REG - Kromek Group PLC - Final Results
02/08/2022 07:15
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RNS Number : 5351U Kromek Group PLC 02 August 2022
2 August 2022
Kromek Group plc
("Kromek" or the "Company" or the "Group")
Final Results
Kromek (AIM: KMK), a leading developer of radiation and bio-detection
technology solutions for the advanced imaging and CBRN detection segments,
announces its final results for the year ended 30 April 2022.
Financial Highlights
· Revenue increased 16% to £12.1m (2021: £10.4m)
· Gross margin was 46.7% (2021: 48.4%)
· Adjusted EBITDA loss reduced to £1.2m (2021: £1.7m loss)*
· Loss before tax reduced to £6.1m (2021: £6.3m loss)
· Cash and cash equivalents at 30 April 2022 were £5.1m (30 April
2021: £15.6m)
*A reconciliation of adjusted EBITDA can be found in the Financial Review.
Operational Highlights
Advanced Imaging
· Strong revenue growth with delivery under component supply agreements
and increased customer engagement for future projects
· Sustained delivery in medical imaging:
o Ramp up in delivery continued as planned under medical imaging contract
expected to be worth US$58.1m over the seven-year life of the contract that
was awarded in 2019
o Completed delivery of a US$600k order from an OEM customer for detectors
to be used in niche SPECT applications, with further orders expected
o Commenced commercial development engagement with three new strategic OEM
customers
· In security screening, the Group completed a two-year US$1.6m
project with the US Department of Homeland Security and entered two new
commercial development engagements with OEMs
· Signed a seven-year supply agreement, worth up to US$17m, in
industrial screening with a US-based OEM and secured a US$250k repeat order
from a US-based aerospace and defence company
CBRN Detection
· Significant momentum in nuclear security, with the winning of new and
repeat orders and participation in a greater number of tenders reflecting the
growth in global government defence spending:
o Awarded a two-year contract, worth up to US$1.6m, by a US federal entity
for the D3S-ID wearable nuclear radiation detector - with a further US$300k
order received during the year and US$695k post year end
o Repeat orders received from the European Commission for the D3S-ID
o Received orders from three customers for the D5 RIID
o A four-year contract worth £1.7m was received from a UK government
agency customer for CBRN detection products and services
o Invested in developing new channels to market, including the signing,
post year end, of a distribution agreement with Smiths Detection Inc. for the
North and South American markets
· 32 new customers won in the civil nuclear segment
· Significant progress in the development of bio-security solutions:
o Awarded a US$6m contract extension from the Defense Advanced Research
Projects Agency ("DARPA"), an agency of the US Department of Defense, to
advance the development of a mobile wide-area bio-security system
o Successfully completed piloting in schools, airports and other locations
of an airborne COVID-19 detection system under a project funded by Innovate UK
and commenced productisation phase
Procurement, Manufacturing and IP
· Measures implemented to strengthen supply chain, including
procurement team expansion and establishing strategic relationships with
suppliers
· Increased utilisation of expanded production capacity in the UK and
US facilities following enhancement to manufacturing processes in the prior
year
· 8 new patents were filed and 9 were granted during the year
Dr Arnab Basu, CEO of Kromek, said: "We are pleased to report a year of good
progress as we delivered on existing contracts and development programmes in
both the advanced imaging and CBRN detection segments. Our revenues grew by
16% compared to the previous year as we saw increased commercial traction,
particularly in the CBRN segment, and ended the year in a better position than
we began it.
"Looking ahead, we entered the new financial year with a higher order book
than the previous year and the highest level of revenue visibility in our
history. The current geopolitical environment is driving greater interest from
government agencies for our CBRN family of products and in advanced imaging we
are experiencing heightened engagement with OEMs due to our strategic position
as the only commercial independent global supplier of CZT. Consequently, for
FY 2023 we anticipate substantial year-on-year revenue growth and we look
forward to the future with increased confidence."
For further information, please contact:
Kromek Group plc
Arnab Basu, CEO +44 (0)1740 626 060
Paul Farquhar, CFO
finnCap Ltd (Nominated Adviser and Broker)
Geoff Nash/Kate Bannatyne/George Dollemore - Corporate Finance +44 (0)20 7220 0500
Tim Redfern/Charlotte Sutcliffe - ECM
Luther Pendragon (Financial PR)
Harry Chathli/Claire Norbury +44 (0)20 7618 9100
About 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
technology, are primarily used to protect critical infrastructure 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'.
Further information is available at www.kromek.com (http://www.kromek.com) .
Operational Review
During the year to 30 April 2022, Kromek made good progress in both the
advanced imaging and chemical, biological, radiological, and nuclear (CBRN)
detection segments of the business. Kromek delivered on its existing contracts
and development programmes, won new and repeat orders and experienced
increased customer engagement regarding future contracts. This resulted in
revenue for FY 2022 increasing by 16% over the previous year, with commercial
momentum increasing throughout the year, particularly in the CBRN detection
segment. The Group also continued to increase utilisation of the expanded
production capacity that it had gained through the processes introduced in the
previous year to optimise manufacturing across its facilities. Accordingly,
and notwithstanding the impact of supply chain pressures as described further
below, Kromek ended the year in a stronger position than it had entered it.
Advanced Imaging Segment
The advanced imaging segment comprises the medical imaging, security screening
and industrial screening markets. Kromek provides OEM customers with detector
components, based on its core cadmium zinc telluride (CZT) platform, to enable
better detection of diseases such as cancer and cardiac conditions,
contamination in industrial manufacture and explosives in aviation settings.
In this segment, commercial engagement with customers consists of an initial
design phase followed by incorporation of the Group's detectors and
technologies into a customer's system and then the award of a multi-year
supply contract, which provides long-term revenue visibility. The Group has an
established track record of winning orders for development purposes that
transition to multi-year supply contracts from customers in gamma probes, bone
mineral densitometry ("BMD") and single photon emission computed tomography
("SPECT") in medical imaging as well as in security and industrial screening.
This success is evidenced by the significant contracts awarded in H2 2019 in
medical imaging and also in the year under review in industrial imaging, which
are expected to be worth approximately US$58.1m and US$17m, respectively. As
Kromek continues to win such contracts, its revenue base expands and the
revenue profile becomes increasingly predictable.
Kromek delivered strong growth in this segment compared with the 2021
financial year as the Group continued to deliver detector components to its
customers under orders for development purposes and multi-year supply
contracts. The Group also experienced greater customer engagement regarding
future projects as normal business has resumed following the temporary
redirection of resources due to the COVID-19 pandemic.
Medical Imaging
In recent years, leading OEMs in medical imaging have been increasingly
adopting CZT detector platforms as the enabling technology for their product
roadmaps. The rate of new product introduction with this class of detector is
increasing with both GE Healthcare and Siemens Healthineers introducing new
products in their clinical SPECT and CT business in 2021. CZT detector
platforms enable OEMs to significantly improve the quality of imaging, which
leads to earlier and more reliable diagnosis of disease. Kromek's CZT detector
solutions are increasingly being commercially adopted for SPECT, molecular
breast imaging ("MBI") and BMD applications. These, along with computed
tomography ("CT"), are key target areas for future growth as they address
diseases particularly associated with an ageing population such as cancer,
Alzheimer's, Parkinson's, cardiovascular illnesses and osteoporosis. Kromek
also serves the gamma probes market in medical imaging, which are used during
surgery for the removal of lymph nodes.
The Group continued to fulfil its existing supply orders in medical imaging
and progress its development programmes. Delivery continued to ramp up as
planned to a significant OEM customer that, in H2 2019, awarded a contract
expected to be worth a minimum of US$58.1m over an approximately seven-year
period. In addition, the Group continued delivery of a US$600k order received
in H2 2021 from a different customer for the supply of detectors to be used in
niche SPECT applications. This delivery was completed by the end of the 2021
calendar year as planned and the Group expects to continue the supply of
detectors to this longstanding customer with new orders in the current year.
There was a significant increase in new business activity as the impact of the
pandemic - which had caused a temporary redirection of resources in healthcare
settings - continued to recede. This applied particularly in the Group's key
target areas of CT and SPECT, supported by the growing industry adoption of
new techniques and rollout of new systems. The Group commenced commercial
development engagement with three new strategic OEM customers in this market.
These initial orders are for the supply of CZT-based detectors for use by the
OEM customers in their commercial development programmes.
One of the Group's US medical imaging customers received FDA approval for its
system for a niche nuclear medical application, which is using Kromek's
detectors. The Group has received several orders from this customer, which the
Group expects to continue on an ongoing basis.
Security Screening
In security screening, Kromek's technologies are used in travel, primarily
aviation, settings to enable its customers to meet the high-performance
standards they require, and as demanded by regulatory bodies, to ensure
passenger safety while increasing the convenience and efficiency of the
security process. The Group provides OEM and government customers with
components and systems for cabin and hold luggage scanning.
During the year, the Group continued to deliver under its existing component
supply agreements in the security screening market. In its development work,
the Group completed a two-year US$1.6m project funded by the US Department of
Homeland Security for a CZT detector platform for threat resolution for hold
baggage, hand baggage and cargo screening systems. The Group expects
commercial adoption and integration of this platform in multiple commercial
advanced baggage screening products. The Group also entered two new commercial
development engagements during the year to customise its detector solutions
for incorporation into OEM customers' systems. This development process has
been completed with one of the customers and the customised detectors have
been delivered to the customer, and the Group expects to receive further
orders from this customer.
Industrial Screening
In industrial screening, Kromek provides OEM customers with detector
components for incorporating into scanning systems used during manufacturing
processes to identify potential contaminants.
During the year, the Group signed a seven-year supply agreement, worth up to
US$17m, to provide CZT-based detector components for incorporation into
systems for identifying contaminants for the purpose of product quality
inspection. The contract is with a US-based, sector-leading industrial OEM
with a global customer base and was awarded following the completion of a
two-year development programme. Initial delivery under this contract commenced
during the year and is expected to ramp up in the current financial year.
Also, during the year, the Group was awarded a US$250k repeat order from a
US-based customer that is a global leader in aerospace and defence
technologies. The customer's system, which incorporates Kromek detectors, is
used for in-line quality control in manufacturing processes.
CBRN Detection Segment
In CBRN detection, Kromek 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
technology, are primarily used to protect critical infrastructure and urban
environments from the threat of 'dirty bombs'. The Group'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. In addition, Kromek is developing bio-security solutions to
detect a wide range of airborne pathogens, including SARS-CoV-2 (COVID-19).
