REG - Kromek Group PLC - Final Results
24/07/2023 07:15
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RNS Number : 8778G Kromek Group PLC 24 July 2023
24 July 2023
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 2023.
Financial Summary
§ Revenue increased 44% to £17.3m (2022: £12.1m)
§ Gross margin improved to 51.6% (2022: 46.7%). Improvement largely due to
sale mix and easing of supply chain challenges
§ Adjusted EBITDA loss reduced to £1.0m (2022: £1.2m loss)* and positive
for H2
§ Loss before tax was £7.3m (2022: £6.1m loss)
§ Cash and cash equivalents at 30 April 2023 were £1.1m (30 April 2022:
£5.1m). Fundraise of £8m (gross) post year end
*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;
secured new milestone contracts; and end products launched into the market
§ Significant progress in medical imaging:
o Signed a landmark 7-year collaboration agreement with a tier 1 OEM to
provide CZT-based detectors for use in the customer's advanced medical imaging
scanners
o Entered a collaboration agreement with Analogic Corporation ("Analogic") to
develop CZT-based detectors for photon counting computed tomography ("CT")
applications in medical imaging and security screening
o Launch by Spectrum Dynamics Medical ("Spectrum Dynamics") of the world's
first digital single-photon emission computed tomography ("SPECT")/CT scanner
for higher energy imaging, which uses Kromek's CZT technology
o Received repeat orders totalling over $2.0m for the supply of detectors for
bone mineral densitometry ("BMD") and SPECT applications and the gamma probes
market
o Awarded £2.5m from Innovate UK for two programmes to further develop a low
dose molecular breast imaging technology based on Kromek's CZT-based detectors
o Further contract win of $1.4m post year end from a new Asia-based OEM
customer for CZT-based detectors to be used in the customer's SPECT systems
CBRN Detection
§ Record revenue in nuclear security, with the winning and delivery of new
and repeat orders, including:
o A $1.3m contract from a US customer for the D3M and two orders totalling
$1.5m from US government customers for the D3S-ID
o Two contracts, totalling £1.5m, for D3M and D3S-based product products for
European government end-users
§ Established distribution partnership with Smiths Detection for the
distribution of the Group's nuclear security products to North and South
American markets, the Middle East and certain key markets in Asia and
Australasia
§ Post year end, awarded a $1.5m contract in Asia for a new product in the
civil nuclear market
Biological Threat Detection
§ Concluded long-running programme with the Defense Advanced Research
Projects Agency to develop a biological-threat detection solution
§ Received a £4.9m contract from a UK government department for a three-year
programme to deliver bio-security solutions
Manufacturing and IP
§ Significant progress in improving yield and cost efficiency in CZT crystal
growth and detector manufacturing
§ Nine new patents were filed and four were granted during the year
Dr Arnab Basu, CEO of Kromek, said: "We are pleased to have delivered record
revenues, with significant growth in advanced imaging and CBRN detection, and
achieved positive adjusted EBITDA for the second half. During the year, we
experienced our highest levels of customer engagement, with some of this
transitioning to major agreements that are great endorsements of our offering
as well as demonstrations of our strategy coming to fruition. Accordingly, we
ended the year strongly, with enhanced foundations for future growth.
"We entered the 2024 financial year with a much-strengthened balance sheet and
heightened commercial momentum - winning new orders in addition to a growing
and substantial opportunity funnel. Accordingly, we anticipate a strong
year-on-year increase in revenue and we remain on track to be adjusted EBITDA
positive for the full year. This growth will be based on both of our segments,
with demand continuing to be underpinned by macro-economic and market
conditions. In advanced imaging, there is increasing widespread need for the
early and accurate medical diagnosis facilitated by our CZT-based products. In
CBRN, global insecurity and raised concern over potential nuclear threats
continue to underscore the requirement for products such as ours in this
sector. Consequently, the Board looks to the future with 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 Joint Broker)
Geoff Nash/Seamus Fricker/George Dollemore - Corporate Finance +44 (0)20 7220 0500
Tim Redfern/Charlotte Sutcliffe - ECM
Cenkos Securities plc (Joint Broker)
Giles Balleny - Corporate Finance +44 (0)20 7397 8900
Michael Johnson/Tamar Cranford-Smith - Sales
Gracechurch Group (Financial PR)
Harry Chathli/Claire Norbury/Henry Gamble +44 (0)20 4582 3500
Investor Webinar
Arnab Basu, CEO, and Paul Farquhar, CFO, will be hosting a webinar for
investors at 6.00pm BST on Wednesday 26 July 2023.
The event is open to all existing and potential shareholders. Interested
parties should register to attend, and submit any questions, using the
following link: https://forms.gle/dbLNhSfdUMuJ7WCx6
(https://forms.gle/dbLNhSfdUMuJ7WCx6) . Participants are requested to submit
questions in advance by 12.00pm on 26 July 2023.
Kromek Group plc
Kromek Group plc is a leading developer of radiation detection and
bio-detection technology solutions for the advanced imaging and CBRN detection
segments. Headquartered in County Durham, UK, Kromek has manufacturing
operations in the UK and US, delivering on the vision of enhancing the quality
of life through innovative detection technology solutions.
The advanced imaging segment comprises the medical (including CT and SPECT),
security and industrial markets. Kromek provides its OEM customers with
detector components, based on its core cadmium zinc telluride (CZT) platform,
to enable better detection of diseases such as cancer and Alzheimer's,
contamination in industrial manufacture and explosives in aviation
settings.
In CBRN detection, the Group provides nuclear radiation detection solutions to
the global homeland defence and security market. Kromek's compact, handheld,
high-performance radiation detectors, based on advanced scintillation and
solid-state readout technology, are primarily used to protect critical
infrastructure, events, personnel and urban environments from the threat of
'dirty bombs'.
The Group is also developing bio-security solutions in the CBRN detection
segment. These consist of fully automated and autonomous systems to detect a
wide range of airborne pathogens.
Kromek is listed on AIM, a market of the London Stock Exchange, under the
trading symbol 'KMK'.
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014. Upon the publication of this announcement via the
Regulatory Information Service, this inside information is now considered to
be in the public domain.
Operational Review
In the year to 30 April 2023, Kromek achieved its highest ever revenue -
reflecting record revenue in both advanced imaging and CBRN detection
respectively - and was adjusted EBITDA positive for the second half of the
year. The Group delivered on its existing contracts and development
programmes, won new and repeat orders across the business and from around the
world, and experienced significantly increased customer engagement regarding
future projects. Importantly, some of this engagement transitioned to
significant agreements during the year - most notably, with a tier 1 OEM and
Analogic in the advanced imaging segment and Smiths Detection in the CBRN
detection segment. These agreements are great endorsements of Kromek's
technology and solutions, but are also tangible demonstrations of the Group's
strategy coming to fruition. Accordingly, the Group continues to deliver on
its strategy, and ended the year strongly with a foundation for continued
growth.
