Interim Results

Kromek Group PLC
30 January 2024
 

30 January 2024 

Kromek Group plc 

("Kromek" or the "Group") 

 

Interim Results

 

Kromek Group plc (AIM: KMK), a leading developer of radiation and bio-detection technology solutions for the advanced imaging and CBRN detection segments, announces its unaudited interim results for the six months ended 31 October 2023.

 

Financial Highlights

·    Revenue increased to £7.1m (H1 2023: £6.8m)

·    Gross margin improved to 54.2% (H1 2023: 40.4%)

·    Adjusted EBITDA loss reduced to £0.1m (H1 2023: £2.7m loss)*

·    Loss before tax reduced to £3.5m (H1 2023: £5.7m loss)

·    Cash and cash equivalents at 31 October 2023 were £3.7m (30 April 2023: £1.1m)

·    Net cash used in operating activities substantially reduced to £1.6m (H1 2023: £4.0m)

·    Refinancing of its debt facility with new £5.5m secured term loan in September 2023

·    Equity fundraise of £8m (gross) in May 2023

·    Remain on track to deliver significant revenue growth and positive EBITDA for the year to 30 April 2024

*A reconciliation of adjusted EBITDA can be found in the Financial Review.

 

Operational Highlights

Advanced Imaging

·    Commenced significant collaboration agreements with:

A tier 1 OEM to provide CZT-based detectors for use in the customer's advanced medical imaging scanners

Analogic Corporation ("Analogic") to develop CZT-based detectors for photon counting computed tomography ("CT") applications in medical imaging and security screening

·    New collaboration agreement entered, post period, with a global blue-chip technology solutions provider to develop CZT-based detectors for photon counting CT applications in medical imaging

·    Received a $1.4m contract from a new Asia-based OEM customer to develop and supply CZT-based detectors for single-photon emission computed tomography ("SPECT") applications

·    Launch by Spectrum Dynamics Medical ("Spectrum Dynamics"), a key customer, of the latest addition to its next generation digital SPECT/CT imaging portfolio, the VERITON-CT 300, using Kromek's detectors

CBRN Detection

·    Kromek's nuclear radiation detection solutions continued to be deployed by global homeland defence and security forces to protect critical infrastructure, events and urban environments from the threat of 'dirty bombs'

·    Received over $1m in new orders for nuclear security products, including from a new customer that is a substantial global defence corporation

·    Awarded a $1.5m contract in Asia for a new product in the civil nuclear market

·    Received a £1.4m contract, post period, for the supply of D3M detectors for use in the rescEU stockpile being developed by the European Commission

Biological-Threat Detection

·    Received a $5.9m contract from the US Department of Homeland Security for the development, under a four-year programme, of technologies focusing on an agent agnostic bio-detection system

·    Progressed development of a biological-threat detection system under previously awarded contract with a UK government department



 

Manufacturing and IP

·    Sustained progress in improving yield and cost efficiency in CZT crystal growth and detector manufacturing

·    One new patent filed and three granted during the period

 

Dr Arnab Basu, CEO of Kromek, said: "I am pleased to report another period of growth for Kromek as we continued to deliver on our long-term agreements and development programmes as well as win new orders. We advanced our strategy by signing a significant collaboration agreement with a global blue-chip technology solutions provider in advanced imaging and through expanding our customer base in CBRN detection, including securing our first order with a substantial global defence corporation. At the same time, we heavily focused on managing our cost base and increasing the efficiency within our business, which remains a key priority. 

 

"Looking ahead, in line with normal seasonality, we will be second half weighted and remain on track to deliver record revenues for full year 2024 and positive EBITDA. We continue to operate in substantial markets and are receiving high demand for our products that are being used every day to save people's lives - from the detection of nuclear threats in Ukraine, to cancer in hospitals around the world. As a result, the Board continues to look to the future with confidence."

 

 

For further information, please contact: 

 

Kromek Group plc 


Arnab Basu, CEO 

Paul Farquhar, CFO 

+44 (0)1740 626 060 

 


Cavendish Capital Markets Limited (Nominated Adviser and Broker)  

  

Geoff Nash/Giles Balleny/Seamus Fricker - Corporate Finance 

Tim Redfern - ECM

Michael Johnson/Tamar Cranford-Smith - Sales

+44 (0)20 7220 0500 

 



Gracechurch Group (Financial PR) 


Harry Chathli/Claire Norbury/Henry Gamble 

+44 (0)20 4582 3500 

 

Investor Webinar

 

Dr Arnab Basu, Chief Executive Officer, and Paul Farquhar, Chief Financial Officer, will be hosting a presentation for investors at 6.00pm GMT on Wednesday 31 January 2024 via webinar.

 

The webinar is open to all existing and potential shareholders. Interested parties can register to attend, and submit questions in advance, using the following link: https://forms.gle/eRXGNiuCnmH3yGov9.