The Group won new and repeat orders in the nuclear security and civil nuclear
markets during the year and participated in an increasing number of tenders
reflecting the growth in global government defence spending. With the current
geo-political environment, the commercial momentum in this market increased
during the fourth quarter and has remained high into the current financial
year. Kromek also made significant progress with its development programmes in
bio-security and anticipates early commercial deployment of its products in
this segment during the current financial year.
Nuclear Security
Kromek's nuclear security platforms - D3S and D5 - consist of a family of
products designed to cater for the varying demands of homeland security and
defence markets. In particular, the D3S platform is widely deployed as a
networked solution to protect cities, buildings or critical infrastructure
against the threat of use of nuclear 'dirty bombs' by terrorists.
The Group was awarded a contract by a US federal entity for its D3S-ID
wearable nuclear radiation detector that is designed to enable first
responders, armed forces, border security and other CBRN experts to detect
radiological threats. The contract will be delivered over two years and is
worth up to US$1.6m. In the final quarter of the year, this customer made a
repeat order worth US$300k and then a further order post year end of US$695k.
The Group also continued to receive repeat orders from the European Commission
for the D3S-ID.
During the year, the Group received orders from three customers for its D5
RIID high-performance radiation detector designed for challenging
environments, which was launched in the previous year. This included an order
worth £173k from an existing UK government agency customer and orders from
two new customers. As further testament to the strength of both its solutions
and long-term relationships, towards the end of the year, the UK government
agency customer awarded a further four-year contract worth £1.7m for the
provision of CBRN detection products and services.
The Group has put significant effort into developing new channels in this
market and are seeing increased traction for its products. This includes
entering into an agreement, post year end, with Smiths Detection to market and
distribute its D3 and D5 series of wearable radiation detectors and
identification solutions to North and South American markets. The current
geopolitical events have provided an increased emphasis for government
spending in this segment as NATO countries are all increasing their defence
budgets. The threat of a nuclear event is also at an all-time high since the
end of the cold war. Kromek's products provide best-in-class capability to
provide early warning and mitigation capability in case of an event.
Civil Nuclear
In the civil nuclear market, the Group won 32 new customers during the year
compared with 24 for 2021. Kromek continued its programme of work under a
development and supply contract awarded in the previous financial year, worth
a minimum of US$960k, which is for a product with both nuclear security and
civil nuclear applications. The project is progressing on schedule, with the
development work being completed by the end of calendar year 2021 and the
product is now in the validation phase ahead of the commencement of supply,
which is expected to start in the current financial year.
Biological-Threat Detection
Kromek is developing bio-security solutions consisting of fully automated and
autonomous systems to detect a wide range of airborne pathogens using genomic
sequencing for the purposes of national security and protecting public health.
Since H2 2019, the Group has been working with DARPA, an agency of the US
Department of Defense, to develop a biological-threat detection system that
autonomously senses, analyses and identifies airborne pathogens. The programme
was established to combat bioterrorism and is now also aimed at providing an
early warning system in the event of a virus outbreak to enable action to be
taken to localise the spread and prevent it from becoming an epidemic or
global pandemic. The Group is also working under a programme funded by
Innovate UK, which commenced in 2021, to develop a bio-security solution to
support end-use cases specifically for COVID-19 detection.
During the year, Kromek continued to deliver on the development milestones
under its programme with DARPA and received a US$6m contract for the next
phase. The programme is for the development of a completely automated wide
spectrum airborne pathogen detection system that is fully mobile and runs
autonomously. It is being designed to be networkable and provide wide-area
monitoring capability in near real-time. To date, the Group have been awarded
a total of over US$13m by DARPA under this programme.
Several successful pilots were carried out for the fully automated genomic
sequencing platform in the UK and US. During the year the Group published a
white paper outlining the challenges the world faces from the emergence of
natural and synthetic pathogens. The main recommendations of the white paper
include the implementation of a national network of automated genomic
sequencing systems. These systems can provide an early warning alert for the
emergence and understanding of the prevalence of pathogens in the environment,
and this has been fed into a government consultation process led by the
Cabinet Office, which is aimed at forming a national strategy for bio
resilience and bio security for the UK. The initial findings are very well
aligned to the Group's platform, and it continues to work with multiple
government agencies to define use cases and widescale implementation
opportunities.
Under Kromek's programme funded by Innovate UK to develop a solution for
airborne COVID-19 detection, it successfully completed piloting of the system
at several sites, including schools, airports and other locations. The
solution is now in the productisation phase, with a manufacturing partner
having been identified and a number of pre-production models also having been
produced. Further, the Group engaged in validation of the technology in
third-party laboratories with very positive results on the detection levels,
sensitivity and false alarm rates.
Procurement
As previously stated, growth was impeded during the year by supply chain
pressures, particularly global electronic component shortages. Specifically,
the late arrival of certain components prevented the completion of orders
totalling approximately £2.9m that were scheduled to be delivered before the
year end. These orders have now begun to be shipped and the revenue is
expected to be largely recognised in the first half of the current financial
year.
Several steps were taken during the year to strengthen Kromek's supply chain
so that the Group is better positioned to be able to manage such pressures
going forward. As discussed in the Chief Financial Officer's Review,
inventories increased with components being sourced when available rather than
in accordance with what had previously been the normal supply lead times. The
Group bolstered its procurement team during the year and have transitioned
buying cycles to accommodate the current longer lead supply times. This has
significantly helped management, enabling greater visibility over orders. In
addition, Kromek has widened and strengthened its supplier base through
establishing an increased number of strategic, rather than transactional,
relationships with key suppliers.
R&D, IP and Manufacturing
Kromek continues to ramp up several projects that commenced in 2021 for the
expansion of production capacity and increased process automation. These
programmes are resulting in greater productivity and cost efficiency in the
manufacture of CZT and non-CZT products in both the Group's UK and US
facilities.
Kromek is focused on developing the next generation of products for commercial
application in its core markets. As noted, during the year the Group continued
to advance development programmes with a number of partners and, in
particular, significantly progressed the development of its biological-threat
detection solution.
During the year, the Group applied for 8 new patents and had 9 patents granted
across three patent families, bringing the total number of patents held by
Kromek to in excess of 250. The new applications cover innovations in both of
Kromek's segments.
Financial Review
Revenue
The Group generated total revenue of £12.1m (2021: £10.4m), an increase of
16% over the prior year. However, growth was impeded, as noted above, by
global supply chain issues. The split between product sales and revenue from
R&D contracts is detailed in the table below.
Revenue Mix 2022 2021
£'000 % share £'000 % share
Product 9,935 82% 5,836 56%
R&D 2,120 18% 4,516 44%
Total 12,055 10,352
Gross Margin
Gross profit at £5.6m (2021: £5.0m) represented a margin of 46.8% (2021:
48.4%). The slight reduction in gross margin is attributable to the change in
revenue mix and the increase in component prices due to supply chain
pressures.
Administration Costs
Administration costs and operating expenses increased by £1.3m to £12.2m
(2021: £10.9m). This increase is substantially the net result of:
· £0.2m of amortisation due to continued investment in the
technology platform and product applications;
· £0.5m bad debt expense having assessed receivables at the year end
for expected credit losses;
· a £0.2m increase in travel and subsistence due to the global
relaxation of travel restrictions;
· a £0.5m increase in staff costs due to general salary increases
and the planned expansion of personnel to support the biological detection
project; and
· savings of £0.1m relating to facility and general office expenses.
Adjusted EBITDA* and Result from Operations
Adjusted EBITDA for 2022 was a loss of £1.2m compared with a loss of £1.7m
for the prior year as set out in the table below:
2022 2021
£'000 £'000
Revenue 12,055 10,352
Gross profit 5,636 5,006
Gross margin (%) 46.7% 48.4%
Loss before tax (6,129) (6,331)
EBITDA Adjustments:
Net interest 548 546
Depreciation of PPE and right-of-use assets 1,751 1,685
Amortisation 2,569 2,359
Share-based payments 236 106
Exceptional Item (132) (52)
Adjusted EBITDA* (1,157) (1,687)
*Adjusted EBITDA is defined as earnings before interest, taxation,
depreciation, amortisation, exceptional items, early settlement discounts and
share-based payments. Share-based payments are added back when calculating the
Group's adjusted EBITDA as this is currently an expense with no 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 Group's loss before tax was reduced to £6.1m compared with £6.3m in the
prior year. The improvement is primarily due to the increase in gross profit
and higher other operating income as described below, partially offset by the
increase in operating costs.
During 2022, the Group recognised a gain of £2.1m (2021: £2.0m loss) in the
statement of other comprehensive income that arose from foreign exchange
differences on the translation of foreign operations as described in note 2 to
the financial statements. This gain has been treated as a reserve movement,
consistent with the prior year. This accounting treatment is unlike the £0.2m
foreign exchange loss arising on the revaluation and realisation of working
capital balances that were expensed to the profit and loss account during the
year.
Tax
The Group continues to benefit from the UK Research and Development Tax Credit
regime as it invests in developments of technology. The Group recorded an
R&D credit of £0.9m for the year (2021: £1.0m credit) arising from the
option of surrendering tax losses in the year that qualify for cash credit,
rather than carrying forward the tax losses to set against future taxable
profits. The Group's deferred tax provision for the year remained static at
£nil (2021: £nil) due to the distribution of losses between the UK and US
operations, and accordingly there was a total tax credit to the income
statement for the Group of £1.2m (2021: £1.0m credit).
Earnings per Share ("EPS")
The EPS is recorded in the year on a basic and diluted basis as 1.1p loss per
share (2021: 1.5p loss per share after excluding exceptional items),
reflecting the £0.4m reduction in loss for the period.
R&D
The Group invested £5.6m in the year (2021: £5.5m) in technology and product
developments that were capitalised on the balance sheet, reflecting the
continuing investment in new products, applications and platforms for the
future growth of the business. 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 lifecycle.
The Group continues to advance its development roadmap in relation to the
automated wide-area detection of biological and viral pathogens, involving
portable DNA sequencing. It is the Board's belief that this technology
platform, which enables the identification of COVID-19 and other biological
pathogens, offers significant medium-term opportunities for the Group in this
critical market.