Advanced Imaging
In the advanced imaging segment, Kromek primarily operates in the medical
imaging market with some opportunities in the security screening and
industrial screening sectors. Kromek provides OEM customers with detector
components, based on its core cadmium zinc telluride ("CZT") platform, to
enable better detection of diseases such as cancer and Alzheimer's,
contamination in industrial manufacture and explosives in aviation settings.
The Group designs, develops and produces CZT detectors and solutions along
with specialist electronics, which, when incorporated into its customers'
systems, significantly enhance imaging quality to provide high resolution
information on material composition and structure, which enables more
effective identification and analysis.
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.
Medical Imaging
As the only independent commercial producer of CZT at scale, Kromek is
well-positioned in the medical imaging market. The rate of introduction by
leading OEMs of new medical imaging products that include CZT detector
platforms as the enabling technology has been increasing in recent years. GE
Healthcare and Siemens Healthineers introduced new products in their clinical
SPECT and CT businesses in 2021 and Spectrum Dynamics launched the VERITON-CT
400 Series in 2022. SPECT and CT, as well as molecular breast imaging ("MBI")
and BMD, 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 - with higher
resolution images enabling earlier diagnosis for better patient outcomes and
reduced overall cost of care. Kromek also serves the gamma probes market in
this sector, which are used during surgeries for the removal of lymph nodes.
This has been a milestone year in terms of the Group's medical imaging
activity. Most notably, Kromek signed collaboration agreements with a
recognised tier 1 OEM and with Analogic to develop CZT-based detectors for use
in their advanced imaging scanners. The agreement with the tier 1 OEM, which
is a leading health-technology company, has an initial period of seven years.
This comprises a short development phase when the parties will work together
to integrate Kromek's CZT-based detectors into the customer's medical imaging
scanners, with the agreement then transitioning to a longer commercial supply
phase.
With Analogic, who have been global leaders in CT detector technology for over
50 years, Kromek is developing CZT-based detector solutions for photon
counting CT applications in both the medical imaging and security screening
sectors. Its CZT sensors will be integrated with Analogic's detector designs
and, as the project progresses towards commercialisation, Kromek will ensure
production capacity is available to support their demand.
Another key milestone during the year was the introduction by Spectrum
Dynamics of the VERITON-CT 400 Series, the world's first digital SPECT/CT
scanner capable of high energy imaging, which uses Kromek's CZT detector
technology. Kromek believes that this product is receiving wide-ranging
interest, and the Group's business with Spectrum Dynamics is tracking as
expected.
Post year end, Kromek received an order worth $1.4m from a new OEM customer
that is an established player in the medical imaging sector in Asia. The order
is for CZT-based detector-modules for use in the customer's next generation
SPECT systems. Delivery and revenue recognition are expected in the current
financial year.
In total, Kromek is now working with nine OEMs in SPECT and CT, including its
current customers, and the Group expects some of the engagements to transition
to formal significant contracts for final design and integration followed by
the supply of CZT detectors and modules in the near term.
In its regular repeat business, the Group received two orders during the first
half of the year worth £751k, with one being for the supply of detectors for
BMD applications and the other for the gamma probes market. Kromek has seen an
increase in demand for detectors in the BMD segment and the Group expects that
demand to grow significantly over the next two years as rapid adoption of its
customer's systems continue in China. In the second half, the Group received
three further orders totalling $1.1m, which were primarily for SPECT
applications.
Kromek continued to make progress under its development programme for
ultra-low dose MBI technology based on its CZT-based SPECT detectors, which
can significantly improve the early detection of breast cancer in women with
dense breast tissue. The Group is expecting to enter the clinical study phase
of this technology development with a US-based OEM customer over the next
year. Kromek also received approximately £2.5m in funding from Innovate UK
for two programmes to further develop an MBI system. The projects are being
conducted in collaboration with the Newcastle-upon-Tyne Hospitals NHS
Foundation Trust, the University of Newcastle-Upon-Tyne and University College
London.
Security & Industrial Screening
In security screening, the Group'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. 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, Kromek continued to deliver under its existing component
supply agreements and development programmes. As noted above, the detector
solutions to be developed under its collaboration agreement with Analogic,
that was entered during the year, will be for security applications as well as
medical.
CBRN Detection
In CBRN detection, the Group provides nuclear radiation detection solutions to
the global homeland defence and security market. Kromek's compact, handheld,
high-performance radiation detectors, based on advanced scintillation and
solid-state readout technology, are primarily used to protect critical
infrastructure, events, personnel and urban environments from the threat of
'dirty bombs'. Kromek's portfolio also includes a range of high-resolution
detectors and measurement systems used for civil nuclear applications,
primarily in nuclear power plants and research establishments.
Nuclear Security
The Group experienced a significant increase in demand for its nuclear
security products - with multiple new and repeat orders being won and
delivered during the year - as geopolitical instabilities continued to drive
greater global government defence and security spending. Kromek also
established key distribution partnerships to support continued expansion in
this market. Accordingly, the Group delivered record revenues in nuclear
security in 2023. Its detector solutions were used in multiple high-profile
sporting, political and state events in the UK, across Europe and in the US.
In May 2023, for example, the Group's D3S product range was used by the EU
Commission Protective Security Advisor team to provide security at an event in
Aachen, Germany where President Zelensky of Ukraine was awarded the
Charlemagne Prize for work done in the service of European unification.
During the year, Kromek received, and delivered, a $1.3m contract from a US
customer for the D3M and two orders totalling $1.5m from US government
customers for the D3S-ID, all of which were repeat orders. The Group also
received, and delivered, two contracts, totalling £1.5m, for the supply of
the D3M and D3S-based nuclear security products to European government
end-users - with the contracts having been secured through its distribution
and procurement partners. The large proportion of repeat orders reflects the
increasingly regular nature of the Group's business in this market.
Kromek expanded its channels-to-market for its nuclear security products, as
well as supporting the generation of regular, repeat business, through the
establishment of a distribution partnership with Smiths Detection, a global
leader in threat detection and security screening technologies for aviation,
ports and borders, defence and urban security markets. The initial agreement
was to distribute Kromek's nuclear security products - with a focus on the D3
and D5 series - to North and South American markets, with a further agreement
being signed for distribution to the Middle East and certain key markets in
Asia and Australasia.
Civil Nuclear
Business in the civil nuclear market progressed as expected, with regular
sales through the Group's distributor network and direct to customer. In this
sector, Kromek's products are used by over 450 customers around the globe.