 

Participants are requested to submit questions by 12.00pm on 31 January 2024.

 

Kromek Group plc 

 

Kromek Group plc is a leading developer of radiation detection and bio-detection technology solutions for the advanced imaging and CBRN detection segments. Headquartered in County Durham, UK, Kromek has manufacturing operations in the UK and US, delivering on the vision of enhancing the quality of life through innovative detection technology solutions.  

 

The advanced imaging segment comprises the medical (including CT and SPECT), security and industrial markets. Kromek provides its OEM customers with detector components, based on its core cadmium zinc telluride ("CZT") platform, to enable better detection of diseases such as cancer and Alzheimer's, contamination in industrial manufacture and explosives in aviation settings.  

 

In CBRN detection, the Group provides nuclear radiation detection solutions to the global homeland defence and security market. Kromek's compact, handheld, high-performance radiation detectors, based on advanced scintillation and solid-state readout technology, are primarily used to protect critical infrastructure, events, personnel and urban environments from the threat of 'dirty bombs'.  

 

The Group is also developing bio-security solutions in the CBRN detection segment. These consist of fully automated and autonomous systems to detect a wide range of airborne pathogens.  

 

Kromek is listed on AIM, a market of the London Stock Exchange, under the trading symbol 'KMK'.  

 

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

 



 

Operational Review

 

During the six months to 31 October 2023, Kromek commenced the significant collaboration agreements that were entered into at the end of the prior year in advanced imaging with a tier 1 OEM and Analogic, whilst continued customer engagement resulted in the signing of a further agreement shortly after period end with a major blue-chip technology solutions provider. These agreements represent Kromek executing on its advanced imaging strategy and are great endorsements of the Group's technology, capabilities and solutions.

 

In CBRN detection, demand for the Group's nuclear security products remained strong as global insecurity and raised concern over potential nuclear threats continue to underscore the requirement for such products. Kromek also made excellent progress on its biological-threat detection development programmes, with a number of key milestones being achieved under the Group's programme with the UK government. 

 

Advanced Imaging

 

In advanced imaging, Kromek primarily operates in the medical imaging market with some opportunities in the security screening and industrial screening sectors. Kromek provides OEM customers with detector components, based on its core cadmium zinc telluride ("CZT") platform, to enhance imaging quality and enable better detection of diseases such as cancer and Alzheimer's, contamination in industrial manufacture and explosives in aviation settings. As the only independent commercial producer of CZT at scale, Kromek is well-positioned in this segment.

 

Medical Imaging

 

During the period, Kromek continued to receive orders in its regular repeat business, delivered under its supply agreements and progressed its development programmes. It also secured new customers and expanded its engagement with leading OEMs, which resulted, shortly after period end, in the Group entering a collaboration agreement with a new blue-chip technology solutions provider that has over 100,000 customers globally for a range of applications, including healthcare. Under the agreement, Kromek will develop CZT-based detectors for photon counting CT applications in the medical imaging sector and will ensure production capability is available to support commercial demand ramp-up.

 

The Group commenced work under the collaboration agreements that were signed at the end of the 2023 financial year with a recognised tier 1 OEM and with Analogic to develop CZT-based detectors for use in their advanced imaging scanners. The agreement with the tier 1 OEM, which is a leading health-technology company, comprises a short development phase to integrate Kromek's CZT-based detectors into the customer's medical imaging scanners, with the agreement then transitioning to a longer commercial supply phase. With Analogic, who have been global leaders in CT detector technology for over 50 years, Kromek is developing CZT-based detector solutions for photon counting CT applications in both the medical imaging and security screening sectors.

 

Kromek received an order worth $1.4m from a new OEM customer that is an established player in the medical imaging sector in Asia. The order is for CZT-based detector-modules for use in the customer's next generation SPECT systems. Delivery and revenue recognition are expected in the current financial year.

 

Also during the period, Spectrum Dynamics, a key customer, introduced the latest addition to its next generation digital SPECT/CT imaging portfolio, the VERITON-CT 300, for higher energy imaging, using Kromek's digital detectors. This integration enables enhanced image quality and breakthrough clinical capabilities in digital SPECT/CT.

 

Security & Industrial Screening

 

In security and industrial screening, Kromek continued to deliver under its existing component supply agreements and development programmes. This includes the detector solutions being developed under its collaboration agreement with Analogic, noted above, which will be for security applications as well as medical.

 

CBRN Detection

 

In CBRN detection, the Group provides nuclear radiation detection solutions to the global homeland defence and security market, which are primarily used to protect critical infrastructure, events and urban environments from the threat of 'dirty bombs'. Kromek's portfolio also includes a range of high-resolution detectors and measurement systems used for civil nuclear applications, primarily in nuclear power plants and research establishments.