The other key areas of development continue to be the development and
expansion of the D5 suite of products and the SPECT platforms. All such
investments in research and development are linked to contract deliverables
and, in the Board's belief, add to the significant future revenue
opportunities that the Group's technology offers. The Group continues to
undertake this investment to strengthen its commercial advantage.
During the year, the Group undertook expenditure on patents and trademarks of
£0.2m (2021: £0.2m) with 8 new patents filed and 9 patents granted across 3
patent families.
Other Income
The Group generated total other operating income of £1.4m (2021: £0.4m),
which predominantly comprises the forgiveness of Paycheck Protection Programme
(PPP) loans in the US. The Group had been granted PPP loans totalling US$1.8m
(£1.4m) in the prior year and, during the period under review, applied for,
and received, forgiveness for repayment from the US Government. In the prior
year period, £0.3m of the £0.4m of other operating income comprised UK
Government grants in response to COVID-19. The balance of remaining other
operating income relates to grants received from the Coronavirus Job Retention
Scheme provided by the UK Government in response to COVID-19's economic impact
on businesses and other small miscellaneous grants.
Capital Expenditure
Capital expenditure in the year amounted to £0.7m (2021: £0.5m), which
primarily relates to modest capital expenditure across lab and computer
equipment and manufacturing projects.
Financing Activities
The Group's US operations secured an Economic Injury Disaster Loan of £0.4m
in August 2021.
Cash Balance
Cash and cash equivalents were £5.1m as of 30 April 2022 (30 April 2021:
£15.6m). The £10.5m decrease in cash during 2022 was primarily due to the
combination of the following:
· Adjusted EBITDA loss for the year of £1.2m, which includes the PPP
loan forgiveness of £1.4m
· Net cash used in financing activities of £1.6m
· A net increase in working capital of £4.8m
· R&D tax receipts of £1.3m
· Investment in product development and other intangibles, with
capitalised development costs of £5.6m and IP additions of £0.2m
· Capital expenditure of £0.7m
· Impact of foreign exchange of £1.0m
Working capital increased by £4.8m as a result of the following:
· A £4.3m increase in inventories held on 30 April 2022 to £10.5m
(30 April 2021: £6.2m). This increase was primarily in order to secure surety
of critical electronic components for delivery of FY 2023 revenues in response
to supply chain pressures. As such, the Group sourced component inventory when
available, rather than in accordance with normal supply lead times. There was
significant component price inflation caused by the constrained market supply,
which also contributed to the increased spend on inventories;
· £0.2m decrease in trade and other receivables, reflecting the
timing of receipts; and
· a £1.7m increase in trade and other payables to £8.9m (2021:
£7.2m) due to the timing of invoicing around the year end.
Outlook
Kromek has had a positive start to the new financial year with a significantly
larger order book than at the same point last year and the highest level of
revenue visibility in its history. The Group has excellent visibility over
full year revenue forecasts with approximately 53% of its forecast revenue
contracted, 37% going through contract negotiation and the remaining 10%
expected to be provided by its regular repeat order business.
As a result, the Group anticipates a substantial year-on-year increase in
revenue, in line with market expectations, with accelerated growth in both its
advanced imaging and CBRN detection segments.
The anticipated growth is based on delivery under existing long-term
contracts, new orders won last year and the sustained demand being received
for Kromek's products. In particular, the current geopolitical environment is
driving increased interest from government agencies in Kromek's products in
the CBRN detection segment. In advanced imaging, Kromek's CZT-based products
continue to be in high demand from both existing and new OEM customers.
The Group continues to maintain tight cost control, improve collections and
manage cash flow. The Group is also effectively managing its supply chain and
the current challenges around obtaining critical components. The high revenue
visibility for the current year means the Group can manage its inventories
efficiently and avoid potential delays in the delivery of orders.
Looking further ahead, Kromek is operating in multiple substantial markets
where its technology enables the Group's advanced imaging customers to
differentiate their products, forming an important part of the roadmap of
major OEMs, and allowing its CBRN detection customers to enhance national
defence. The demand for technology that enables early medical diagnosis to
improve patient outcomes and government vigilance to the threat of terrorism
will continue. In addition, its strategic position in the advanced imaging
segment was significantly strengthened during the year with Kromek becoming
the only commercial independent global supplier of CZT. Consequently, the
Board continues to look to the future with great confidence.
Kromek Group plc
Group statement of comprehensive income
For the year ended 30 April 2022
Note
2022 2021
£'000 £'000
Continuing operations
Revenue 3 12,055 10,352
Cost of sales (6,419) (5,346)
Gross profit 5,636 5,006
Other operating income 4 1,410 379
Distribution costs (551) (287)
Administrative expenses (12,208) (10,935)
Operating loss (before exceptional items) (5,713) (5,837)
Exceptional impairment reversal on trade receivables and amounts recoverable 7 132 52
on contracts
Operating results (post exceptional items) (5,581) (5,785)
Finance income 34 2
Finance costs (582) (548)
Loss before tax 5 (6,129) (6,331)
Tax 8 1,211 978
Loss for the year from continuing operations (4,918) (5,353)
Loss for the year from continuing operations (before exceptional items) (5,050) (5,405)
Loss per share 9
(1.1) (1.5)
- basic (p)
The notes form part of these financial statements.
Kromek Group plc
Group statement of other comprehensive income
For the year ended 30 April 2022
2022
2021
£'000 £'000
Loss for the year (4,918) (5,353)
Items that are or may be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign operations 2,063 (1,981)
Total comprehensive loss for the year (2,855) (7,334)
The notes form part of these financial statements.
Kromek Group plc
Consolidated statement of financial position
As at 30 April 2022
Note 2022
£'000 2021
£'000
Non-current assets
Goodwill 10 1,275 1,275
Other intangible assets 11 28,375 24,144
Property, plant and equipment 12 10,944 11,200
Right-of-use assets 3,874 4,076
44,468 40,695
Current assets
Inventories 13 10,503 6,202
Trade and other receivables 6,429 6,644
Current tax assets 942 1,015
Cash and bank balances 5,081 15,602
22,955 29,463
Total assets 67,423 70,158
Current liabilities
Trade and other payables (7,855) (6,174)
Borrowings 14 (5,716) (5,387)
Lease obligation (375) (399)
(13,946) (11,960)
Net current assets 9,009 17,503
Non-current liabilities
Deferred income (1,131) (1,071)
Lease obligation (4,161) (4,256)
Borrowings 14 (749) (2,816)
(6,041) (8,143)
Total liabilities (19,987) (20,103)
Net assets 47,436 50,055
Equity
Share capital 4,319 4,319
Share premium account 72,943 72,943
Merger reserve 21,853 21,853
Translation reserve 2,063 -
Accumulated losses (53,742) (49,060)
Total equity 47,436 50,055
The notes form part of these financial statements.
Kromek Group plc
Consolidated statement of changes in equity
For the year ended 30 April 2022
Share premium Total
Share capital account Translation reserve Retained equity £'000
£'000 £'000 £'000 losses
Merger reserve £'000
£'000
Balance at 1 May 2020 3,446 61,600 1,981 (43,813) 45,067
21,853
Loss for the year - - - - (5,353) (5,353)
- - (1,981) - (1,981)
Exchange difference on translation of foreign operations
-
Total comprehensive loss for the year - - (1,981) (5,353) (7,334)
-
Issue of share capital 873 - - - 873
-
- 11,343 - - - 11,343
Premium on shares
issued less expenses
- - - 106 106
Credit to equity for equity-settled share-based payments
-
Balance at 30 April 2021 4,319 72,943 - (49,060) 50,055
21,853
Loss for the year - - - - (4,918) (4,918)
- - 2,063 - 2,063
Exchange difference on translation of foreign operations
-
Total comprehensive loss for the year - - 2,063 (4,918) (2,855)
-
- - - 236 236
Credit to equity for equity-settled share-based payments
-
Balance at 30 April 2022 4,319 72,943 2,063 (53,742) 47,436
21,853
The notes form part of these financial statements.
Kromek Group plc
Consolidated statement of cash flows
For the year ended 30 April 2022
Note 2022
£'000
2021
£'000
Net cash used in operating activities 15 (3,530) (1,309)
Investing activities
Interest received 34 2
Purchases of property, plant and equipment (651) (454)
Purchases of patents and trademarks (179) (156)
Capitalisation of development costs (5,619) (5,463)
Net cash used in investing activities (6,415) (6,071)
Financing activities
Net proceeds on issue of shares - 12,216
New borrowings 760 3,215
Payment of borrowings (1,340) (595)
Payment of lease liability (646) (395)
Interest paid (340) (309)
Net cash (used in)/generated from financing activities (1,566) 14,132
Net (decrease)/increase in cash and cash equivalents (11,511) 6,752
Cash and cash equivalents at beginning of year 15,602 9,444
Effect of foreign exchange rate changes 990 (594)
Cash and cash equivalents at end of year 5,081 15,602
The notes form part of these financial statements.
Kromek Group plc
Notes to the consolidated financial statements
For the year ended 30 April 2022
1. General information
Kromek Group plc is a company incorporated and domiciled in the United Kingdom
under the Companies Act 2006. These financial statements are presented in
pounds sterling because that is the currency of the primary economic
environment in which the Group operates. Foreign operations are included in
accordance with the policies set out in note 2.
The Group prepares its consolidated financial statements in accordance with
UK-adopted IFRS.
The Board is currently evaluating the impact of the adoption of all other
standards, amendments and interpretations but does not expect them to have a
material impact on the Group's operation or results.
2. Significant accounting policies
Basis of preparation
The Group's financial statements have been prepared in accordance with IFRS
and International Financial Reporting Interpretations Committee ("IFRIC").
The financial statements have been prepared on the historical cost basis
modified for assets recognised at fair value on acquisition. Historical cost
is generally based on the fair value of the consideration given in exchange
for the assets. The principal accounting policies adopted are set out below.
Basis of consolidation
The consolidated financial statements incorporate the results and net assets
of the Group and entities controlled by the Group (its subsidiaries) made up
to 30 April each year. Control is achieved where the Group has the power to
govern the financial and operating policies of an investee entity so as to
obtain benefits from its activities.
The results of subsidiaries acquired during the year are included in the
consolidated income statement from the effective date of acquisition or up to
the effective date of disposal, as appropriate. Where necessary, adjustments
are made to results of subsidiaries to bring the accounting policies used into
line with those used by the Group. All intra-Group transactions, balances,
income and expenses, and profits are eliminated on consolidation.