Since year end, Kromek was awarded a $1.5m contract by one of its distribution
partners in Asia, which is for a new product, based on the Group's existing
technology, in the civil nuclear market. The development of this new product
was funded by the distribution partner. Kromek believes that the product has a
global market beyond its partner's targeted market in Asia.
Biological-Threat Detection
The Group is developing biosecurity solutions that consist of fully automated
and autonomous systems to detect a wide range of airborne pathogens for the
purposes of national security and protecting public health.
The Group continued to deliver on its long-running programme with the Defense
Advanced Research Projects Agency, an agency of the US Department of Defense,
to develop a biological-threat detection solution. The solution developed
under this programme, which concluded during the year, is intended to form
part of a mobile wide-area bio-surveillance system deployed in urban
environments. Kromek's work with the UK government also resulted in the award
of a contract by a UK government department for a three-year programme worth
£4.9m to develop and supply biological threat detection systems. The contract
includes an option for extended maintenance services after the initial term.
The biosecurity strategies of the UK and US governments are aligned with the
need for a national network of automated genomic sequencing systems for the
early warning of pathogens, which was reiterated in the UK Biological Security
Strategy published by the UK government in June 2023.
Kromek continues to believe that biosecurity has significant market
opportunities as its technologies align very well with major governments'
biosecurity strategies to protect against future pandemics. In this sector,
the Group may consider forming strategic or financial partnerships to further
accelerate the time to market for this technology.
R&D, IP and Manufacturing
Kromek continued to execute on its programmes for the expansion of production
capacity and increased process automation, with particular progress being made
at its CZT manufacturing facility in the US. These programmes are on track and
are resulting in greater manufacturing productivity and cost efficiencies.
Kromek is making significant progress in its cost and productivity in CZT
crystal growth and detector manufacturing. The Group has dedicated teams that
are focussed on targeted improvements for every step in the manufacturing
process, which directly contributes to yield and cost improvement.
As noted, during the year Kromek continued to advance development programmes
with a number of partners.
During the year, the Group applied for 9 new patents and had 4 patents granted
across 12 patent families, with the total number of patents held by Kromek
being in excess of 240. The new applications cover innovations in both of the
Group's segments.
Financial Review
Revenue
The Group generated total revenue of £17.3m (2022: £12.1m). The split
between product sales and revenue from R&D contracts is detailed in the
table below.
Revenue Mix 2023 2022
£'000 % share % share
Product 14,768 85% 9,935 82%
R&D 2,541 15% 2,120 18%
Total 17,309 12,055
Gross Margin
Gross profit at £8.9m (2022: £5.6m) represented a margin of 51.6% (2022:
46.8%). The increase in gross margin, particularly in the second half of 2023,
is attributable to a change in revenue mix and the easing of the supply chain
pressures that impacted margin in 2022 and the first half of 2023.
Distribution and Administrative Expenses
Distribution and administrative expenses increased by £2.4m to £14.6m (2022:
£12.2m). Of this £2.4m increase, £0.8m represents the foreign exchange
impact of translating USD denominated expenses in the period due to the weaker
GBP against the USD in 2023 compared to 2022. The remaining £1.6m increase is
substantially the net result of:
§ £0.3m of depreciation and amortisation due to continued investment in the
technology platform and product applications;
§ £1.1m increase in staff costs reflecting pay rises in line with the wider
economy and modest increased headcount to drive future revenue growth;
§ £0.5m bad debt expense having assessed receivables at the year end for
expected credit losses; and
§ savings of £0.3m relating to facility and general office expenses.
Adjusted EBITDA* and Result from Operations
Adjusted EBITDA loss for 2023 was reduced to £1.0m compared with a loss of
£1.2m for the prior year as set out in the table below:
2023 2022
£'000 £'000
Revenue 17,309 12,055
Gross profit 8,935 5,636
Gross margin (%) 51.6% 46.8%
Loss before Tax (7,292) (6,129)
EBITDA Adjustments:
Net interest 1,243 548
Depreciation of PPE and Right-of-Use assets 1,903 1,751
Amortisation 2,891 2,569
Share-based payments 354 236
Change in fair value of derivative (77) -
Exceptional Item - (132)
Adjusted EBITDA* (978) (1,157)
*Adjusted EBITDA is defined as earnings before interest, taxation,
depreciation, amortisation, exceptional items, early settlement discounts, the
change in fair value of financial derivatives and share-based payments. The
change in the value of financial derivatives and share-based payments are
adjusted for when calculating the Group's adjusted EBITDA as these items have
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 reduction in the adjusted EBITDA loss in 2023 compared to the prior year
loss reflects the higher revenue and gross margin and that the greater
operating costs were offset primarily due to an increase in net interest,
amortisation and depreciation. Importantly, due to cost control measures and
significantly improved gross margin in the second half of the year, the Group
delivered positive adjusted EBITDA of £1.7m in H2 2023.
As a result of the increase in operating costs - which primarily comprise
distribution and administrative expenses as described above - loss before tax
for the year was £7.3m (2022: £6.1m).
During 2023, the Group recognised a loss of £0.2m (2022: a gain of £2.1m) 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 £0.1m
foreign exchange gain (2022: £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 £1.2m for the year (2022: £1.2m 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 (2022: £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 (2022: £1.2m credit).
Earnings per Share ("EPS")
Due to a £1.0m increase in the loss after tax for the period, the EPS is
recorded in the year on a basic and diluted basis as a 1.4p loss per share
(2022: 1.1p loss per share after excluding exceptional items).
R&D
The Group invested £4.8m in the year (2022: £5.6m) 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 life cycle.
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 short and 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 D3 and D5 suite of products in CBRN threat detection and the
SPECT and CT platforms in advanced imaging. All such investments in research
and development are linked to contract deliverables and productivity
improvements which, 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 (2022: £0.2m) with 9 new patents filed and 4 patents granted across 12
patent families.
Other Income
The Group generated total other operating income of £0.1m (2022: £1.4m),
which relates to a retrospective Customs Duty claim granted by HMRC. Other
operating income in the previous year predominantly comprised the forgiveness
of Paycheck Protection Program ("PPP") loans of £1.4m in the US.
Capital Expenditure
Capital expenditure in the year amounted to £0.3m (2022: £0.7m), which
primarily relates to modest capital expenditure across lab and computer
equipment, IT and manufacturing projects.
Financing Activities
The Group issued £2.8m of convertible loan notes, largely to existing
shareholders, in August 2022. The loan notes have a term of 18 months, carry a
coupon of 8% per annum and have conversion dates in January and February 2024.