 

Nuclear Security

 

Geopolitical insecurity continued to drive demand for Kromek's products that contribute to ensuring public safety and security, which are selected by governments and their agencies for their best-of-breed features and the Group's ability to deploy rapidly. The Group is also benefiting from its distribution partnership with Smiths Detection, a global leader in threat detection and security screening technologies for aviation, ports and borders, defence and urban security markets, which was established in the previous year.

 

During the period, alongside deployments under previously-awarded contracts, the Group received two new orders in nuclear security, with one being from an existing customer and the other from a new customer that is a substantial global defence corporation, which the Group believes represents a significant opportunity for further sales. Post period, the Group received a £1.4m order to supply its D3M detectors and associated networkable solutions for use in the rescEU stockpile, which is being developed by the European Commission to help safeguard citizens from disasters and manage emerging risks. 

 

Civil Nuclear

 

In the civil nuclear segment, Kromek secured a contract worth $1.5m, to be delivered over 15 months, by one of its distribution partners in Asia. The contract is for a new product, based on the Group's existing technology, with the development of the product having been funded by the distribution partner.

 

Biological-Threat Detection

 

Kromek is developing biosecurity solutions that consist of fully automated and autonomous systems to detect a wide range of airborne pathogens for the purposes of national security and protecting public health. In this sector, the Group may consider forming strategic or financial partnerships to further accelerate the time to market for this technology.

 

During the period, the Group progressed the development of a biological-threat detection system under a contract that had been awarded in the previous financial year by a UK government department. Under the three-year programme, which is worth a total of £4.9m, Kromek will develop and supply the system, with the contract also including an option for extended maintenance services after the initial term.

 

The Group was awarded a $5.9m contract from the US Department of Homeland Security for the development of technologies focusing on an agent agnostic bio-detection system, under a four-year programme. This is the Group's first biosecurity contract from the Department of Homeland Security and underscores management's belief that there are significant market opportunities in this area as its technologies align well with major governments' biosecurity strategies. The Group also received during the period an order for the further development of its biosecurity technology from an existing government customer.

 

Manufacturing and IP

 

Kromek continued to execute on its programmes for the expansion of production capacity and increased process automation, with particular progress being made at its CZT manufacturing facility in the US. These programmes are on track and are resulting in greater manufacturing productivity and cost efficiencies. Kromek is making significant progress in its cost and productivity in CZT crystal growth and detector manufacturing. The Group has dedicated teams that are focussed on targeted improvements for every step in the manufacturing process, which directly contributes to yield and cost improvement.

 

In H1 2024, Kromek applied for one new patent and had three patents granted across three patent families, with the total number of patents held by the Group being in excess of 230. The new applications cover innovations in both of the Group's segments.

 

Financial Review

 

Revenue for the six-month period ended 31 October 2023 increased by 5% to £7.1m (H1 2023: £6.8m). In particular, R&D revenue increased significantly, driven by the Group's biological-threat detection development contracts, and accounted for 17% of total Group revenue for the period. The split between product sales and revenue from R&D contracts is as follows:

 


H1 2024

H1 2023

(Unaudited)

(Unaudited)


£'000

 

£'000

 

Product

£5,910

83%

£6,540

96%

R&D

£1,185

17%

£245

4%

Total

£7,095

100%

£6,785

100%

 

Gross margin improved substantially to 54.2% compared with 40.4% for H1 2023. The increase is largely due to  revenue and product mix in the period - namely, the increased contributions to revenue from R&D and to product sales from CBRN detection -  and the easing of global supply constraints resulting in cost savings on component parts compared with the first half of the prior year. The gross margin is also benefitting from increasing efficiencies in advanced imaging as the Group continues to implement its manufacturing productivity programmes. As a result of the improved margin and higher revenue, gross profit increased to £3.8m (H1 2023: £2.7m).

 

Administrative expenses and distribution costs reduced to £6.4m (H1 2023: £8.0m), which reflects the Group's focus on tight cost control. In addition, the Group generated £0.2m from the change in the fair value of the embedded derivative liability associated with the convertible loan notes in issue (H1 2023: £nil). Accordingly, total operating costs were reduced to £6.2m (H1 2023: £8.0m).

 

As a result of the lower operating costs and increased gross profit, operating loss was significantly reduced to £2.3m (H1 2023: £5.2m loss). After net finance costs of £0.9m (H1 2023: £0.5m) and exceptional costs of £0.2m related to the Group's debt refinancing, loss before tax was £3.5m (H1 2023: £5.7m loss).