Going concern
As at 30 April 2022, the Group had net current assets of £9.0m (30 April
2021: £17.5m) and cash and cash equivalents of £5.1m (30 April 2021:
£15.6m) as set out in the consolidated statement of financial position. The
Group made a loss before tax of £6,129k in the year (2021: £6,331k).
The Directors have prepared detailed forecasts of the Group's financial
performance over the next twelve months from the date of this report. Given
the rapidly changing macroeconomic landscape and the Group's forecast
financial performance for the next twelve months, management also prepared a
financial forecast based on a sensitised and severe but plausible scenario. It
should be noted that in each scenario, the Board has specifically excluded any
significant upsides from these scenarios or mitigating cost reductions.
The forecasts prepared by the Directors indicate that the Group will breach
its net debt:EBITDA bank covenant during the forecast period. In response to
these potential breaches, the Board has negotiated with HSBC that the Group
shall not be required to ensure compliance with this leverage covenant up to
and including the January 2023 quarterly compliance review. As this waiver is
conditional at the date of signing this report, should the condition not be
met, it would result in the early repayment of the outstanding bank debt. The
conditional nature of the bank waiver gives rise to an event which may cast
significant doubt over the Group's ability to continue as a going concern. The
Directors are comfortable that the conditions will be met, and acknowledge if
they are not met, there is sufficient mitigation due to the Group having
various ongoing fundraising opportunities at its disposal. The Directors
consider it to be almost certain that sufficient financial support could be
raised from one or more of these opportunities to repay the bank in the
unlikely instance that the condition of the bank waiver is not met.
In both the original and the severe but plausible scenario forecasts, there is
an assumption that additional financing will be available to the Group. The
requirement for future funding results in conditions that may cast significant
doubt over the Group's ability to continue as a going concern. The Board is
exploring a number of such opportunities that are available, and has concluded
that it is almost certain the required mitigating financing will be secured.
As a consequence, the Board is confident that the Group will have sufficient
resources and working capital to meet its present and foreseeable obligations
for a period of at least twelve months from approval of these financial
statements. Accordingly, the Board continues to adopt the going concern basis
in preparing the Group financial statements.
Business combinations
The Group financial statements consolidate those of the Company and its
subsidiary undertakings. Subsidiaries are entities controlled by the Group.
Control exists when the Group has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain benefits
from its activities. In assessing control, potential voting rights that are
currently exercisable or convertible are taken into account. The financial
information of subsidiaries is included from the date that control commences
until the date that control ceases. Intra-Group balances and transactions, and
any unrealised income and expenses arising from intra-Group transactions, are
eliminated in preparing the consolidated financial information.
Acquisitions on or after 1 May 2010
For acquisitions on or after 1 May 2010, the Group measures goodwill at the
acquisition date as:
· the fair value of the consideration transferred; plus
· the recognised amount of any non-controlling interests in the
acquiree; plus
· the fair value of the existing equity interest in the acquiree;
less
· the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
When the excess is negative, the negative goodwill is recognised immediately
in profit or loss.
Costs related to the acquisition, other than those associated with the issue
of debt or equity securities, are expensed as incurred.
Goodwill
Goodwill arising in a business combination is recognised as an asset at the
date that control is acquired (the acquisition date). Goodwill is measured as
the excess of the sum of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the fair value of the acquirer's
previously held equity interest (if any) in the entity over the net of the
acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed.
If, after reassessment, the Group's interest in the fair value of the
acquiree's identifiable net assets exceeds the sum of the consideration
transferred, the amount of any non-controlling interest in the acquiree and
the fair value of the acquirer's previously held equity interest in the
acquiree (if any), the excess is recognised immediately in profit or loss as a
bargain purchase gain.
Goodwill is not amortised but is reviewed for impairment at least annually.
For the purpose of impairment testing, goodwill is allocated to each of the
Group's cash-generating units expected to benefit from the synergies of the
combination. Cash-generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the unit. An
impairment loss recognised for goodwill is not reversed in a subsequent
period.
On disposal of a subsidiary, the attributable amount of goodwill is included
in the determination of the profit or loss on disposal.
Contracts with customers
The Group recognises revenue in line with IFRS 15 'Revenue from contracts with
customers'. Revenue represents income derived from contracts for the provision
of goods and services by the Group to customers in exchange for consideration
in the ordinary course of the Group's activities.
The Board disaggregates revenue by sales of goods or services, grants and
contract customers. Sales of goods and services typically include the sale of
product on a run rate or ad-hoc basis. Grants include technology development
with parties such as Innovate UK as detailed above. Customer contracts
represents agreements that the Group has entered into that typically span a
period of more than 12 months.
Performance obligations
Upon approval by the parties to a contract, the contract is assessed to
identify each promise to transfer either a distinct good or service or a
series of distinct goods or services that are substantially the same and have
the same pattern of transfer to the customer. Goods and services are distinct
and accounted for as separate performance obligations in the contract if the
customer can benefit from them either on their own or together with other
resources that are readily available to the customer, and they are separately
identifiable in the contract.
Transaction price
At the start of the contract, the total transaction price is estimated as the
amount of consideration to which the Group expects to be entitled in exchange
for transferring the promised goods and services to the customer, excluding
sales taxes. Variable consideration, such as price escalation and early
settlements, is included based on the expected value or most likely amount
only to the extent that it is highly probable that there will not be a
reversal in the amount of cumulative revenue recognised. The transaction price
does not include estimates of consideration resulting from contract
modifications, such as change orders, until they have been approved by the
parties to the contract. The total transaction price is allocated to the
performance obligations identified in the contract in proportion to their
relative standalone selling prices. Given the bespoke nature of many of the
Group's products and services, which are designed and/or manufactured under
contract to the customer's individual specifications, there are sometimes no
observable standalone selling prices. Instead, standalone selling prices are
typically estimated based on expected costs plus contract margin consistent
with the Group's pricing principles or based on market knowledge of selling
prices relating to similar product.
Revenue and profit recognition
Revenue is recognised as performance obligations are satisfied as control of
the goods and services is transferred to the customer.
For each performance obligation within a contract, the Group determines
whether it is satisfied over time or at a point in time. The Group has
determined that the performance obligations of the majority of its contracts
are satisfied at a point in time. Performance obligations are satisfied over
time if one of the following criteria is satisfied:
- the customer simultaneously receives and consumes the benefits provided by
the Group's performance as it performs;
- the Group's performance creates or enhances an asset that the customer
controls as the asset is created or enhanced; or
- the Group's performance does not create an asset with an alternative use to
the Group and it has an enforceable right to payment for performance completed
to date.
For each performance obligation to be recognised over time, the Group
recognises revenue using an input method, based on costs incurred in the
period. Revenue and attributable margin are calculated by reference to
reliable estimates of transaction price and total expected costs, after making
suitable allowances for technical and other risks. Revenue and associated
margin are therefore recognised progressively as costs are incurred, and as
risks have been mitigated or retired. The Group has determined that this
method faithfully depicts the Group's performance in transferring control of
the goods and services to the customer.
If the over-time criteria for revenue recognition are not met, revenue is
recognised at the point in time that control is transferred to the customer,
which is usually when legal title passes to the customer and the business has
the right to payment. Kromek's standard terms of delivery are FCA Delivery
Location (Incoterms 2020), unless otherwise stated.
The Group's contracts that satisfy the over-time criteria are typically
product development contracts where the customer simultaneously receives and
consumes the benefit provided by the Group's performance. In some specific
arrangements, due to the highly specific nature of the contract deliverables
tailored to the customer requirements and the breakthrough technology
solutions that Kromek provides, the Group does not create an asset with an
alternative use but retains an enforceable right to payment and recognises
revenue over time on that basis.
When it is probable that total contract costs will exceed total contract
revenue, the expected loss is recognised immediately as an expense.
Contract modifications
The Group's contracts are sometimes amended for changes in customers'
requirements and specifications. A contract modification exists when the
parties to the contract approve a modification that either changes existing,
or creates new, enforceable rights and obligations. The effect of a contract
modification on the transaction price and the Group's measure of progress
towards the satisfaction of the performance obligation to which it relates, is
recognised in one of the following ways:
(a) prospectively as an additional, separate contract;
(b) prospectively as a termination of the existing contract and creation of a
new contract; or
(c) as part of the original contract using a cumulative catch up.
The majority of the Group's contract modifications are treated under either
(a) (for example, the requirement for additional distinct goods or services)
or (b) (for example, a change in the specification of the distinct goods or
services for a partially completed contract), although the facts and
circumstances of any contract modification are considered individually as the
types of modifications will vary contract-by-contract and may result in
different accounting outcomes.
Costs to obtain a contract
The Group expenses pre-contract bidding costs that are incurred regardless of
whether a contract is awarded. The Group does not typically incur costs to
obtain contracts that it would not have incurred had the contracts not been
awarded.
Costs to fulfil a contract
Contract fulfilment costs in respect of over-time contracts are expensed as
incurred. No such costs have been incurred in the year under review or in
previous years. Contract fulfilment costs in respect of point-in-time
contracts are accounted for under IAS 2, Inventories.
Sale of Inventories
Inventories include raw materials, work-in-progress and finished goods
recognised in accordance with IAS 2 in respect of contracts with customers
that have been determined to fulfil the criteria for point-in-time revenue
recognition under IFRS 15. Also included are inventories for which the Group
does not have a contract. This is often because fulfilment costs have been
incurred in expectation of a contract award. The Group does not typically
build inventory to stock. Inventories are stated at the lower of cost,
including all relevant overhead and net realisable value. The Group continued
to adopt the policy of valuing its recyclable material. In accordance with the
standard, this is valued at the lower of cost and net realisable value, less
the cost required to bring the material back into use
Contract receivables
Contract receivables represent amounts for which the Group has an
unconditional right to consideration in respect of unbilled revenue recognised
at the balance sheet date and comprises costs incurred plus attributable
margin. The Group does not plan, anticipate or offer extended payment terms
within its contractual arrangements unless express payment interest charges
are applied and represent a value over and above that contracted or invoiced
with the customer.
Contract liabilities
Contract liabilities represent the obligation to transfer goods or services to
a customer for which consideration has been received, or consideration is due,
from the customer.