They are senior in ranking and unsecured. If they are repaid other than on the
repayment date or not repaid by the repayment longstop date, they are
convertible at the investors' option into ordinary shares in the capital of
the Company at the lower of the closing mid-market price on the repayment
date, or 15 pence per ordinary share.
At 30 April 2023, the Group had a £5.0m revolving credit facility ("RCF")
with HSBC, the repayment date for which was extended by the bank from 11 March
2023 to 31 August 2023. At the date of this announcement, the Company is
finalising the terms of an alternative borrowing facility to replace the HSBC
RCF, and the Board is confident that this facility will be secured to repay
the RCF by the required repayment date. Further details of the Group's
borrowings are available at note 15.
Inventories
Inventories increased by £0.4m to £10.9m at 30 April 2023 (30 April 2022:
£10.5m). This reflects a continuation of the global supply chain pressures,
which requires the Group to hold higher inventory levels than historically has
been necessary. However, raw material inventory reduced during the year to
£2.2m at 30 April 2022 (30 April 2022: £3.6m), reflecting the conversion to
work in progress and finished goods of some of the additional component
inventories purchased during the previous year when the supply chain had been
acutely constrained.
Cash Balance
Cash and cash equivalents were £1.1m as of 30 April 2023 (30 April 2022:
£5.1m). The £4.0m decrease in cash during 2023 was due to the combination of
the following cash inflows and outflows:
§ Adjusted EBITDA loss for the year of £1.0m, significantly ahead of market
expectations
§ R&D tax receipts of £1.2m
§ Investment in product development and other intangible assets, with
capitalised development costs of £4.8m and IP additions of £0.2m
§ Capital expenditure of £0.7m (including £0.4m in respect of leased
assets)
§ Net cash generated from financing activities of £1.7m (including £2.8m
from the issue of convertible loan notes)
§ A decrease in cash arising from the impact of foreign exchange of £0.2m
Post year end, the Group's balance sheet was strengthened with the successful
completion of a placing, subscription and open offer raising £8m before
expenses, of which £7m was raised through the share placing and
subscription, and a further £1m through the open offer.
Outlook
Kromek entered the 2024 financial year with a much-strengthened balance sheet
and heightened commercial momentum - winning new orders in addition to a
growing and substantial opportunity funnel. The Group already has visibility
of 60% of full year 2024 revenue forecasts, comprising 45% contracted or
already shipped, 4% awarded and going through contract negotiation and 11%
being provided by the Group's regular repeat order business. Accordingly,
Kromek anticipates a substantial year-on-year increase in revenue,
representing growth in both the advanced imaging and CBRN detection segments.
Alongside the anticipated revenue growth, the Group remains confident in
delivering positive adjusted EBITDA for FY 2024.
Looking further ahead, the macro-economic and market conditions continue to
drive strong demand across both segments. There is an ever-growing need for
medical imaging solutions that facilitate earlier and more accurate diagnosis.
The position of CZT as the enabling technology for such solutions is widely
recognised, with leading OEMs increasingly launching their CZT-based SPECT and
CT scanners to the market. Kromek's recent agreement with a leading tier 1 OEM
is representative of this trend and offers significant potential. As the only
independent commercial producer of CZT at scale, the Group is extremely well
placed within this market. At the same time, ongoing geopolitical conflict
combined with the awareness of the threat to public health posed by pathogens
will continue to drive demand for, and interest in, the Group's CBRN detection
solutions. The Group remains extremely well placed to benefit from all of
these market drivers.
As a result, the Board looks to the future with confidence.
Kromek Group plc
Group statement of comprehensive income
For the year ended 30 April 2023
Note
2023 2022
£'000 £'000
Continuing operations
Revenue 4 17,309 12,055
Cost of sales (8,374) (6,419)
Gross profit 8,935 5,636
Other operating income 5 121 1,410
Distribution costs (612) (551)
Administrative expenses (14,570) (12,208)
Change in fair value of derivative 77 -
Operating loss (before exceptional items) (6,049) (5,713)
Exceptional impairment reversal on trade receivables and amounts recoverable 8 - 132
on contracts
Operating results (post exceptional items) (6,049) (5,581)
Finance income 2 34
Finance costs (1,245) (582)
Loss before tax 6 (7,292) (6,129)
Tax 9 1,192 1,211
Loss for the year from continuing operations (6,100) (4,918)
Loss per share 10
(1.4) (1.1)
- basic (p)
The accompanying notes form part of these financial statements.
Kromek Group plc
Group statement of other comprehensive income
For the year ended 30 April 2023
2023
2022
£'000 £'000
Loss for the year (6,100) (4,918)
Items that are or may be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign operations (166) 2,063
Total comprehensive loss for the year (6,266) (2,855)
The accompanying notes form part of these financial statements.
Kromek Group plc
Consolidated statement of financial position
As at 30 April 2023
Note 2023
£'000 2022
£'000
Non-current assets
Goodwill 11 1,275 1,275
Other intangible assets 12 30,554 28,375
Property, plant and equipment 13 9,831 10,944
Right-of-use assets 3,758 3,874
45,418 44,468
Current assets
Inventories 14 10,894 10,503
Trade and other receivables 5,529 6,429
Current tax assets 9 940 942
Cash and bank balances 1,097 5,081
18,460 22,955
Total assets 63,878 67,423
Current liabilities
Trade and other payables (7,436) (7,855)
Borrowings 15 (8,318) (5,716)
Derivative financial instruments 16 (517) -
Lease obligation (405) (375)
(16,676) (13,946)
Net current assets 1,792 9,009
Non-current liabilities
Deferred income (1,021) (1,131)
Lease obligation (4,089) (4,161)
Borrowings 15 (568) (749)
(5,678) (6,041)
Total liabilities (22,354) (19,987)
Net assets 41,524 47,436
Equity
Share capital 4,319 4,319
Share premium account 72,943 72,943
Merger reserve 21,853 21,853
Translation reserve 1,897 2,063
Accumulated losses (59,488) (53,742)
Total equity 41,524 47,436
The accompanying notes form part of these financial statements.
The financial statements of Kromek Group plc (registered number 08661469) were
approved by the Board of Directors and authorised for issue on 21 July 2023.
They were signed on its behalf by:
Arnab Basu MBE
Chief Executive Officer
Kromek Group plc
Consolidated statement of changes in equity
For the year ended 30 April 2023
Share premium Total
Share capital account Translation reserve Retained equity £'000
£'000 £'000 £'000 losses
Merger reserve £'000
£'000
Balance at 1 May 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 gain/(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
Loss for the year - - - - (6,100) (6,100)
- - (166) - (166)
Exchange difference on translation of foreign operations
-
Total comprehensive loss for the year - - (166) (6,100) (6,266)
-
- - - 354 354
Credit to equity for equity-settled share-based payments
-
Balance at 30 April 2023 4,319 72,943 1,897 (59,488) 41,524
21,853
The accompanying notes form part of these financial statements.