 

The adjusted EBITDA loss for the period was reduced to £0.1m (H1 2023: £2.7m loss). Adjusted EBITDA is calculated as follows:



 


H1 2024

H1 2023

FY 2023

(Unaudited)

(Unaudited)

(Audited)


£'000

£'000

£'000

 

 

 

 

Loss before tax

(3,492)

(5,671)

(7,292)

EBITDA adjustments:-




Net interest

913

458

1,243

Depreciation

883

962

1,903

Amortisation

1,357

1,465

2,891

Share-based payments

180

120

354

Change in fair value of derivative

(202)

(77)

Exceptional items

246

-

Adjusted EBITDA*

(115)

(2,666)

(978)

*Adjusted EBITDA is defined as earnings before interest, taxation, depreciation, amortisation, exceptional items, change in fair value of derivatives and share-based payments. Share-based payments are added back when calculating the Group's adjusted EBITDA as this is currently an expense with a zero direct cash impact on financial performance. Adjusted EBITDA is considered a key metric to the users of the financial statements as it represents a useful milestone that is reflective of the performance of the business resulting from movements in revenue, gross margin and the costs of the business. The exceptional item relates to costs associated with the refinancing of the debt facility.

 

The Group invested £2.6m in product development in the six-month period (H1 2023: £2.6m) that was capitalised on the balance sheet, which largely reflects:

 

·    the continuing investment in cost reduction and productivity improvements in CZT crystal growth and detector manufacturing in advanced imaging; and

·    the development of automated and autonomous biological-threat detection technology to detect airborne pathogens for the purposes of national security and protecting public health.

 

This expenditure was capitalised in accordance with IAS38 to the extent that it related to projects in the later stage (development phase) of the project life cycle.   

 

During the period, the Group completed a placing, subscription and open offer to raise £8m before expenses, of which £7m was raised through the share placing and subscription, and a further £1m through the open offer.

 

Cash and cash equivalents at 31 October 2023 were £3.7m (30 April 2023: £1.1m). The £2.6m increase in cash over the six-month period was substantially due to the combination of the following cash inflows and outflows:

 

·    Adjusted  EBITDA  loss for the period of £0.1m.

·    R&D tax receipts of £1.1m.

·    Investment of £2.8m in tangible and intangible assets, with capitalised development costs of £2.6m, IP additions of £0.1m and capital expenditure of £0.1m.

·    Net cash generated from financing activities of £6.9m, representing new debt and equity funds raised less debt repayments.

·    A net cash outflow of £2.3m due to working capital movements.

·    An increase in cash of £0.1m arising from the impact of foreign exchange.

The amount owing by the Group in respect of convertible loan notes reduced during the period from £2.8m to £2.6m following the partial conversion to equity of certain of the holdings (see note 13).

 

During the period, the Group completed a refinancing of its principal borrowing facility with the signing of a new £5.5m secured term loan. The new facility was provided by Polymer N2 Limited, an existing and significant shareholder in the Company. For further details on the Group's borrowings, see note 12.

 

Outlook

 

Kromek remains on track to deliver record revenues for the full year 2024 and positive EBITDA.

 

The Group has good visibility of full year revenue forecasts, comprising 72% contracted or already shipped, 10% awarded and going through contract negotiation, 2% being provided by the Group's regular repeat order business and the remaining 16% anticipated to be generated from the known pipeline of opportunities. In particular, in the second half of the year the Group expects significant growth in product sales as it delivers under its long-term contracts and continues to receive new orders.

 

Kromek remains heavily focussed on controlling costs across the Group and in increasing efficiency, particularly within the advanced imaging manufacturing process. In addition, the inflationary pressures on the price of materials and labour are continuing to reduce.

 

As a result, the Board expects to report results for full year 2024 in line with market expectations and, looking further ahead, remains confident of delivering sustained EBITDA growth.

 

 



 

Consolidated condensed income statement

For the six months ended 31 October 2023

 

 

 

 


 

 

Six months ended 31 October

2023

£'000

 

Six months

ended 31 October

2022

£'000

 

Year

ended

30 April 2023

£'000


 

 

(Unaudited)

 

(Unaudited)

 

(Audited)









 

Note







Continuing operations








Revenue

4


7,095


6,785


17,309

Cost of sales



(3,246)


(4,046)


(8,374)




 





Gross profit



3,849


2,739


8,935




 





Other operating income

5


-


-


121

Distribution costs



(216)


(319)


(612)

Administrative expenses (including operating expenses)



(6,168)


(7,633)


(14,570)

Change in fair value of derivative



202


-


77




 





Operating loss



(2,333)


(5,213)


(6,049)




 





Exceptional items

6


(246)


-


-




 





Operating results (post exceptional items)



(2,579)


(5,213)


(6,049)




 





Finance income



32


-


2

Finance costs



(945)


(458)


(1,245)




 





Loss before tax



(3,492)


(5,671)


(7,292)




 





Tax

7


425


601


1,192




 





Loss from continuing operations



(3,067)


(5,070)