Leases
The Group recognises a right-of-use ("ROU") asset and a lease liability at the
lease commencement date. The ROU asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct
costs incurred, and an estimate of costs to dismantle and remove the
underlying asset or to restore the underlying asset or the site on which it is
located, less any lease incentives received.
The ROU asset is subsequently depreciated using the straight-line method from
the commencement date to the earlier of the end of the useful life of the ROU
or the end of the lease term. The estimated useful lives of the ROU assets are
determined on the same basis as those of property and equipment. In addition,
the ROU is periodically reduced by impairment losses, if any, and adjusted for
certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease, or, if that rate cannot be readily
determined, the Group's incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise
fixed payments.
The lease liability is measured at amortised cost using the effective interest
method. It is remeasured when there is a change in future lease payments
arising from a change in an index or rate, if there is a change in the Group's
estimate of the amount expected to be payable under a residual value
guarantee, or if the Group changes its assessment of whether it will exercise
a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment
is made to the carrying amount of the ROU asset, or is recorded in profit or
loss if the carrying amount of the ROU has been reduced to zero.
The Group has elected not to recognise ROU assets and lease liabilities for
short-term leases of machinery that have a lease term of 12 months or less and
leases of low value assets, including IT equipment and leased cars. The Group
recognises the lease payments associated with these leases as an expense on a
straight-line basis over the lease term.
Foreign currencies
The individual results of each Group company are presented in the currency of
the primary economic environment in which it operates (its functional
currency). For the purpose of the consolidated financial statements, the
results and financial position of each Group company are expressed in pounds
sterling, which is the functional currency of the Company and the presentation
currency for the consolidated financial statements. The Directors have applied
IAS 21 The Effects of Changes in Foreign Exchange Rates and have concluded
that the inter-company loans held by Kromek Limited substantially form part of
the net investment in Kromek USA (Kromek Inc, eV Products, Inc. and Nova
R&D, Inc.), and so any gain or loss arising on the inter-company loan
balances are recognised as other comprehensive income in the period.
In preparing the results of the individual companies, transactions in
currencies other than the entity's functional currency (foreign currencies)
are recognised at the average exchange rate for the month to which the
transaction relates. At each statement of financial position date, monetary
assets and liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing at that date. Non-monetary items carried
at fair value that are denominated in foreign currencies are translated at the
rates prevailing at the date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in a foreign currency are
not retranslated. Exchange differences are recognised in profit or loss in the
period in which they arise.
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group's foreign operations are translated at exchange
rates prevailing on the statement of financial position date. Income and
expense items are translated at the average exchange rates for the period,
unless exchange rates fluctuate significantly during that period, in which
case the exchange rates at the date of transactions are used. Exchange
differences arising, if any, are recognised in other comprehensive income and
accumulated in equity. On consolidation, the results of overseas operations
are translated into pounds sterling at rates approximating to those ruling
when the transactions took place. All assets and liabilities of overseas
operations, including goodwill arising on the acquisition of those operations,
are translated at the rate ruling at the statement of financial position date.
Exchange differences arising on translating the opening net assets at opening
rate and the results of overseas operations at actual rate are recognised
directly in other comprehensive income and are credited/(debited) to the
retranslation reserve.
Government grants
Government grants are not recognised until there is reasonable assurance that
the Group will comply with the conditions attaching to them and that the
grants will be received.
Government grants towards job creation and growth are normally recognised as
income over the useful economic life of the capital expenditure to which they
relate.
Government grants are recognised in the income statement so as to match them
with the related expenses that they are intended to compensate. Grants that
relate to capital expenditure are offset against related depreciation costs.
Where grants are received in advance of the related expenses, they are
initially recognised in the balance sheet and released to match the related
expenditure. Non-monetary grants are recognised at fair value.
The Group has received Government grants in relation to the Coronavirus Job
Retention Scheme (CJRS) provided by the UK Government in response to
COVID-19's impact on business. The Group has elected to account for these
grants as other operating income, rather than to off-set the Government grants
within administrative expenses; accordingly, the gross impact is disclosed on
the face of the Statement of Comprehensive Income. Total Government grants
included as other operating income total £19k (2021: £379k).
Operating result
Operating loss is stated as loss before tax, finance income and costs.
Exceptional items
Exceptional items are those items that, in the judgement of management, need
to be disclosed separately by virtue of their nature, size or incidence.
Exceptional items, such as impairment reversals, have been classified
separately in order to draw them to the attention of the reader of the
accounts and, in the opinion of the Board, to show more accurately the
underlying results of the Group.
Retirement benefit costs
The Group operates two defined contribution pension schemes for UK employees,
one of which is an auto-enrolment workplace pension scheme established
following the UK Pensions Act 2008. The employees of the Group's subsidiaries
in the US are members of a state-managed retirement benefit scheme operated by
the US Government.
Payments to defined contribution retirement benefit schemes are charged as an
expense as they fall due. For these schemes, the assets are held separately
from those of the Group in independently administered funds. Payments made to
US state-managed retirement benefit schemes are dealt with as payments to
defined contribution schemes where the Group's obligations under the schemes
are equivalent to those arising in a defined contribution retirement benefit
scheme.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. Tax is recognised in the income statement except to the extent that it
relates to items recognised directly in equity, in which case it is recognised
in equity. The UK R&D tax credit is calculated using the current rules as
set out by HMRC and is recognised in the income statement during the period in
which the R&D programmes occurred.
i) Current tax
The tax credit is based on the taxable loss for the year. Taxable loss differs
from net loss as reported in the income statement because it excludes items of
income or expense that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted at the date of the statement of financial position.
ii) Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the Consolidated
Statement of Financial Position and the corresponding tax bases used in the
computation of taxable profit and is accounted for using the statement of
financial position liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such
assets and liabilities are not recognised if the temporary difference arises
from the initial recognition of goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each statement of
financial position date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled, or the asset is realised, based on tax
laws and rates that have been enacted or substantively enacted at the date of
the statement of financial position. Deferred tax is charged or credited in
the income statement, except when it relates to items charged or credited in
other comprehensive income, in which case the deferred tax is also dealt with
in other comprehensive income. Deferred tax assets and liabilities are offset
when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by
the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation
and any recognised impairment loss.
Depreciation is recognised so as to write off the cost or valuation of assets
(other than land and properties under construction) less their residual values
over their useful lives, using the straight-line method, on the following
bases:
Plant and machinery
6% to 25%
Fixtures, fittings and equipment 15%
Computer equipment
25%
Lab equipment
6% to 25%
The gain or loss arising on the disposal or scrappage of an asset is
determined as the difference between the sales proceeds and the carrying
amount of the asset, and is recognised in income.
Internally-generated intangible assets - research and development expenditure
Expenditure on research activities is recognised as an expense in the period
in which it is incurred.
An internally-generated intangible asset arising from the Group's product
development is recognised only if all of the following conditions are met:
§ the technical feasibility of completing the intangible asset so that it
will be available for use or sale;
§ its intention to complete the intangible asset and use or sell it;
§ its ability to use or sell the intangible asset;
§ how the intangible asset will generate probable future economic benefits.
Among other things, the entity can demonstrate the existence of a market for
the output of the intangible asset or the intangible asset itself or, if it is
to be used internally, the usefulness of the intangible asset;
§ the availability of adequate technical, financial and other resources to
complete the development and to use or sell the intangible asset; and
§ its ability to measure reliably the expenditure attributable to the
intangible asset during its development.
Research expenditure is written off as incurred. Development expenditure is
also written off, except where the Directors are satisfied as to the
technical, commercial and financial viability of individual projects. In such
cases, the identifiable expenditure is deferred and amortised over the period
during which the Group is expected to benefit. This period normally equates to
the life of the products to which the development expenditure relates. Where
expenditure relates to developments for use rather than direct sales of
product, the cost is amortised straight-line over a 2-15-year period.
Provision is made for any impairment.
Amortisation of the intangible assets recognised on the acquisitions of Nova
R&D, Inc. and eV Products, Inc. are recognised in the income statement on
a straight-line basis over their estimated useful lives of between five and
fifteen years.
Patents and trademarks
Patents and trademarks are measured initially at purchase cost and are
amortised on a straight-line basis over their estimated useful lives.
Impairment of tangible and intangible assets, excluding goodwill
At each statement of financial position date, the Group reviews the carrying
amounts of its tangible and intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated to
determine the extent of the impairment loss (if any). Where the asset does not
generate cash flows that are independent from other assets, the Group
estimates the recoverable amount of the cash generating unit (CGU) to which
the asset belongs. When a reasonable and consistent basis of allocation can be
identified, corporate assets are also allocated to individual CGUs, or
otherwise they are allocated to the smallest group of CGUs for which a
reasonable and consistent allocation basis can be identified.
An intangible asset with an indefinite useful life is tested for impairment at
least annually and whenever there is an indication that the asset may be
impaired.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate of 11.35% (2021: 9.47%)
that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have
not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than
its carrying amount, the carrying amount of the asset (or CGU) is reduced to
its recoverable amount. An impairment loss is recognised immediately in profit
or loss, unless the relevant asset is carried at a revalued amount, in which
case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or CGU) is increased to the revised estimate of its recoverable amount,
but so that the increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been recognised for the
asset (or CGU) in prior years. A reversal of an impairment loss is recognised
immediately in profit or loss, unless the relevant asset is carried at a
revalued amount, in which case the reversal of the impairment loss is treated
as a revaluation increase.
Inventories
Inventories are stated at the lower of cost and net realisable value. The
Group continue to adopt a policy of valuing recyclable material. Costs
comprise direct materials and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the inventories to their present
location and condition. Cost is calculated in the statement of financial
position at standard cost, which approximates to historical cost determined on
a first in, first out basis. Net realisable value represents the estimated
selling price less all estimated costs of completion and costs to be incurred
in marketing, selling and distribution. Work in progress costs are taken as
production costs, which include an appropriate proportion of attributable
overheads.
Provision is made for obsolete, slow moving or defective items where
appropriate. This is reviewed by operational finance at least every six
months. Given the nature of the products and the gestation period of the
technology, commercial rationale necessitates that this provision is reviewed
on a case-by-case basis.
Provisions for liabilities
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events, it is more likely than not that an
outflow of resources will be required to settle the obligation, and the amount
can be reliably estimated. Such provisions are measured at the present value
of management's best estimate of the expenditure required to settle the
present obligation at the balance sheet date. The discount rate used to
determine the present value reflects current market assessments of the time
value of money. Provisions are not recognised for future operating losses.