Kromek Group plc
Consolidated statement of cash flows
For the year ended 30 April 2023
Note 2023
£'000
2022
£'000
Net cash generated from/(used in) operating activities 17 197 (3,530)
Investing activities
Interest received 2 34
Purchases of property, plant and equipment 13 (269) (651)
Purchases of patents and trademarks 12 (183) (179)
Capitalisation of development costs 12 (4,821) (5,619)
Net cash used in investing activities (5,271) (6,415)
Financing activities
New borrowings 1,100 760
Proceeds from the issue of convertible loan notes 16 2,840 -
Payment of borrowings (1,258) (1,340)
Payment of lease liability (692) (646)
Interest paid (703) (340)
Net cash generated from/(used in) financing activities 1,287 (1,566)
Net decrease in cash and cash equivalents (3,787) (11,511)
Cash and cash equivalents at beginning of year 5,081 15,602
Effect of foreign exchange rate changes (197) 990
Cash and cash equivalents at end of year 1,097 5,081
The accompanying notes form part of these financial statements.
Kromek Group plc
Notes to the consolidated financial statements
For the year ended 30 April 2023
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 2023, the Group had net current assets of £1.8m (30 April
2022: £9.0m) and cash and cash equivalents of £1.1m (30 April 2022: £5.1m)
as set out in the consolidated statement of financial position. The Group made
a loss before tax of £7,292k in the year (2022: £6,129k).
The Directors have prepared detailed forecasts of the Group's financial
performance over the next twelve months from the date of these financial
statements. 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 Group has a £5.0m revolving credit facility ("RCF") with HSBC. The expiry
date of this facility was 11 March 2023, although the bank has extended this
date to 31 August 2023. In both the original and the severe but plausible
scenario forecasts, the Directors indicate that this facility will be replaced
by alternative borrowing and additional financing will be available to the
Group. In addition, post year end, the Group successfully concluded a placing,
subscription and open offer which raised £7.4m net of fundraising costs.
Accordingly, the Board has concluded that it is almost certain that the
required mitigating financing will be secured, allowing the Group to repay the
RCF by the agreed payment date. The Board has received a confirmation of
financial support from one of the Group's largest shareholders, in the event
that refinancing the debt takes longer than expected and the HSBC facility
needs to be repaid prior to a new facility being in place. 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 ("CGUs") expected to benefit from the synergies
of the combination. CGUs 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
("CGU") 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.
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. Assets
that have been developed are not amortised until they are available for use
and commercial sale. 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 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 10.25% (2022: 11.35%)
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. See note 11 for further detail.
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.
Convertible loan notes
The convertible loan issued by the Group is a hybrid financial instrument,
whereby a debt host liability component and an embedded derivative liability
component was determined at initial recognition. The conversion option did not
satisfy the fixed for fixed equity criterion (fixed number of shares and fixed
amount of cash). Conversion features that are derivative liabilities are
accounted for separately from the host instrument. The embedded derivative is
accounted for as a financial instrument through profit or loss and is
initially measured at fair value, and changes therein are recognised in profit
or loss. The debt host liability is accounted for at amortised cost. In the
case of a hybrid financial instrument, IFRS 9 requires that the fair value of
the embedded derivative is calculated first and the residual value (residual
proceeds) is assigned to the host financial liability. The initial recognition
of the embedded derivative conversion feature has been recognised as a
liability on the balance sheet with any changes to the fair value of the
derivative recognised in the income statement. It has been fair valued using a
Black Scholes simulation which was performed at the transaction date and the
period end date.
The debt host liability will be accounted for using the amortised cost basis
with an effective interest rate of 16%. The Group will recognise the unwinding
of the discount at the effective interest rate, until the maturity date, the
carrying amount at the maturity date will equal the cash payment required to
be made.
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. Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are described in
note 2, the Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and
future periods.
Critical judgements in applying the Group's accounting policies
The following are the critical judgements that the Directors have made in the
process of applying the Group's accounting policies and that have the most
significant effect on the amounts recognised in the financial statements.
Development costs
As described in note 2, Group expenditure on development activities is
capitalised if it meets the criteria as per IAS 38. Management have exercised
and applied judgement when determining whether the criteria of IAS 38 is
satisfied in relation to development costs. As part of this judgement process,
management establish the future Total Addressable Market relating to the
product or process, evaluate the operational plans to complete the product or
process and establish where the development is positioned on the Group's
technology road map and asses the costs against IAS 38 criteria. This process
involves input from the Group's Chief Technical Officer plus the operational,
financial and commercial functions and is based upon detailed project cost
analysis of both time and materials.
Performance obligations arising from customer contracts
As described in note 2, the Group recognises revenue as performance
obligations are satisfied when control of the goods and services is
transferred to the customer. Management have exercised and applied judgment in
determining what the performance obligations are and whether they are
satisfied over time or at a point in time. In applying this judgement,
management considers the nature of the overall contract deliverable, legal
form of the contract and economic resources required for the performance
obligation to be satisfied. Management disaggregate revenues by sales of goods
and services, revenue from development grants (such as Innovate UK) and
revenue from contract customers. Typically, revenue from the sales of goods
and services is recognised at a point in time. Revenue from development grants
and contract customers are recognised either over time or at a point in time
depending on the characteristics of the specific contract when applying
IFRS15.
Cash Generating Units
Management have exercised judgement in determining the number of CGUs. As set
out in note 11, An asset's CGU is the smallest identifiable group of assets
that includes the asset and generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. An
asset or group of assets must be identified as a cash-generating unit where an
active market exists for the output produced by that asset or group of assets,
even if some or all of the output is used internally. This is because the
asset or group of assets could generate cash inflows that would be largely
independent of the cash inflows from other assets or group of assets. The
smallest identifiable group of assets identified by management can be split
into three markets: Advanced Imaging, CBRN and Biological Threat Detection.
CGUs are not necessarily consistent with the way management monitors the
business. Management continues to oversee and monitor the business as two
separate operating segments - UK and US and as three separate CGUs as noted
above.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty at the statement of financial position date, that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year, are discussed below.
i) Development costs
The key source of estimation uncertainty relates to the estimation of the
asset's recoverable amount, which involves assumptions in relation to future
uncertainties including discount rates and growth rates. For further details,
see note 11.