(6,100)

 



 

 

 



 



 

 

 



Loss per share



 

 

 



 

-basic (p)

9


(0.5)


(1.2)


(1.4)

 



 






Consolidated condensed statement of comprehensive income

For the six months ended 31 October 2023

 

 


Six months ended 31 October

2023

£'000

(Unaudited)

 

Six months

ended

31 October

2022

£'000

(Unaudited)

 

Year

ended

30 April 2023

£'000

(Audited)

 

Loss for the period

 

(3,067)


 

(5,070)


 

(6,100)

 

Items that may be recycled to the income statement

 





Exchange gains/(losses) on translation of foreign operations

808


2,017


(166)

Total comprehensive loss for the period

(2,259)


(3,053)


(6,266)

 

 

 

 

 


Consolidated condensed statement of financial position


 

 

31 October

2023

£'000

 

31 October

2022

£'000

 

30 April

 2023

£'000

 

Note


(Unaudited)

 

(Unaudited)

 

(Audited)

Non-current assets



 





Goodwill



1,275


1,275


1,275

Other intangible assets



32,361


30,539


30,554

Property, plant and equipment

10


9,368


10,796


9,831

Right-of-use assets



3,721


4,263


3,758




 








46,725


46,873


45,418




 





Current assets



 





Inventories



11,411


10,866


10,894

Trade and other receivables



6,586


6,692


5,529

Current tax assets



300


349


940

Cash and bank balances



3,723


956


1,097




 








22,020


18,863


18,460




 





Total assets



68,745


65,736


63,878

Current liabilities



 





Trade and other payables



(6,750)


(5,986)


(7,436)

Lease obligation



(448)


(413)


(405)

Borrowings

12


(3,167)


(5,693)


(8,318)

Derivative financial instruments

13


(309)


-


(517)




 








(10,674)


(12,092)


(16,676)




 





Net current assets



11,346


6,771


1,792

 



 





 



 





Non-current liabilities



 





Deferred income



(970)


(1,071)


(1,021)

Lease obligation



(4,051)


(4,505)


(4,089)

Borrowings

12


(5,737)


(3,565)


(568)




 





Total liabilities



    (21,432)


    (21,233)


(22,354)

 



 





Net assets



47,313


44,503


41,524

 



 





As at 31 October 2023

Equity



 





 

Share capital

14


6,003


4,319


4,319

 

Share premium account



79,138


72,943


72,943

 

Merger reserve



21,853


21,853


21,853

 

Translation reserve



2,705


4,080


1,897

Accumulated losses



(62,386)


(58,692)


(59,488)

 




 





 

Total equity



47,313


44,503


41,524

 

 

 

 

 

 

 

 

 

 

 

 



 

Consolidated condensed statement of changes in equity

For the six months ended 31 October 2023

 


Equity attributable to equity holders of the Group

 

 

 

Share Capital

£'000

 

Share

Premium

Account

£'000

 

 

 

Merger Reserve

£'000

 

 

Translation

Reserve

£'000

 

 

Accumulated Losses

£'000

 

 

 

Total

£'000

Balance at 1 May 2023

4,319

 

72,943

 

 

21,853

 

1,897

 

(59,488)

 

41,524

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

-


-



-


-


(3,067)

 

(3,067)

Other comprehensive income for the period

 

-


 

-



 

-


 

808


 

-

 

 

808












 

 

Total comprehensive gain/(loss) for the period

-


-



-


808


(3,067)

 

(2,259)

 

Transactions with shareholders recorded in equity











 

 

Issue of share capital

1,684


-



-


-


-

 

1,684












 

 

Premium on shares issued less expenses

-


6,195



-


-


-

 

6,195












 

 

Conversion of convertible loan notes

-


-



-


-


(11)

 

(11)












 

 

Credit to equity for equity-settled share-based payments

 

-


 

-



 

-


 

-


 

180

 

 

180












 

 

Balance at 31 October 2023

6,003

 

79,138

 

 

21,853

 

2,705

 

(62,386)

 

47,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 











 

 

 











 

 

Balance at 1 May 2022

4,319


72,943



21,853


2,063


(53,742)


47,436

 












 

Loss for the period

-


-



-


-


(5,070)


(5,070)

Other comprehensive income for the period

 

-


 

-



 

-


 

2,017


 

-


 

2,017












 

 

Total comprehensive gain/(loss) for the period

-


-



-


4,080


(5,070)

 

(990)

 











 

 

Transactions with shareholders recorded in equity











 

 












 

 

Credit to equity for equity-settled share-based payments

 

-


 

-



 

-


 

-


 

120

 

 

120












 

 

Balance at 31 October 2022

4,319

 

72,943

 

 

21,853

 

4,080

 

(58,692)

 

44,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 May 2022

 

 

4,319




 