Financial instruments
(i) Recognition and initial measurement
Trade receivables are initially recognised when they are originated. All other
financial assets and financial liabilities are initially recognised when the
Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant
financing component) or financial liability is initially measured at fair
value plus, for an item not at Fair Value Through Profit or Loss (FVTPL),
transaction costs that are directly attributable to its acquisition or issue.
A trade receivable without a significant financing component is initially
measured at the transaction price.
(ii) Classification and subsequent measurement
Financial assets
(a) Classification
On initial recognition, a financial asset is classified as measured at:
amortised cost; Fair Value through Other Comprehensive Income (FVOCI) - debt
investment; FVOCI - equity investment; or FVTPL.
Financial assets are not reclassified subsequent to their initial recognition
unless the Company changes its business model for managing financial assets in
which case all affected financial assets are reclassified on the first day of
the first reporting period following the change in the business model.
A financial asset is measured at amortised cost if it meets both of the
following conditions:
· It is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
· Its contractual terms give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount
outstanding.
On initial recognition of an equity investment that is not held for trading,
the Group may irrevocably elect to present subsequent changes in the
investment's fair value in OCI. This election is made on an
investment-by-investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as
described above are measured at FVTPL.
Investments in subsidiaries are carried at cost less impairment.
Cash and cash equivalents comprise cash balances and call deposits.
(b) Subsequent measurement and gains and losses
Financial assets at FVTPL - these assets (other than derivatives designated as
hedging instruments) are subsequently measured at fair value. Net gains and
losses, including any interest or dividend income, are recognised in profit or
loss.
Financial assets at amortised cost - these assets are subsequently measured at
amortised cost using the effective interest method. The amortised cost is
reduced by impairment losses. Interest income, foreign exchange gains and
losses and impairment are recognised in profit or loss. Any gain or loss on
derecognition is recognised in profit or loss.
Financial liabilities and equity
Financial instruments issued by the Group are treated as equity only to the
extent that they meet the following two conditions:
(a) They include no contractual obligations upon the Group to deliver cash or
other financial assets or to exchange financial assets or financial
liabilities with another party under conditions that are potentially
unfavourable to the Group; and
(b) Where the instrument will or may be settled in the Group's own equity
instruments, it is either a non-derivative that includes no obligation to
deliver a variable number of the Group's own equity instruments or is a
derivative that will be settled by the Group exchanging a fixed amount of cash
or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Where the instrument so classified takes
the legal form of the Group's own shares, the amounts presented in these
financial statements for called up share capital and share premium account
exclude amounts in relation to those shares.
Financial liabilities are classified as measured at amortised cost or FVTPL. A
financial liability is classified as at FVTPL if it is classified as held for
trading, it is a derivative or it is designated as such on initial
recognition. Financial liabilities at FVTPL are measured at fair value and net
gains and losses, including any interest expense, are recognised in profit or
loss. Other financial liabilities are subsequently measured at amortised cost
using the effective interest method. Interest expense and foreign exchange
gains and losses are recognised in profit or loss. Any gain or loss on
derecognition is also recognised in profit or loss.
Where a financial instrument that contains both equity and financial liability
components exists these components are separated and accounted for
individually under the above policy.
Intra-Group financial instruments
Where the Group enters into financial guarantee contracts to guarantee the
indebtedness of other companies within its Group, the Group considers these to
be insurance arrangements and accounts for them as such. In this respect, the
Group treats the guarantee contract as a contingent liability until such time
as it becomes probable that the Group will be required to make a payment under
the guarantee.
(iii) Impairment
The Group recognises loss allowances for expected credit losses (ECLs) on
financial assets measured at amortised cost, debt investments measured at
FVOCI and contract assets (as defined in IFRS 15).
The Group measures loss allowances at an amount equal to lifetime ECL, except
for other debt securities and bank balances for which credit risk (i.e. the
risk of default occurring over the expected life of the financial instrument)
has not increased significantly since initial recognition, which are measured
as twelve-month ECL.
Loss allowances for trade receivables and contract assets are always measured
at an amount equal to lifetime ECL. When determining whether the credit risk
of a financial asset has increased significantly since initial recognition and
when estimating ECL, the Group considers reasonable and supportable
information that is relevant and available without undue cost or effort. This
includes both quantitative and qualitative information and analysis, based on
the Company's historical experience and informed credit assessment and
including forward-looking information.
The Group assumes that the credit risk on a financial asset may have increased
if it is more than 120 days past due. This is assessed on a case-by-case
basis, taking into consideration the commercial relationship and historical
pattern of payments.
The Group considers a financial asset to be at risk of default when:
• The borrower is unlikely to pay its credit obligations to the Group in
full, without recourse by the Group to actions such as realising security (if
any is held); or
• The financial asset is more than 120 days past due, subject to management
discretion and commercial relationships.
Lifetime ECLs are the ECLs that result from all possible default events over
the expected life of a financial instrument.
Twelve-month ECLs are the portion of ECLs that result from default events that
are possible within 12 months after the reporting date (or a shorter period if
the expected life of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual
period over which the Group is exposed to credit risk.
Measurement of ECLs
Credit losses are measured and assessed on an individual balance by balance
basis. In calculating, the Group uses its historical experience, external
indicators and forward-looking information to calculate the expected credit
losses. The general approach incorporates a review for any significant
increase in counterparty credit risk since inception.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at
amortised cost and debt securities at FVOCI are credit impaired. A financial
asset is "credit impaired" when one or more events that have a detrimental
impact on the estimated future cash flows of the financial asset have
occurred.
Write-offs
The gross carrying amount of a financial asset is written off (either
partially or in full) to the extent that there is no realistic prospect of
recovery. If there is recovery of the financial asset, a reversal will be
recognised in the profit and loss.
Share-based payments
Equity-settled share-based payments to employees and others providing similar
services are measured at the fair value of the equity instruments at the grant
date and spread over the period during which the employees become
unconditionally entitled to the options, which is based on a period of
employment of three years from grant date. In accordance with IFRS 2, from a
single entity perspective, Kromek Group plc recognises an increase in
investment and corresponding increase in equity to represent the settlement.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based
on the Group's estimate of equity instruments that will eventually vest. The
vesting date is determined based on the date an employee is granted options,
usually three years from date of grant. At each statement of financial
position date, the Group revises its estimate of the number of equity
instruments expected to vest as a result of the effect of non-market-based
vesting conditions and taking into account the average time in employment
across the year. The impact of the revision of the original estimates, if any,
is recognised in profit or loss such that the cumulative expense reflects the
revised estimate, with a corresponding adjustment to equity reserves.
Cash
Cash, for the purposes of the statement of cash flows, comprises cash in hand
and term deposits repayable between one and twelve months from balance sheet
date, less overdrafts repayable on demand.
3. Operating segments
Products and services from which reportable segments derive their revenues
For management purposes, the Group is organised into two geographical business
units from which the Group currently operates (US and UK) and it is these
operating segments for which the Group is providing disclosure. Both business
units serve the three principal key markets in which the Group operates
(nuclear detection, medical imaging and security screening). However,
typically, the US business unit focuses principally on medical imaging and the
UK focuses on nuclear detection and security screening. However, this
arrangement is flexible and can vary based on the geographical location of the
Group's customer. In addition to the three principal key markets described
above, the Group's UK operations are developing a biological-threat detection
technology, which the Board believes will be a key market for the Group in the
near future.
The chief operating decision maker is the Board of Directors, which assesses
the performance of the operating segments using the following key performances
indicators: revenues, gross profit and operating profit.
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 two business segments. The first segment relates to the
development of digital colour X-ray imaging enabling direct materials
identification as well as developing a number of detection products in the
industrial and consumer markets. The second segment relates to the development
of a technology platform, as described above, which aims to identify airborne
pathogens.
Analysis by geographical area
A geographical analysis of the revenue from the Group's customers, by
destination, is as follows:
2022 2021
£'000 £'000
United Kingdom 2,033 1,627
North America 5,807 5,693
Asia 1,556 610
Europe 2,601 2,387
Australasia 58 3
Africa - 32
Total revenue 12,055 10,352
The Group has aggregated its market sectors into two reporting segments being
the operational business units in the UK and US. The UK operations comprise
Kromek Group plc and Kromek Limited and the US operations comprise Kromek Inc,
eV Products Inc, and Nova R&D Inc. The Board currently considers this to
be the most appropriate aggregation due to the main markets that are typically
addressed by the UK and US business units and the necessary skillsets and
expertise.
A geographical analysis of the Group's revenue by origin is as follows:
Year ended 30 April 2022:
UK Operations US Operations Total for Group
£'000 £'000 £'000
Revenue from sales 9,013 18,049
Revenue by segment: 9,036
-Sale of goods and services
-Revenue from grants 646 - 646
-Revenue from contract customers 1,227 245 1,472
Total sales by segment 10,909 9,258 20,167
Removal of inter-segment sales (5,564) (2,548) (8,112)
Total external sales 5,345 6,710 12,055
Segment result - operating loss before exceptional items (3,732) (1,981) (5,713)
Interest received 34 - 34
Interest expense (348) (234) (582)
Exceptional items - 132 132
Loss before tax (4,046) (2,083) (6,129)
Tax credit 1,228 (17) 1,211
Loss for the year (2,818) (2,100) (4,918)
Reconciliation to adjusted EBITDA:
Net interest 314 234 548
Tax (1,228) 17 (1,211)
Depreciation of PPE and right-of-use assets 1,010 741 1,751
Amortisation 1,548 1,021 2,569
Share-based payment charge 236 - 236
Reversal of exceptional items - (132) (132)
Adjusted EBITDA (938) (219) (1,157)
Other segment information
Property, plant and equipment additions 124 527 651
Right-of-use assets 2,048 3,458 5,506
Depreciation of PPE and right-of-use assets 1,010 741 1,751
Release of capital grant (44) - (44)
Intangible asset additions 4,199 1,599 5,798
Amortisation of intangible assets 1,548 1,021 2,569
Statement of financial position
Total assets 39,494 27,929 67,423
Total liabilities (13,376) (6,611) (19,987)
Year ended 30 April 2021:
UK Operations US Operations Total for Group
£'000 £'000 £'000
Revenue from sales 5,395 10,741
Revenue by segment: 5,346
-Sale of goods and services
-Revenue from grants 474 - 474
-Revenue from contract customers 3,346 894 4,240
Total sales by segment 9,166 6,289 15,455
Removal of inter-segment sales (3,526) (1,577) (5,103)
Total external sales 5,640 4,712 10,352
Segment result - operating loss before exceptional items (1,594) (4,243) (5,837)
Interest received 2 - 2
Interest expense (324) (224) (548)
Exceptional items - 52 52
Loss before tax (1,916) (4,415) (6,331)
Tax credit 989 (11) 978
Loss for the year (927) (4,426) (5,353)
Reconciliation to adjusted EBITDA:
Net interest 322 224 546
Tax (989) 11 (978)
Depreciation of PPE and right-of-use assets 997 688 1,685
Amortisation 1,370 989 2,359
Share-based payment charge 106 - 106
Exceptional items - (52) (52)
Adjusted EBITDA 879 (2,566) (1,687)
Other segment information
Property, plant and equipment additions 354 100 454
Right-of-use assets 2,048 3,131 5,179
Depreciation of PPE and right-of-use assets 997 688 1,685
Release of capital grant (44) - (44)
Intangible asset additions 4,576 1,043 5,619
Amortisation of intangible assets 1,370 989 2,359
Statement of financial position
Total assets 47,466 22,692 70,158
Total liabilities (13,638) (6,465) (20,103)
Inter-segment sales are charged on an arms-length basis.
