as from ‘lockdrops’ which materially added to the Company’s previous full-year results.

 

The underlying staking activities remain strong, even throughout a challenging market environment, with the Company recently adding Ethereum (“ETH”) through Lido’s Staked ETH (“stETH”) to the Company’s staked operations. This adds another staked asset to the Company’s existing staking activities, which already feature assets such as Cosmos (“ATOM”), Moonbeam (“GLMR”), Kusama (“KSM”) and Moonriver (“MOVR”), where almost the entire amounts of all positions held by the Company are staked. Polkadot (“DOT”) is another major asset, which contributes to KR1’s income from digital assets through staking activities. The Company expects to unlock all DOT that were contributed to parachain auctions in two tranches: the first in October 2023 (1.05 million DOT) and the second in January 2024 (0.6 million DOT). While on the one hand, this results in a phasing out of parachain rewards to the Company from the supported parachains (such as Acala, Astar and Moonbeam), on the other hand, the unlocked DOT can be added to the Company’s Polkadot staking activities again which, in turn, shall increase rewards on the staking side for the asset.

 

As we move through 2023 into 2024, we will keep building out the Company’s high-quality ‘long-only’ portfolio of innovative digital assets and as previously, KR1 plc remains at the very heart of the crypto ecosystem, fully focused and taking advantage of the disruption that this exciting technology will bring to society.

Statement of Comprehensive Income

 

		6 months to 30 June 2023		6 months to 30 June 2022 Restated		12 months to 31 December 2022
		Unaudited £		Unaudited £		Audited £
Continuing operations
Income
Income from digital assets		3,912,210		16,567,889		20,204,355
Interest received		14,972		-		2,371
Direct costs		(122,398)		(188,380)		(444,194)
Gross profit		3,804,784		16,379,509		19,762,532
Administrative expenses		(1,948,266)		(1,683,567)		(3,726,682)
Gain on disposal of intangible assets		8,290,070		2,510,663		3,642,819
Movement in fair value of financial assets at fair value through profit and loss		(140,787)		(15,315)		(183,932)
Share options		-		(39,328)		(39,327)
Operating profit		10,005,801		17,151,962		19,455,410
Taxation		-		(180)		-
Profit after taxation		10,005,801		17,151,782		19,455,410
Other comprehensive income:
Movement in fair value of intangible assets		10,658,544		(155,483,650)		(164,666,713)
Total other comprehensive income for the period/year		10,658,544		(155,483,650)		(164,666,713)
Total comprehensive income attributable to the equity holders of the Company		20,664,345		(138,331,868)		(145,211,303)
Earnings per share attributable to the equity owners of the company (pence):
Basic earnings per share		5.64		11.25		11.86
Diluted profit per share		5.63		11.21		10.96

 

 

 

 

 

 

Statement of Financial Position

 

		At 30 June 2023		At 30 June 2022 Restated		At 31 December 2022
		Unaudited £		Unaudited £		Audited £
Assets
Non-current assets
Intangible assets		22,232		10,036,812		3,270,856
Intangible assets receivable		-		-		3,795
Total non-current assets		22,232		10,036,812		3,274,651
Assets
Current assets
Intangible assets		79,978,003		53,782,345		57,669,180
Intangible assets receivable		926,995		5,323,793		1,774,020
Financial assets at fair value through profit and loss		8,329,742		7,667,478		8,067,895
Cash and cash equivalents		2,114,457		785,252		634,163
Trade and other receivables		107,019		42,737		125,570
Total current assets		91,456,216		67,601,605		68,270,828
Total assets		91,478,448		77,638,417		71,545,479
Equity and liabilities
Current liabilities
Trade and other payables		807,919		30,897,042		1,539,295
Total current liabilities		807,919		30,897,042		1,539,295
Equity
Share capital		808,756		762,070		808,756
Share premium		36,602,619		6,505,061		36,602,619
Revaluation surplus		17,375,359		15,899,878		6,716,815
Option reserve		149,852		149,852		149,852
Profit and loss account		35,733,943		23,424,514		25,728,142
Total equity		90,670,529		46,741,375		70,006,184
Total equity and liabilities		91,478,448		77,638,417		71,545,479
Net Asset Value per share		51.12 pence		30.59 pence		39.47 pence

 

 

 

 

Statement of Changes in Equity

	Share capital		Share premium		Revaluation reserve		Option reserve		Retained reserves		Total
	£		£		£		£		£		£
Balance at 1 January 2022 as restated	758,320		6,505,061		171,383,528		110,524		6,272,732		185,030,165
Profit for the financial period	-		-		-		-		17,151,782		17,151,782
Total other comprehensive income for the period	-		-		(155,483,650)		-		-		(155,483,650)
Total comprehensive income for the period	-		-		(155,483,650)		-		17,151,782		(138,331,868)
Issue of options	-		-		-		74,854		-		74,854
Exercise of options	3,750		-		-		(35,526)		-		(31,776)
Transactions with owners recorded directly in equity	3,750		-		-		39,328		-		43,078
Balance at 30 June 2022	762,070		6,505,061		15,899,878		149,852		23,424,514		46,741,375
Balance at 1 January 2023	808,756		36,602,619		6,716,815		149,852		25,728,142		70,006,184
Profit for the financial period	-		-		-		-		10,005,801		10,005,801
Total other comprehensive income for the period	-		-		10,658,544		-		-		10,658,544
Total comprehensive income for the period	-		-		10,658,544		-		10,005,801		20,664,345
Transactions with owners, recorded directly in equity	-		-		-		-		-		-
Balance at 30 June 2023	808,756		36,602,619		17,375,359		149,852		35,733,943		90,670,529