 

21,853


 

 

2,063


 

 

(53,742)

 

 

 

47,436

 











 

 

Loss for the period

-


-



-


-


(6,100)


(4,918)

Other comprehensive loss for the period

 

-


 

-



 

-


 

(166)


 

-


 

(166)












 

 

Total comprehensive loss for the year

 

-


 

-



 

-


 

(166)


 

(6,100)

 

 

(6,266)

 

Transactions with shareholders recorded in equity





 

 






 

 

Credit to equity for equity-settled share-based payments

 

-


 

-



 

-


 

-


 

354

 

 

354












 

 

Balance at 30 April 2023

4,319

 

72,943

 

 

21,853

 

1,897

 

(59,488)

 

41,524

 

 

 

 

 

 

 

 

 

 

 

 

 
















Consolidated condensed statement of cash flows

For the six months ended 31 October 2023

 


Note

 

Six months ended 31 October

2023

£'000

 

Six months

ended 31 October

2022

£'000

 

Year ended 30 April

2023

£'000


 

 

(Unaudited)

 

(Unaudited)

 

(Audited)









Net cash (used in)/generated from operating activities

11


(1,607)


(4,026)


197

 



 








 





Investing activities



 








 





Interest received



32


-


2

Purchases of property, plant and equipment



(57)


(186)


(269)

Purchases of patents and trademarks



(122)


(82)


(183)

Capitalisation of research and development costs



(2,625)


(2,580)


(4,821)




 





Net cash used in investing activities



(2,772)


(2,848)


(5,271)

 



 





Financing activities



 








 





New borrowings



5,900


3,840


1,100

Interest paid



(820)


(326)


(703)

Payment of loan and borrowings



(5,712)


(1,047)


(1,258)

Finance lease repayments



(340)


(347)


(692)

Proceeds from the issue of convertible loan notes



-


-


2,840

Net proceeds on issue of shares



7,879


-


-




 





Net cash generated from financing activities



6,907


2,120


1,287

 



 





Net increase/(decrease) in cash and cash equivalents



2,528


(4,754)


(3,787)




 





Cash and cash equivalents at beginning of period



1,097


5,081


5,081

 



 





Effect of foreign exchange rate changes



98


629


(197)

 



 





 



 





Cash and cash equivalents at end of period



3,723


956


1,097

 

 

 

 

 

 

 

 


 

 

 

 

 

Notes to the unaudited interim statements

For the six months ended 31 October 2023

 

1.         Basis of preparation

This interim financial report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The auditors reported on the Kromek Group plc financial statements for the year ended 30 April 2023, their report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The Group's consolidated annual financial statements for the year ended 30 April 2023 have been filed with the Registrar of Companies and are available on the Group's website: www.kromek.com.

 

2.         Interim report

This interim financial report will be available from the Group's website at www.kromek.com.

 

3.         Going concern

The Directors have a reasonable expectation that the going concern basis of accounting remains appropriate and that the Group has adequate resources and facilities to continue in operation for the next 12 months based on its cash flow forecasts prepared. Accordingly, the Group's unaudited interim statements for the six months ended 31 October 2023 have been prepared on a going concern basis which contemplates the realisation of assets and the settlement of liabilities and commitments in the normal course of operations.

 

4.         Business and geographical segments

 

Products and services from which reportable segments derive their revenues

For management purposes, the Group is organised into two business units (UK and USA) and it is on these operating segments that the Group is providing disclosure.

 

The chief operating decision maker is the Board of Directors who assess performance of the segments using the following key performance indicators: revenue, gross profit, operating profit and EBITDA. The amounts provided to the Board with respect to assets and liabilities are measured in a way consistent with the Financial Statements.

 

The turnover, profit on ordinary activities and net assets of the Group are attributable to one business segment, i.e. the development of digital colour x-ray imaging enabling direct materials identification, as well as developing a number of detection products in the industrial market. Whilst results are not measured by end market, the Group currently categorises its customers as belonging to the advanced imaging and CBRN detection markets.



 

4. Business and geographical segments (continued)

 

A geographical analysis of the Group's revenue by destination is as follows:

 


 

Six months ended 31 October

2023

£'000

 

Six months ended 31 October

2022

£'000

 

Year

ended

30 April 2023

£'000



(Unaudited)

 

(Unaudited)

 

(Audited)








United Kingdom


1,305


298


3,944

North America


1,745


3,306


6,110

Asia


2,255


424


2,071

Europe


1,698


2,726


5,031

Other


92


31


153



 







 





Total revenue


7,095


6,785


17,309



 





 

A geographical analysis of the Group's revenue by origin is as follows:

 

Six months ended 31 October 2023

 

UK

Operations

£'000

 

USA

 Operations

£'000

 

Total for Group

£'000

Revenue from sales

Revenue by segment:

