Background
Kromek is a radiation detection technology company focusing on the medical, security and nuclear markets. The company has stated these markets have a combined value of $1.12bn (£800m) and their biggest division is nuclear detection which is valued at more than $1bn.
Trading Statement
Management re-affirms that revenue and EBITDA will break even this year and is in-line with market expectations. They also state: “The Group expects to continue to win new customers and, together with the momentum of contract wins, it expects continued growth in the new financial year.”
Brief Financial analysis
Below are a few brief points about Kromek's financial statement and their finances over the years.
1). Their current revenue is £9m and is forecast to grow by £12.3m in 2018 and rising to £19m by 2020, representing 2.3% of market potential.
2). As confirmed, EBITDA will break even this year and is expected to rise to £3m by 2020.
3). Kromek will remain a loss-maker, as EBIT will see losses reduced to £1m by 2020. This tells me at £19m sales, the business is still making a loss.
4). The company biggest expense is their wages standing at £5.6m in 2017. Average pay per staff is £55,000, that’s just the basic salary.
5). The biggest downside is capitalising their development costs to the tune of £11.6m by 2017, an increase of £4.1m. A potential risk of a write-down if the company don’t deliver on their promises. Also, it raises some questions about the company’s breakeven point.
6). The upside is it raised over £50m since 2011 and is sitting on £20m in cash with net cash at £17.3m. In 2018, this will fall below £10m and drops to £5m by 2020. At least the company remains a going concern.
7). Having said it has enough cash to stay as a going concern beyond 2020, it will probably raise more money to fund expansion, if it becomes successful. How much, we don’t know? By then, investors should be very optimistic about the business.
8). Capital spending is mostly R&D spending to develop their products, although it recognises £3.5m as an expense.
9). According to their accounting notes, Kromek decided to amortise their development costs in a straight-line over 2-15 years rather than product sales. The problem is the range. In 2017, amortisation expense amounts to £748k, equivalent…