Statement of Cash Flows

 

	6 months to 30 June 2023	6 months to 30 June 2022   Restated	12 months to 31 December 2022
	Unaudited £	Unaudited £	Audited £
Cash flows from operating activities
Profit for the period	10,005,801	17,151,782	19,455,410
Other comprehensive income	10,658,544	(155,483,650)	(164,666,713)
Adjustments for:
Movement in fair value of intangible assets	(10,658,544)	155,483,650	164,666,713
Gain on disposal of intangible assets	(8,290,070)	(2,510,663)	(3,642,819)
Non-cash income from digital assets	(3,912,210)	(16,567,889)	(20,204,355)
Other non-cash transactions	(121)	86,596	270,344
Foreign exchange gain	40,028	1,606	36,072
Movement in fair value of financial assets at fair value through profit and loss	140,787	15,315	183,932
Share option issue	-	39,328	39,327
Decrease/(increase) in debtors	18,551	60,568	(22,266)
(Decrease) in creditors	(731,376)	(1,477,221)	(30,834,966)
Net cash (outflow) from operating activities	(2,728,610)	(3,200,578)	(34,719,321)
Cashflows from investing activities
Sales of investments	6,132,703	3,077,205	6,249,761
Purchases of investments	(1,883,770)	(2,581,941)	(4,496,617)
Net cash inflow from investing activities	4,248,933	495,264	1,753,144
Cashflows from financing activities
Proceeds from issue of ordinary shares	-	3,750	30,147,991
Net cash generated by financing activities	-	3,750	30,147,991
Net increase/(decrease) in cash	1,520,323	(2,701,564)	(2,818,186)
Cash and at the beginning of the year	634,163	3,488,421	3,488,421
Effect of exchange fluctuations on cash	(40,029)	(1,605)	(36,072)
Cash and at 31 December	2,114,457	785,252	634,163
Represented by:
Cash at bank	1,044,679	785,252	634,163
Cash held on trading platforms	1,069,778	-	-
	2,114,457	785,252	634,163

 

Other non-cash transactions consist of expenses paid and investments purchased using digital assets and cryptocurrency assets. 

 

 

 

 

 

Interim Report Notes

 

1. Interim report

The information relates to the 6-month period from 1 January to 30 June 2023. 

The interim report was approved by the Directors on 27 September 2023.

2. Basis of accounting
   1. While the financial information included in this interim financial report has been prepared in accordance with International Financial Reporting Standards (“IFRSs”), this interim financial information does not itself contain sufficient information to comply fully with IFRSs.
   2. These interim financial statements are the financial statements of the Company.
   3. The financial statements are prepared under the historical cost convention except for the modification to a fair value listed financial assets and intangible assets traded in an active market which are carried at fair value as specified in the accounting policies below and are in accordance with applicable accounting standards.
3. Assets

Digital assets and Cryptocurrency assets

The Company holds digital assets and cryptocurrency assets as intangible assets in accordance with IAS 38 and the revaluation model has been applied as there is an active market for the cryptocurrencies. Intangible assets held are measured initially at cost and are subsequently carried at a revalued amount (based on fair value) less any subsequent impairment losses, using rates obtained from various exchanges, including Open Exchange Rates and CoinMarketCap. The rates obtained from these sources represent a generally well recognised quote price in an active market, which market and database is accessible to the Company on an ongoing basis.

The assets are identifiable, separable and future economic benefits are expected. Intangible assets held are measured initially at cost and are subsequently carried at a revalued amount based on fair value).

Revaluation increases in the carrying amount are recognised in other comprehensive income and accumulated in the revaluation surplus within equity. Revaluation decreases which offset previous increases are charged in other comprehensive income and debited to the revaluation surplus directly in equity. All other decreases are charged to the income statement.

The digital assets and cryptocurrency assets have indefinite useful lives and are reviewed at each reporting period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset.

Digital assets and cryptocurrency assets may be locked due to participation in activities including, but not limited to staking, parachain auctions and lockdrops.

Digital assets and cryptocurrency assets delivered to the Company from early-stage investments for future tokens may be subject to restrictions such as lockups and vesting schedules. Digital assets and cryptocurrency assets may also be temporarily locked at times due to participation in various activities including but not limited to staking, parachain auctions and lockdrops.