-Sale of goods and services

5,575


5,650


11,225

-Revenue from grants

263


-


263

-Revenue from contract customers

1,028


-


1,028

Total sales by segment

6,866


5,650


12,516

Removal of inter-segment sales

(3,574)


(1,847)


(5,421)

Total external sales

3,292


3,803


7,095

 






Segment result - operating loss

(989)


(1,344)


(2,333)

Net interest

(788)


(125)


(913)

Exceptional items

(246)


-


(246)

Loss before tax

(2,023)


(1,469)


(3,492)

Tax credit

425


-


425

Loss for the period

(1,598)


(1,469)


(3,067)

Other information






Property, plant and equipment additions

18


39


57

Depreciation of property, plant and equipment

496


387


883

Intangible asset additions

1,152


1,595


2,747

Amortisation of intangible assets

704


653


1,357

 






Balance Sheet






Total assets

37,863


30,882


68,745

Total liabilities

(15,708)


(5,724)


(21,432)

4.         Business and geographical segments (continued)

Inter-segment sales are charged at prevailing market prices.

No impairment losses were recognised in respect of property, plant and equipment and goodwill.

 

Six months ended 31 October 2022

 

UK

Operations

£'000

 

USA

 Operations

£'000

 

Total for Group

£'000

Revenue from sales

Revenue by segment:

-Sale of goods and services

5,621


7,313


12,934

-Revenue from grants

38


-


38

-Revenue from contract customers

110


55


165

Total sales by segment

5,769


7,368


13,137

Removal of inter-segment sales

(5,126)


(1,226)


(6,352)

Total external sales

643


6,142


6,785

 






Segment result - operating loss

(2,251)


(2,962)


(5,213)

Net interest

(325)


(133)


(458)

Loss before tax

(2,576)


(3,095)


(5,671)

Tax credit

601


-


601

Loss for the period

(1,975)


(3,095)


(5,070)

Other information






Property, plant and equipment additions

21


165


186

Depreciation of property, plant and equipment

526


436


962

Intangible asset additions

1,510


1,152


2,662

Amortisation of intangible assets

782


683


1,465

 






Balance Sheet






Total assets

34,693


31,043


65,736

Total liabilities

(15,225)


(6,008)


(21,233)

 

The accounting policies of the reportable segments are the same as the Group's accounting policies. Segment profit or loss represents the profit or loss earned by each segment without allocation of the share of profits or losses of associates, central administration costs including Directors' salaries, investment revenue and finance costs, and income tax expense. This is the measure reported to the Group's Chief Executive for the purpose of resource allocation and assessment of segment performance.

 

5.         Other operating income

The Group had no other operating income in the periods to 31 October 2023 and 31 October 2022.

 

6.         Exceptional items

The Group has recognised an exceptional item of £246k in relation to refinancing costs in the six months to 31 October 2023 (six months ended 31 October 2022: £nil).

 

7.         Tax

The Group has recognised R&D tax credits of £425k for the six months ended 31 October 2023 (six months ended 31 October 2022: £601k). During the period, the Group also received £1.1m of income taxes relating to UK R&D tax credits for financial year 2023.

8.         Dividends

The Directors do not recommend the payment of a dividend (six months ended 31 October 2022: £nil).

9.         Loss per share

The calculation of the basic and diluted loss per share is based on the following data:

 

Losses


 

Six months ended 31 October

2023

£'000

 

Six months

ended 31 October

2022

£'000

 

Year

ended

30 April 2023

£'000


 

(Unaudited)

 

(Unaudited)

 

(Audited)

Losses for the purposes of basic loss per share being net loss attributable to owners of the Group


 

(3,067)


(5,070)


(6,100)



 







 

Six months ended 31 October

2023

'000

 

Six months

ended 31 October

2022

'000

 

Year

ended

30 April 2023

'000

 


(Unaudited)

 

(Unaudited)

 

(Audited)

Number of shares







Weighted average number of ordinary shares for the purposes of basic loss per share


573,626


431,852


431,852



 





Effect of dilutive potential ordinary shares:


 





   Share options and warrants


640


315


313



 





Weighted average number of ordinary shares for the purposes of diluted loss per share


574,266


432,167


432,165



 







 





Basic (p)


(0.5)


(1.2)


(1.4)



 





 

Basic earnings per share is calculated by dividing the loss attributable to shareholders by the weighted average number of ordinary shares in issue during the year. IAS 33 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease earnings per share or increase the loss per share. For a loss-making company with outstanding share options, net loss per share would be decreased by the exercise of options. Therefore, the anti-dilutive potential ordinary shares are disregarded in the calculation of diluted EPS.

10.       Property, plant and equipment

During the six months ended 31 October 2023, the Group acquired property, plant and equipment with a cost of £57k (six months ended 31 October 2022: £186k).