As disclosed in note 12, development costs are capitalised in accordance with
the accounting policy noted above. These capitalised assets are amortised over
the period during which the Group is expected to benefit.
ii) Contract revenue
This policy requires forecasts to be made of the outcomes of long-term
contracts, which include assessments and judgements on changes in expected
costs. A change in the estimate of total forecast contract costs would impact
the stage of completion of those contracts and the level of revenue recognised
thereon, which could have a material impact on the results of the Group.
iii) R&D Tax credit
The R&D tax credit is calculated using the current rules as prescribed by
HMRC. The estimation is based on the actual UK R&D projects that qualify
for the scheme that have been carried out in the period. Management estimate
the tax credit on a prudent basis and then obtain additional professional
input from the Company's tax advisers prior to submission of the claim to
HMRC. The Group has assumed 100% of the R&D tax credit is recoverable. If
only 95% of the claim were to be accepted by HMRC, this would have the effect
of reducing the tax receivable and corresponding tax credit by £47k to
£893k.
iv) Recoverability of receivables and amounts recoverable on
contract ("AROC")
Management judges the recoverability at the balance sheet date and makes a
provision for impairment where appropriate. The resultant provision for
impairment represents management's best estimate of losses incurred in the
portfolio at the balance sheet date, assessed on the customer risk scoring and
commercial discussions. Further, management estimate the recoverability of any
AROC balances relating to customer contracts. This estimate includes an
assessment of the probability of receipt, exposure to credit loss and the
value of any potential recovery. Management base this estimate using the most
recent and reliable information that can be reasonably obtained at any point
of review. A material change in the facts and circumstances could lead to a
reversal of impairment proportional to the expected cash inflows supported by
this information.
v) Impairment reviews
Management conducts annual impairment reviews of the Group's non-current
assets on the consolidated statement of financial position. This includes
goodwill annually, development costs where IAS 36 requires it, and other
assets as the appropriate standards prescribe. Any impairment review is
conducted using the Group's future growth targets regarding its key markets of
nuclear detection, medical imaging and security screening. The current
carrying value of this class of assets is £45,418k as set out on the Group's
consolidated statement of financial position. Sensitivities are applied to the
growth assumptions to consider any potential long-term impact of current
economic conditions. Provision is made where the recoverable amount is less
than the current carrying value of the asset. Further details as to the
estimation uncertainty and the key assumptions are set out in note 11.
vi) Calculation of share-based payment charges
The charge related to equity-settled transactions with employees is measured
by reference to the fair value of the equity instruments at the date they are
granted, using an appropriate valuation model selected according to the terms
and conditions of the grant. The simplest option pricing model is the
Black-Scholes model, which tends to be suitable for simple forms of share
awards, in particular where there are no market-based performance conditions.
More complex share schemes require the use of a more complex model such as the
Monte Carlo Model. Judgement is applied in determining the most appropriate
valuation model and estimates are used in determining the inputs to the model.
The Group have engaged a third-party expert in FY23 to value the LTIPs granted
in year using the Monte Carlo Model.
vii) Convertible loan notes
The Group issued £2.8m of convertible loan notes during the year. The
convertible loan is a hybrid financial instrument, whereby a debt host
liability component and an embedded derivative liability component was
determined at initial recognition. The conversion option did not satisfy the
fixed for fixed equity criterion (fixed number of shares and fixed amount of
cash).
For convertible notes with embedded derivative liabilities, the fair value of
the embedded derivative liability is determined first and the residual amount
is assigned to the debt host liability.
The embedded derivative has been fair valued using a Black Scholes simulation
which was performed at the transaction date and the period end date. The
future expected market share price of the Group and the volatility of the
share price are the key estimates that are critical in the determination of
the fair value of the embedded derivative and subsequently the debt host
liability of the convertible loan notes.
4. 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. Whilst there
are two operating segments (US and UK), the Group recognises three CGUs (CBRN,
medical imaging and Biological Threat Detection) on the basis that operating
segments can consist of multiple CGUs. Both operating segments serve the three
principal key markets. However, typically, the US business unit focuses
principally on Advanced Imaging and the UK focuses on CBRN and Biological
Threat Detection. However, this arrangement is flexible and can vary based on
the geographical location of the Group's customer.
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:
2023 2022
£'000 £'000
United Kingdom 3,944 2,033
North America 6,110 5,807
Asia 2,071 1,556
Europe 5,031 2,601
Other 153 58
Total revenue 17,309 12,055
The Group has aggregated its CGUs, being CBRN, Advanced Imaging and Biological
Threat Detection, 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 2023:
UK Operations US Operations Total for Group
£'000 £'000 £'000
Revenue from sales 14,844 26,374
Revenue by segment: 11,530
-Sale of goods and services
-Revenue from grants 226 - 226
-Revenue from contract customers 2,164 51 2,215
Total sales by segment 13,920 14,895 28,815
Removal of inter-segment sales (8,529) (2,977) (11,506)
Total external sales 5,391 11,918 17,309
Segment result - operating loss before exceptional items (1,881) (4,168) (6,049)
Interest received 2 - 2
Interest expense (975) (270) (1,245)
Loss before tax (2,854) (4,438) (7,292)
Tax credit 1,192 - 1,192
Loss for the year (1,662) (4,438) (6,100)
Reconciliation to adjusted EBITDA:
Net interest 973 270 1,243
Tax (1,192) - (1,192)
Depreciation of PPE and right-of-use assets 1,004 899 1,903
Amortisation 1,558 1,333 2,891
Change in fair value of derivative (77) - (77)
Share-based payment charge 354 - 354
Adjusted EBITDA 958 (1,936) (978)
Other segment information
Property, plant and equipment additions 42 227 269
Right-of-use assets 2,133 3,752 5,885
Depreciation of PPE and right-of-use assets 1,004 899 1,903
Release of capital grant (44) - (44)
Intangible asset additions 2,761 2,243 5,004
Amortisation of intangible assets 1,558 1,333 2,891
Statement of financial position
Total assets 35,687 28,191 63,878
Total liabilities (16,433) (5,921) (22,354)
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
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)
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 2023 2022
The Group's revenues from its major products and services were as follows: £'000 £'000
Product revenue 14,768 9,935
Research and development revenue 2,541 2,120
Consolidated revenue 17,309 12,055
Information about major customers
Included in revenues arising from US operations are revenues of approximately
£4,688k (2022: £2,178k) that arose from the Group's largest commercial
customer. Included in revenues arising from UK operations are revenues of
approximately £1,243k (2022: £955k) that arose from a major commercial
customer.
5. Other Operating Income
2023 2022
£'000 £'000
Coronavirus Job Retention Scheme - 19
Miscellaneous 121 17
PPP loan forgiveness - 1,374
Total other operating income 121 1,410
Miscellaneous income relates to work undertaken during the financial year on a
duty saving project. An Advance Tariff Ruling application was granted, which
resulted in a retrospective duty claim dating back three years.
Other operating income from the prior year 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.