No other additions of non-current assets have been recognised during the year
other than property, plant and equipment, and intangible assets.
No impairment losses were recognised in respect of property, plant and
equipment and intangible assets including goodwill.
The accounting policies of the reportable segments are the same as the Group's
accounting policies described in note 2. Segment loss represents the loss
reported by each segment. This is the measure reported to the Group's Chief
Executive for the purpose of resource allocation and assessment of segment
performance.
Revenues from major products and services 2022 2021
The Group's revenues from its major products and services were as follows: £'000 £'000
Product revenue 9,935 5,836
Research and development revenue 2,120 4,516
Consolidated revenue 12,055 10,352
Information about major customers
Included in revenues arising from US operations are revenues of approximately
£2,178k (2021: £1,934k) that arose from the Group's largest commercial
customer. Included in revenues arising from UK operations are revenues of
approximately £955k (2021: £2,784k) that arose from a major Governmental
organisation customer.
4. Other Operating Income
During the financial year, other operating income comprised the forgiveness of
PPP loans granted by the US Government and grants received from the
Coronavirus Job Retention Scheme provided by the UK Government in response to
COVID-19's economic impact on businesses.
2022 2021
£'000 £'000
Coronavirus Job Retention Scheme 19 129
Miscellaneous 17 -
PPP loan forgiveness 1,374 -
Other government grants - 250
Total other operating income 1,410 379
5. Loss before tax for the year
Loss before tax for the year has been arrived at after charging/(crediting):
2022 2021
£'000 £'000
Net foreign exchange losses 155 80
Research and development costs recognised as an expense 1,308 1,116
Depreciation of property, plant and equipment 1,751 1,685
Release of capital grant (44) (44)
Amortisation of internally-generated intangible assets 2,569 2,359
Cost of inventories recognised as expense 3,003 3,899
Exceptional items - reversal of trade receivables and AROC (see note 7) (132) (52)
Staff costs (see note 6) 9,543 8,806
6. Staff costs
The average monthly number of employees (excluding non-executive directors)
was:
2022 2021 Number
Number
Directors (executive) 3 2
Research and development, production 133 118
Sales and marketing 5 7
Administration 13 12
154 139
Their aggregate remuneration comprised:
2022 2021
£'000 £'000
Wages and salaries 8,069 7,618
Social security costs 739 682
Pension scheme contributions 499 400
Share-based payments 236 106
9,543 8,806
The total Directors' emoluments (including non-executive directors) was £890k
(2021: £640k). The aggregate value of contributions paid to money purchase
pension schemes was £24k (2021: £28k) in respect of four directors (2021:
four directors). There has been no exercise of share options by the Directors
in the period and therefore no gain recognised in the year (2021: nil).
The highest paid director received emoluments of £270k (2021: £231k) and
amounts paid to money purchase pension schemes was £4k (2021: £15k).
Key management compensation:
2022 2021
£'000 £'000
Wages and salaries and other short-term benefits 1,050 888
Social security costs 112 125
Pension scheme contributions 32 29
Share-based payment expense 146 106
1,340 1,148
Key management comprise the Executive Directors and senior operational staff.
7. Exceptional Items
Exceptional items, booked to operating costs, comprised the following:
2022 2021
£'000
£'000
Reversal of trade receivables and AROC (132) (52)
Total exceptional items (132) (52)
The immediate and ongoing impact of the COVID-19 pandemic has created
significant economic uncertainty on a global scale. The expected credit losses
are reviewed annually, or when there is a significant change in external
factors potentially impacting credit risk, such as COVID-19, and are updated
where management's expectations of credit losses change.
Management group and measure the expected credit losses of trade receivables
based on operational market and geographical region. As illustrated in note 3,
the Group operates across a number of geographical areas.
The Group has reversed £132k in 2022 (2021: £52k) in relation to items
impaired in a prior year. The impairment (recognised in FY2020) related to two
separate contracts with specific customers in Asia who were identified as
having a significantly elevated credit risk. The assessment carried out by
management suggested delays in delivery due to travel restriction and
subsequent doubt over expected future cash flow, increasing the likelihood of
credit default by these specific debtors in the next 12 months due. A charge
of £13,062k was presented in FY2020 as an exceptional item arising as a
result of COVID-19 in accordance with the Group's accounting policy, as it was
considered to be one-off in nature, size and incidence. It represented a full
write down of invoiced debtors and AROC. The amounts have been fully written
down as management have concluded that any collateral is not considered to be
material. No adjustment or reversal to the impairment calculated in 2020,
specific to one of the contracts, has been included in 2021 and 2022 on the
basis that the recoverability of this receivable remains uncertain.
From a tax perspective, this impairment has increased the taxable losses in
the prior year period, however no deferred tax asset has been recognised as it
is not yet certain that there will be future taxable profits available.
Asia still represents a significant technology opportunity for the Group;
however, the Group is currently uncertain of timescales to full market
traction. Any subsequent reversal of the amount recognised in future years
would also be recognised as an exceptional item.
8. Tax
Recognised in the income statement
2022
£'000
2021
£'000
Current tax credit:
UK corporation tax on losses in the year 942 1,014
Adjustment in respect of previous periods 286 (25)
Foreign taxes paid (17) (11)
Total current tax 1,211 978
Deferred tax:
Origination and reversal of timing differences - -
Adjustment in respect of previous periods - -
Total deferred tax - -
Total tax credit in income statement 1,211 978
A UK corporation rate of 19% (effective 1 April 2020) was substantively
enacted on 17 March 2020, reversing the previously enacted reduction in the
rate from 19% to 17%. This will increase the Company's future current tax
charge accordingly. The deferred tax asset at 30 April 2022 has been
calculated at 19% (2021: 19%). The corporate tax rate will increase to 25%
from 19% with effect from April 2023.
Reconciliation of tax credit
The charge for the year can be reconciled to the profit in the income
statement as follows:
2022 2021 £'000
£'000
Loss before tax (6,129) (6,331)
Tax at the UK corporation tax rate of 19% 1,165 1,203
(2021: 19%)
Non-taxable income/expenses not deductible (184) 614
Effect of R&D 456 451
Effect of other tax rates/credits 124 -
Share scheme deduction under Part 12 CTA 2009 - 5
Unrecognised movement on deferred tax (815) (1,648)
Adjustment in respect of previous periods 286 (26)
Effects of overseas tax rates 179 379
Total tax credit for the year 1,211 978
There are no tax items charged to other comprehensive income.
The effect of R&D is the tax impact of capitalised development costs being
deducted in the year in which they are incurred.
The rate of corporation tax for the year is 19% (2021: 19%). A UK corporation
rate of 19% (effective 1 April 2020) was substantively enacted on 17 March
2020, reversing the previously enacted reduction in the rate from 19% to 17%.
Accordingly, deferred tax has been provided in line with the rates at which
temporary differences are expected to reverse.
The other tax jurisdiction that the Group currently operates in is the US. Any
deferred tax arising from the US operations is calculated at 27.59%, which
represents the federal plus state tax rate.
9. Losses per share
As the Group is loss making, dilution has the effect of reducing the loss per
share. The calculation of the basic earnings per share is based on the
following data:
Losses 2022
£'000
2021
£'000
(4,918) (5,353)
Losses for the purposes of basic and diluted losses per share being net losses
attributable to owners of the Group
2022 2021
Number of shares Number Number
Weighted average number of ordinary shares for the purposes of basic losses 431,851,820 358,912,092
per share
Effect of dilutive potential ordinary shares:
Share options 350,556 372,638
Weighted average number of ordinary shares for the purposes of diluted losses 432,202,376 359,284,730
per share
2021
2022
Basic (p) (1.1) (1.5)
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. Intangible Assets including Goodwill
£'000
Cost
At 1 May 2021 and 30 April 2022 1,275
Accumulated impairment losses
At 1 May 2021 and 30 April 2022 -
Carrying amount
At 30 April 2022 and 30 April 2021 1,275
Goodwill acquired in a business combination is allocated, at acquisition, to
the cash generating units (CGUs) that are expected to benefit from that
business combination. Before recognition of impairment losses, the carrying
amount of goodwill had been allocated as follows:
CGU Goodwill Intangibles
£'000 £'000
US 1,275 10,862
UK - 17,513
Total 1,275 28,375
The goodwill arose on the acquisition of Nova R&D, Inc. in 2010, and
represents the excess of the fair value of the consideration given over the
fair value of the identifiable assets and liabilities acquired.
Goodwill has been allocated to Kromek USA (a combination of eV Products and
Nova R&D Inc.) as a cash generating unit (CGU). This is reported in note 3
within the segmental analysis of the US operations.
Impairment tests
The Group tests goodwill annually for impairment or more frequently if there
are indications that goodwill might be impaired, by comparing the carrying
value of the goodwill to its value in use on a discounted cash flow basis.