 

11.        Notes to the cash flow statement

 


 

Six months ended 31 October

2023

£'000

 

Six months

ended 31 October

2022

£'000

 

Year

ended

30 April 2023

£'000

 


(Unaudited)

 

(Unaudited)

 

(Audited)

 

Loss for the period


(3,067)


(5,070)


(6,100)



 





Adjustments for:


 





Finance income


(32)


-


(2)

Finance costs


945


458


1,245

Change in fair value of derivative


(202)


-


(77)

Income tax credit


(425)


(601)


(1,192)

Depreciation of property, plant and equipment


883


962


1,903

Amortisation of intangible assets


1,357


1,465


2,891

Share-based payment expense


180


120


354



 





Operating cash flows before movements in working capital


(361)


(2,666)


(978)



 





 

Increase in inventories


(517)


(363)


(391)

(Increase) / decrease in receivables


(1,057)


(263)


900

Decrease in payables and deferred income


(737)


(1,929)


(529)



 





Cash used in operations


(2,672)


(5,221)


(998)



 





Income taxes received


1,065


1,195


1,195



 





Net cash (used in)/generated from operating activities


(1,607)


(4,026)


197



 





 

12.        Borrowings


 

Six months ended 31 October

2023

£'000

 

Six months

ended 31 October

2022

£'000

 

Year

ended

30 April 2023

£'000

 


(Unaudited)

 

(Unaudited)

 

(Audited)

Secured borrowing at amortised cost


 





 

Revolving credit facility and capex facility


-


5,000


5,000

 

Term loan facility


5,333


-


-

 

Other borrowings


1,086


1,418


1,357

 

Convertible loan notes (see note 13)


2,485


2,840


2,529

 

Total borrowings


8,904


9,258


8,886

 

 







 

Amount due for settlement within 12 months


3,167


5,693


8,318

 

Amount due for settlement after 12 months


5,737


3,565


568

 











 

 

During the period, the Group completed a refinancing of its £5.0m revolving credit facility with HSBC with the signing of a new £5.5m secured term loan. The new term loan facility was provided by Polymer N2 Limited, an existing and significant shareholder in the Company. The facility has a repayment date for the principal sum of 27 March 2025, with an option to extend for a further 12 months. It carries a fixed interest rate of 9.5%, which is payable quarterly, and Kromek has the option to pay the interest through the issue of new ordinary shares of 1p each in the Company at the trailing 10-day volume weighted average price of the Company's ordinary shares on the date that payment falls due.

 

 

Other borrowings comprise:

 

·      A fit-out loan with the landlord in the US in respect of the facility occupied by eV Products, Inc. This loan is repaid in equal instalments on a monthly basis and attracts interest at 7.50% per annum. At 31 October 2023, the total loan due to the landlord was £0.1m (30 April 2023: £0.2m) which is due within 12 months.

 

·      In 2020 and 2021 the Group's US operations were eligible to apply for Covid-related Economic Injury Disaster Loans. A loan of £0.1m was approved and secured in June 2020 and a further loan of £0.4m was approved and secured in August 2021. These loans attracts interest at a rate of 3.75% per annum and the maturity date is 30 years from the date of the loan note.

 

·      A short-term £0.4m loan in September 2023 to aid with working capital requirements.

 

Convertible loan notes of £2.8m were secured in the previous year. This is discussed further in note 13.

 

 

13.        Convertible loan notes

During the period, three noteholders converted 15% of their convertible loan note holding, as well as the interest accrued on that holding during the first 12 months, into equity. This resulted in the issue of 7,830,630 additional ordinary shares during the period (see note 14 below).

 


Embedded derivative

£'000

 

Convertible loan note

£'000

 

Total

£'000

 



 



Balance at 30 April 2023

517


2,529


3,046

Unwinding of discount

-


201


201

Change in fair value

(176)


-


(176)

Extinguish on conversion

(32)


(245)


(277)


 


 



Balance at 31 October 2023

309


2,485


2,794

 

14.        Share capital

During the period, 168,395,000 ordinary shares (six months ended 31 October 2022: nil) were issued as part of a placing, subscription and open offer in May 2023, as well as through the part conversion of loan notes and interest in September 2023 as highlighted in note 13 above.

 

Where convertible loan notes, and associated derivatives are settled during the period, the Group adopts the guidance provided in IAS 32. Any difference between the carrying amount of the debt host contract plus the carrying amount (fair value) of the embedded derivative and the fair value of the shares issued at the conversion date is recognised in profit or loss. During the period, £26k was recognised in profit or loss. £11k was also recorded directly in retained earnings as a result of the part settlement of convertible loan notes.

 

15.        Events after the balance sheet date

There are no significant or disclosable post-balance sheet events.

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Kromek Group (KMK)
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