6. Loss before tax for the year
Loss before tax for the year has been arrived at after charging/(crediting):
2023 2022
£'000 £'000
Net foreign exchange (gains)/losses (98) 155
Research and development costs recognised as an expense 882 1,308
Depreciation of property, plant and equipment 1,910 1,751
Release of capital grant (44) (44)
Amortisation of internally-generated intangible assets 2,891 2,569
Cost of inventories recognised as expense 4,858 3,003
Exceptional items - reversal of trade receivables and AROC (see note 8) - (132)
Staff costs (see note 7) 11,166 9,543
7. Staff costs
The average monthly number of employees (excluding non-executive directors)
was:
2023 2022 Number
Number
Directors (executive) 3 3
Research and development, production 149 133
Sales and marketing 8 5
Administration 13 13
173 154
Their aggregate remuneration comprised:
2023 2022
£'000 £'000
Wages and salaries 9,418 8,069
Social security costs 824 739
Pension scheme contributions 570 499
Share-based payments 354 236
11,166 9,543
The total Directors' emoluments (including non-executive directors) was £933k
(2022: £890k). The aggregate value of contributions paid to money purchase
pension schemes was £26k (2022: £24k) in respect of four directors (2022:
four directors). There has been no exercise of share options by the Directors
in the period and therefore no gain recognised in the year (2022: nil).
The highest paid director received emoluments of £270k (2022: £270k) and
amounts paid to money purchase pension schemes was £4k (2022: £4k).
Key management compensation:
2023 2022
£'000 £'000
Wages and salaries and other short-term benefits 1,096 1,050
Social security costs 117 112
Pension scheme contributions 33 32
Share-based payment expense 273 146
1,519 1,340
Key management comprise the Executive Directors, Non-Executive Directors and
senior operational staff. There were three Executive Directors in 2023 (2022:
three); four Non-Executive Directors in 2023 (2022: four); and two senior
operational staff in 2023 (2022: two).
8. Exceptional Items
Exceptional items, booked to operating costs, comprised the following:
2023 2022
£'000
£'000
Reversal of trade receivables and AROC - (132)
Total exceptional items - (132)
The Group has reversed £nil in 2023 (2022: £132k) 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 2022 and 2023 on the
basis that the recoverability of this receivable remains uncertain.
9. Tax
Recognised in the income statement
2023
£'000
2022
£'000
Current tax credit:
UK corporation tax on losses in the year 940 942
Adjustment in respect of previous periods 252 286
Foreign taxes paid - (17)
Total current tax 1,192 1,211
Deferred tax:
Origination and reversal of timing differences - -
Adjustment in respect of previous periods - -
Total deferred tax - -
Total tax credit in income statement 1,192 1,211
The main rate of UK corporation tax for the financial year was 19.49% (2022:
19%) whilst the US federal corporate tax rate is 21%. The deferred tax asset
at 30 April 2023, which has not been recognised, has been calculated at 19.49%
(2022: 19%).
Reconciliation of tax credit
The charge for the year can be reconciled to the profit in the income
statement as follows:
2023 2022 £'000
£'000
Loss before tax (7,292) (6,129)
Tax at the UK corporation tax rate of 19.49% 1,422 1,165
(2022: 19%)
Non-taxable income/(expenses) not deductible 36 (184)
Effect of R&D 396 456
Effect of other tax rates/credits 63 124
Share scheme deduction under Part 12 CTA 2009 - -
Unrecognised movement on deferred tax (1,251) (815)
Adjustment in respect of previous periods 252 286
Effects of overseas tax rates 274 179
Total tax credit for the year 1,192 1,211
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 19.49% (2022: 19%). 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.
10. 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 2023
£'000
2022
£'000
(6,100) (4,918)
Losses for the purposes of basic and diluted losses per share being net losses
attributable to owners of the Group
2023 2022
Number of shares Number Number
Weighted average number of ordinary shares for the purposes of basic losses 431,851,820 431,851,820
per share
Effect of dilutive potential ordinary shares:
Share options 312,909 350,556
Weighted average number of ordinary shares for the purposes of diluted losses 432,164,729 432,202,376
per share
2022
2023
Basic (p) (1.4) (1.1)
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.
11. Intangible Assets including Goodwill
£'000
Cost
At 1 May 2022 and 30 April 2023 1,275
Accumulated impairment losses
At 1 May 2022 and 30 April 2023 -
Carrying amount
At 30 April 2023 and 30 April 2022 1,275
Goodwill acquired in a business combination is allocated, at acquisition, to
the 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
Advanced Imaging 1,275 13,813
CBRN - 7,218
Biological Threat Detection - 9,523
Total 1,275 30,554
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 the Advanced Imaging CGU.
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. In undertaking the impairment test, management considered
both internal and external sources of information. The impairment testing did
not identify any impairments in each of the CGUs.
Forecast cash flows
Management has prepared cash flow forecasts for 10 years (CBRN/Biological
Threat Detection) and 15 years (Advanced Imaging) 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.
Advanced Imaging
The key assumptions to the value in use calculations are set out below:
§ Growth rate. The 2023 model includes a prudent 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 Advanced Imaging CGU operates in.
No growth is assumed after 10 years.
§ Discount rates. Management have derived a pre-tax discount rate of 8.85%
(2022: 11.35%) 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 lower than that used in 2022.
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 Advanced
Imaging forecast:
§ Revised year 1 and year 2 cashflows to match the severe but plausible
budget conducted as part of the Going Concern review.
§ Modelled a smoother increase in revenues from the year 1 and year 2 budgets
to year 15 whilst taking into consideration potential capacity constraints.
CBRN
§ Growth rate. The 2023 model includes a prudent growth rate of 25% per
annum which is reflective of recent growth in this particular sector of the
business. This growth rate considers 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 CBRN CGU operates in. No growth is
assumed after 10 years.
§ Discount rates. Management have derived a pre-tax discount rate of 10.92%
(2022: 10.50%) 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 2022. 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 scenarios incorporates the following into the
CBRN forecast:
§ Revised year 1, 2 and 3 cashflows to match the severe but plausible budget
conducted as part of the Going Concern review.
§ Modelled a smoother increase in revenues from the year 1 and year 2 budgets
to year 10.
Biological Threat Detection
§ Growth rate. The 2023 model is based on management's assumption of future
programme revenue and product delivery. The forecast revenue consists of known
revenue opportunities across four key areas. For prudency additional upside
revenue from other known opportunities has been excluded.
§ Discount rates. Management have derived a pre-tax discount rate of 10.92%
(2022: 10.50%) 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 Challenge Model Base Case scenarios incorporates the following into the
Biological Threat Detection forecast:
§ Modelled a smoother increase in revenues from the year 1 and year 2 budgets
to year 10.