The Group tests intangible assets with finite lives for impairment if an
indicator exists. The Board considers the potential impact of COVID-19 on the
future prospects of the business to be an indicator of impairment and has
carried out an impairment test by comparing the carrying value of each CGU to
its value in use on a discounted cash flow basis.
In undertaking the impairment test, management considered both internal and
external sources of information. The impairment testing did not identify any
impairments in either CGU.
Forecast cash flows
Management has prepared cash flow forecasts for 10 years (UK) and 15 years
(US) plus a perpetuity. This exceeds the five years as set out in the standard
but has been used on the basis that the entity is in the early stage of its
maturity and will not have reached steady state after five years. Management
have visibility over contracts in place and in the pipeline that enable it to
forecast accurately and the cash flows are based on the useful economic life
of the 'know how', which is considered to be the essential asset.
US
The key assumptions to the value in use calculations are set out below:
- Growth rate. The 2022 model does not include any revenue growth in
years 1 and 2 (see below for comparatives). This growth rate comprises both
capacity increases as a result of increases in raw material to finished
product efficiencies and price increases, factoring in existing contracts and
those in the pipeline and is reflective of historical growth rates as well as
and the Company's share of the overall markets the US CGU operates in. No
growth is assumed after 10 years.
- Discount rates. Management have derived a pre-tax discount rate of
11.35% (2021: 9.47%) using the latest market assumptions for the risk-free
rate, the equity premium and the net cost of debt, which are all based on
publicly available sources, as well as adjustments for forecasting risk for
which management considered the historical growth of the entity as well as the
visibility of cash flows from a contracted perspective, which are all based on
publicly available sources. The discount rate is higher than that used in
2021. The key drivers of this change are the changes in market assumptions for
US corporate bond yields and risk-free rates.
The Challenge Model Base Case incorporates the following into the US forecast:
· Revised year 1 and year 2 cashflows to match the severe but
plausible budget conducted as part of the Going Concern review.
· Extended the forecast period to 15 years (plus perpetuity), on the
basis that the asset base is expected to generate revenues over a much longer
period of time than modelled by management.
· Modelled a smoother increase in revenues from the year 1 and year 2
budgets to year 15 whilst taking into consideration potential capacity
constraints.
UK
- Growth rate. The model does not include any growth in years 1 and 2
(see below for comparatives), with a 5% growth rate from year 3 onwards. This
growth rate comprises both capacity increases as a result of increases in raw
material to finished product efficiencies and price increases, factoring in
existing contracts and those in the pipeline and is reflective of historical
growth rates as well as and the Company's share of the overall markets the UK
CGU operates in. No growth is assumed after 10 years.
- Discount rates. Management have derived a pre-tax discount rate of
10.50% (2021: 9.13%) using the latest market assumptions for the risk-free
rate, the equity premium and the net cost of debt, which are all based on
publicly available sources, as well as adjustments for forecasting risk for
which management considered the historical growth of the entity as well as the
visibility of cash flows from a contracted perspective. The discount rate is
higher than that used in 2021. The key drivers of this change are the changes
in market assumptions for UK corporate bond yields and risk-free rates.
The Challenge Model Base Case incorporates the following into the UK forecast:
· Revised year 1 and year 2 cashflows to match the severe but
plausible budget conducted as part of the Going Concern review.
· Extended the forecast period to 15 years (plus perpetuity), on the
basis that the asset base is expected to generate revenues over a much longer
period of time than modelled by management.
· Modelled a smoother increase in revenues from the year 1 and year
2 budgets to year 10.
Sensitivities
The headrooms in the base case models are £30,209k (US CGU) and £34,729k (UK
CGU). The table below sets out the impact of the following reasonable changes
in assumption on the headroom of each CGU:
US Headroom UK Headroom
Challenge base model £119,554k £112,343k
Combination of Discount Rate +2% and Challenge model £85,450k £70,641k
Combination of Discount Rate £171,904 £179,612
-2% and Challenge model
The Directors have reviewed the recoverable amount of the CGU and do not
consider there to be any impairment in 2022 or 2021.
11. Other intangible assets
Development costs Patents, Total
£'000 trademarks & other intangibles £'000
£'000
Cost
At 1 May 2021 29,055 7,344 36,399
Additions 5,619 179 5,798
Exchange differences 1,206 390 1,596
At 30 April 2022 35,880 7,913 43,793
Amortisation
At 1 May 2021 6,944 5,311 12,255
Charge for the year 2,056 513 2,569
Exchange differences 296 298 594
At 30 April 2022 9,296 6,122 15,418
Carrying amount
At 30 April 2022 26,584 1,791 28,375
At 30 April 2021 22,111 2,033 24,144
The Group amortises capitalised development costs on a straight-line basis
over a period of 2-15 years rather than against product sales directly
relating to the development expenditure. Any impairment of development costs
are recognised immediately through the profit and loss.
Patents and trademarks are amortised over their estimated useful lives, which
is on average 10 years.
The carrying amount of acquired intangible assets arising on the acquisitions
of Nova R&D, Inc. and eV Products, Inc. as at the 30 April 2022 was £357k
(2021: £488k), with amortisation to be charged over the remaining useful
lives of these assets which is between 3 and 13 years.
The amortisation charge on intangible assets is included in administrative
expenses in the consolidated income statement.
Further details on impairment testing are set out in note 10.
12. Property, plant and equipment
Computer equipment Plant and machinery Fixtures Total
£'000 £'000 and £'000
Lab equipment fittings
£'000 £'000
Cost or valuation
At 1 May 2021 209 1,335 17,418 542 19,504
Additions 1 76 527 47 651
Exchange differences - 52 676 30 758
At 30 April 2022 210 1,463 18,621 619 20,913
Accumulated depreciation and impairment
At 1 May 2021 33 1,032 6,956 283 8,304
Charge for the year 42 118 1,078 50 1,288
Exchange differences - 39 324 14 377
At 30 April 2022 75 1,189 8,358 347 9,969
Carrying amount
At 30 April 2022 135 274 10,263 272 10,944
At 30 April 2021 176 303 10,462 259 11,200
13. Inventories
2022 2021
£'000 £'000
Raw materials 3,554 2,022
Work-in-progress 6,304 3,707
Finished goods 645 473
10,503 6,202
The cost of inventories recognised as an expense during the year in respect of
continuing operations was £5,006k (2021: £3,899k).
The write-down of inventories to net realisable value amounted to £852k
(2021: £496k). The reversal of write-downs amounted to £94k (2021: £120k).
14. Borrowings
2022 2021
£'000 £'000
Secured borrowing at amortised cost
Revolving credit facility and capex facility 4,500 4,900
Other borrowings 1,965 3,303
6,465 8,203
Total borrowings
Amount due for settlement within 12 months 5,716 5,387
Amount due for settlement after 12 months 749 2,816
The Group has a £5.0m revolving credit facility (RCF) with HSBC, which also
incorporates a capex facility. This facility was for an initial 36-month
period with an option to extend to years 4 and 5. The Group opted to extend
the facility to year 4 being the year to March 2023, which was agreed by the
Bank. This loan is repaid on a quarterly basis in an amount equal to 1/20th of
the drawn capex loan. Once repaid, the Group is able to draw down the repaid
amount against the original RCF. The facility is secured by a debenture and a
composite guarantee across the Group. The interest rate on the RCF is Bank of
England Base Rate +2.5% with a repayment term of six months from date of
drawdown. The fair value equates to the carrying value.
The RCF and capex facility from HSBC have certain covenants attached. The
Group has been in compliance with all of the Bank's covenant requirements
during the year other than the compliance period 30 April 2022, when the Group
breached its leverage covenant. This breach was subsequently waived by HSBC
and the Board has negotiated with HSBC that the Group shall not be required to
ensure compliance with this leverage covenant up to and including the January
2023 quarterly compliance review. This waiver is conditional at the date of
signing this report, however, the Board are confident that the Group will be
able to satisfy the condition.
In the prior year, the Group successfully secured a 2-year, £1.4m Term Loan
with HSBC which attracts interest at 3.49% per annum over Bank of England Base
Rate. This loan is repayable in August 2022.
Other borrowings comprise a 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 30
April 2022, the total loan due to the landlord was £0.4m (2021: £0.5m). Of
this, £0.2m is due within 12 months (2021: £0.2m) and £0.2m (2021: £0.3m)
is due after 12 months.
The Group's US operations were eligible to apply for an Economic Injury
Disaster Loan. A loan of £0.1m was approved and secured in June 2020. A
further loan of £0.4m was approved and secured in August 2021. This loan
attracts interest at a rate of 3.75% per annum and the maturity date is 30
years from the date of the loan note.
Due to the disruption to the Group's business caused by COVID-19, in 2021 the
Group's US operations successfully secured £1.4m of Paycheck Protection
Program Loans offered to businesses in the US. During the year, the Group
applied for full forgiveness of these loans and was successful in its
application. This loan forgiveness has been recorded as other operating income
(note 4).
Finance lease liabilities are secured by the assets leased. The borrowings are
at a fixed interest rate with repayment periods not exceeding five years.
The weighted average interest rates paid during the year were as follows:
2022 2021
% %
Revolving credit facility 2.80 3.00
Other borrowing facilities 6.60 6.70
15. Notes to the cash flow statement
2022
£'000
2021
£'000
Loss for the year (4,918) (5,353)
Adjustments for:
Finance income (34) (2)
Finance costs 582 548
Income tax credit (1,211) (978)
Depreciation of property, plant and equipment and ROU 1,751 1,685
Amortisation of intangible assets 2,569 2,359
Share-based payment expense 236 106
PPP loan forgiveness (1,443) -
Impairment of intangible asset - 30
Loss on disposal - 82
Operating cash flow before movements in working capital (2,468) (1,523)
(Increase)/decrease in inventories (4,301) 214
Decrease in receivables 215 1,566
Increase/(decrease) in payables 1,741 (2,571)
Cash used in operations (4,813) (2,314)
Income taxes received 1,283 1,005
Net cash used in operating activities (3,530) (1,309)
Cash and cash equivalents
2022 2021
£'000
£'000
Cash and bank balances 5,081 15,602
Cash and cash equivalents comprise cash and term bank deposits repayable
between one and twelve months from balance sheet date, net of outstanding bank
overdrafts. The carrying amount of these assets is approximately equal to
their fair value.
16. Events after the balance sheet date
There have been no further events after the reporting date that require
adjustment or disclosure in line with IAS10 events after the reporting period.
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