The Company recognises digital assets and cryptocurrency assets as ‘locked’ when these assets are held in Company owned accounts or blockchain wallets under the Company’s control whereby the unlock of these digital assets and cryptocurrency assets is in accordance with certain conditions, including but not limited to, a schedule dependent on time or blockchain block count, which is dictated by computer code, such as a smart contract deployed on a particular blockchain or similar mechanisms. Locked digital assets and cryptocurrency assets may be unlocked in a full tranche or partially over time.

Digital assets and cryptocurrency assets that are legally owned by the Company from early-stage investments for future tokens may be distributed to Company owned accounts or blockchain wallets under the Company’s control by the investee team over time in accordance with the terms of contractual agreements between the Company and the investees. The Company recognises these owned but yet-to-be-received digital assets and cryptocurrency assets as Intangible assets receivable.

Whilst, under such circumstances the Company generally forfeits its ability to sell or otherwise transfer its locked digital assets and cryptocurrency assets, no other entity obtains the right to direct their use and the Company is still the primary entity holding the risks and rewards of ownership. Locked digital assets and cryptocurrency assets may be unlocked as a full tranche or may be subject to unlock and vesting schedules.

The Company does not derecognise time locked or vesting digital assets and cryptocurrency assets which are classified and measured in the same manner as non-locked digital assets and cryptocurrency assets.

The Company classifies digital assets and cryptocurrency assets which are due for release no later than one year after the period end as intangible assets held as current assets. Digital assets and cryptocurrency assets, which are due for release more than one year after the period end are classified as intangible assets held as non-current assets.

Digital assets and cryptocurrency assets receivable from third parties subject to unlock and vesting schedules, or as distributions and rewards are classified as intangible assets receivable.

Early-stage investments for future tokens

Unlike the digital asset and cryptocurrencies held, there is no active market for these agreements and hence these are held under the cost model and subsequent to initial recognition will be held at cost less impairment.  No amortisation will be charged to the assets as the investment is entered into with the outcome expected that digital assets and cryptocurrency assets will be provided at the end of the agreement following a projects launch.

Revaluation increases in the carrying amount are recognised in other comprehensive income and accumulated in the revaluation surplus within equity. Revaluation decreases which offset previous increases are charged in other comprehensive income and debited to the revaluation surplus directly in equity. All other decreases are charged to the income statement.

Financial assets at fair value through profit or loss

A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s documented risk management or investment strategy. Upon initial recognition attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.

i.  Financial assets are valued at the lower of cost and net realisable value.  Foreign denomination loans are translated into sterling at the rate of exchange ruling at the balance sheet date.  For those financial assets listed on a recognised market, net realisable value is taken as mid-market price. Where the directors consider the market price of a current asset is likely to irreversibly fall, additional write downs in valuation to below mid-market price are made.

ii. The net realisable value of certain financial assets is not readily determinable by reference to a quoted market price. The directors have therefore made their own assessment of the net realisable value and adjusted the carrying value of the current asset where it is considered less than cost. This estimate requires estimation techniques, which are reliant upon their experience and expertise.

4. Receivables

Receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition receivables are measured at amortised cost using the effective interest method, less any impairment losses. Receivables comprise trade and other receivables.

Digital assets and cryptocurrency assets which are legally owned by the Company from early-stage investments for future tokens may be distributed to Company owned accounts or blockchain wallets under the Company’s control by the investee team over time in accordance with the terms of contractual agreements between the Company and the investees. The Company recognises these owned but yet-to-be-received digital assets and cryptocurrency assets as Intangible assets receivable.

5. Restatement of comparatives

As detailed in the Company’s Annual Report for the year ended 31 December 2022 prior year figures relating to Financial assets at fair value through profit or loss, attributed to other comprehensive income in error were restated to reflect measurement at fair value through profit and loss. The Company has also restated figures relating to the removal from the option reserve of the fair value of the options (determined using the Black-Scholes option pricing model) upon exercise of share options. Some elements of this were previously reported through profit and loss and were restated to reflect a change in retained reserves.

In accordance with these prior year restatements figures for the 6 months ended 30 June 2022 have been corrected.

 

The Company will report again for the full year to 31 December 2023.

 

The Directors of KR1 plc accept responsibility for this announcement.

 

For further information please contact:

 

KR1 plc George McDonaugh Keld van Schreven	+44 (0)1624 630630
Peterhouse Capital Limited (Aquis Corporate Adviser) Mark Anwyl	+44 (0)20 7469 0930
FTI Consulting LLP (PR Adviser) Ed Berry Maxime Lopes Lynn Begany	+44 (0)7711 387 085 KR1@fticonsulting.com

 

ENDS

 

Notes to Media

 

About KR1 plc

KR1 plc is a leading digital asset investment company supporting early-stage decentralised and open source blockchain projects. Founded in 2016 and publicly traded in London on the Aquis Growth Market (KR1:AQSE), KR1 has one of the longest and most successful track records of investment in the digital assets space by investing in decentralised platforms and protocols that are emerging to form new financial and internet infrastructures.

 

Market Abuse Regulation (MAR) Disclosure

 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation EU 596/2014 as it forms part of retained EU law (as defined in the European Union (Withdrawal) Act 2018).