Sensitivities
The headroom in the base case models for each CGU are noted below:
Advanced Imaging Headroom CBRN Headroom Biological Threat Detection Headroom
Base model £20,268k £15,999k £28,103k
Combination of Discount Rate +2% and Challenge model £15,064k £12,290k £23,134k
Combination of Discount Rate £26,297k £20,391k £33,954k
-2% and Challenge model
The table below sets out the headroom in the challenge base model for each
CGU:
Advanced Imaging Headroom CBRN Headroom Biological Threat Detection Headroom
Challenge base model £11,718k £2,286k £18,780k
Combination of Discount Rate +2% and Challenge model £6,032k £125k £15,681k
Combination of Discount Rate £18,674k £4,860k £22,366k
-2% and Challenge model
The Directors have reviewed the recoverable amount of the CGU and do not
consider there to be any impairment in 2023 or 2022
12. Other intangible assets
Development costs Patents, Total
£'000 trademarks & other intangibles £'000
£'000
Cost
At 1 May 2022 35,880 7,913 43,793
Additions 4,821 183 5,004
Exchange differences 4 1 5
At 30 April 2023 40,705 8,097 48,802
Amortisation
At 1 May 2022 9,296 6,122 15,418
Charge for the year 2,325 566 2,891
Exchange differences (46) (15) (61)
At 30 April 2023 11,575 6,673 18,248
Carrying amount
At 30 April 2023 29,130 1,424 30,554
At 30 April 2022 26,584 1,791 28,375
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 2023 was £182k
(2022: £357k), 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 11.
13. 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 2022 210 1,463 18,621 619 20,913
Additions - 34 226 9 269
Exchange differences - - 2 - 2
At 30 April 2023 210 1,497 18,849 628 21,184
Accumulated depreciation and impairment
At 1 May 2022 75 1,189 8,358 347 9,969
Charge for the year 42 118 1,182 54 1,396
Exchange differences - (3) (8) (1) (12)
At 30 April 2023 117 1,304 9,532 400 11,353
Carrying amount
At 30 April 2023 93 193 9,317 228 9,831
At 30 April 2022 135 274 10,263 272 10,944
14. Inventories
2023 2022
£'000 £'000
Raw materials 2,204 3,554
Work-in-progress 8,321 6,304
Finished goods 369 645
10,894 10,503
The cost of inventories recognised as an expense during the year in respect of
continuing operations was £4,858k (2022: £5,006k).
The write-down of inventories to net realisable value amounted to £1,226k
(2022: £852k). The reversal of write-downs amounted to £271k (2022: £94k).
15. Borrowings
2023 2022
£'000 £'000
Secured borrowing at amortised cost
Revolving credit facility and capex facility 5,000 4,500
Other borrowings 1,357 1,965
Convertible loan notes (see note 16) 2,529 -
8,886 6,465
Total borrowings
Amount due for settlement within 12 months 8,318 5,716
Amount due for settlement after 12 months 568 749
The Group has a £5.0m RCF with HSBC, the repayment date for which has been
extended from 11 March 2023 to 31 August 2023. Post year end, the Group
deposited £4.5m with HSBC over which the bank has a legal charge in the event
that the RCF is not repaid by 31 August 2023. At the date of this report, the
Group are finalising the terms of an alternative borrowing facility to replace
the HSBC RCF and the Board are confident that this facility will be secured to
repay the RCF by 31 August 2023.
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 2023, the total loan due to the landlord was £0.2m (2022: £0.4m). Of
this, £0.2m is due within 12 months (2022: £0.2m) and £nil (2022: £0.2m)
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.
The Group secured an additional £0.5m loan in September 2022 and a £0.1m
loan in February 2023. These were to aid with working capital requirements.
Both loans were repaid post year end.
Convertible loan notes of £2.8m were securing during the year. This is
discussed further in note 16.
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:
2023 2022
% %
Revolving credit facility 6.90 2.80
Other borrowing facilities 3.40 6.60
16. Convertible Loan Notes
During the year, the Group issued convertible loan notes to the value of
£2.84m at an interest rate of 8% per annum, with interest accruing monthly.
The convertible loan is a hybrid financial instrument, whereby a debt host
liability component and an embedded derivative liability component was
determined at initial recognition. The conversion option did not satisfy the
fixed for fixed equity criterion (fixed number of shares and fixed amount of
cash) and hence these instruments are not considered to contain an equity
element.
For convertible notes with embedded derivative liabilities, the fair value of
the embedded derivative liability is determined first and the residual amount
is assigned to the debt host liability. The initial recognition of the
embedded derivative conversion feature has been recognised as a liability on
the balance sheet with any changes to the fair value of the derivative
recognised in the income statement. It has been fair valued using a Black
Scholes model which was performed at the transaction date and the period end
date. The inputs into the Black-Scholes model at the year-end are as follows:
2023
Weighted average share price 6.6p
Expected volatility 40.97%
Expected life 1 year
Risk-free rate 0.031
Expected dividend yields 0%
The debt host liability will be accounted for using the amortised cost basis
with an effective interest rate of 16%. The Group will recognise the unwinding
of the discount at the effective interest rate, until the maturity date, the
carrying amount at the maturity date will equal the cash payment required to
be made.
Embedded derivative Convertible loan note Total
£'000 £'000 £'000
Initial recognition 594 2,249 2,840
Unwinding of discount - 280 280
Change in fair value (77) - (77)
517 2,529 3,043
17. Notes to the cash flow statement
2023
£'000
2022
£'000
Loss for the year (6,100) (4,918)
Adjustments for:
Finance income (2) (34)
Finance costs 1,245 582
Change in fair value of derivative (77) -
Income tax credit (1,192) (1,211)
Depreciation of property, plant and equipment and ROU 1,903 1,751
Amortisation of intangible assets 2,891 2,569
Share-based payment expense 354 236
PPP loan forgiveness - (1,443)
Operating cash flow before movements in working capital (978) (2,468)
Increase in inventories (391) (4,301)
Decrease in receivables 900 215
(Decrease)/increase in payables (529) 1,741
Cash used in operations (998) (4,813)
Income taxes received 1,195 1,283
Net cash generated from/(used in) operating activities 197 (3,530)
Cash and cash equivalents
2023 2022
£'000
£'000
Cash and bank balances 1,097 5,081
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.
18. Events after the balance sheet date
Post year end, the Company successfully announced a placing, subscription and
open offer to raise £8m before expenses. The Company raised £7m through the
issue of 140,000,000 placing shares and an additional £1m through an open
offer, which resulted in the issue of 20,564,372 shares. Net proceeds post
fundraising costs amount to £7.4m.
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