TIDMKMK
RNS Number : 5351U
Kromek Group PLC
02 August 2022
2 August 2022
Kromek Group plc
("Kromek" or the "Company" or the "Group")
Final Results
Kromek (AIM: KMK), a leading developer of radiation and
bio-detection technology solutions for the advanced imaging and
CBRN detection segments, announces its final results for the year
ended 30 April 2022.
Financial Highlights
-- Revenue increased 16% to GBP12.1m (2021: GBP10.4m)
-- Gross margin was 46.7% (2021: 48.4%)
-- Adjusted EBITDA loss reduced to GBP1.2m (2021: GBP1.7m
loss)*
-- Loss before tax reduced to GBP6.1m (2021: GBP6.3m loss)
-- Cash and cash equivalents at 30 April 2022 were GBP5.1m (30 April 2021: GBP15.6m)
*A reconciliation of adjusted EBITDA can be found in the
Financial Review.
Operational Highlights
Advanced Imaging
-- Strong revenue growth with delivery under component supply
agreements and increased customer engagement for future
projects
-- Sustained delivery in medical imaging:
o Ramp up in delivery continued as planned under medical imaging
contract expected to be worth US$58.1m over the seven-year life of
the contract that was awarded in 2019
o Completed delivery of a US$600k order from an OEM customer for
detectors to be used in niche SPECT applications, with further
orders expected
o Commenced commercial development engagement with three new strategic OEM customers
-- In security screening, the Group completed a two-year US$1.6m
project with the US Department of Homeland Security and entered two
new commercial development engagements with OEMs
-- Signed a seven-year supply agreement, worth up to US$17m, in
industrial screening with a US-based OEM and secured a US$250k
repeat order from a US-based aerospace and defence company
CBRN Detection
-- Significant momentum in nuclear security, with the winning of
new and repeat orders and participation in a greater number of
tenders reflecting the growth in global government defence
spending:
o Awarded a two-year contract, worth up to US$1.6m, by a US
federal entity for the D3S-ID wearable nuclear radiation detector -
with a further US$300k order received during the year and US$695k
post year end
o Repeat orders received from the European Commission for the D3S-ID
o Received orders from three customers for the D5 RIID
o A four-year contract worth GBP1.7m was received from a UK
government agency customer for CBRN detection products and
services
o Invested in developing new channels to market, including the
signing, post year end, of a distribution agreement with Smiths
Detection Inc. for the North and South American markets
-- 32 new customers won in the civil nuclear segment
-- Significant progress in the development of bio-security solutions:
o Awarded a US$6m contract extension from the Defense Advanced
Research Projects Agency ("DARPA"), an agency of the US Department
of Defense, to advance the development of a mobile wide-area
bio-security system
o Successfully completed piloting in schools, airports and other
locations of an airborne COVID-19 detection system under a project
funded by Innovate UK and commenced productisation phase
Procurement, Manufacturing and IP
-- Measures implemented to strengthen supply chain, including
procurement team expansion and establishing strategic relationships
with suppliers
-- Increased utilisation of expanded production capacity in the
UK and US facilities following enhancement to manufacturing
processes in the prior year
-- 8 new patents were filed and 9 were granted during the year
Dr Arnab Basu, CEO of Kromek, said: " We are pleased to report a
year of good progress as we delivered on existing contracts and
development programmes in both the advanced imaging and CBRN
detection segments. Our revenues grew by 16% compared to the
previous year as we saw increased commercial traction, particularly
in the CBRN segment, and ended the year in a better position than
we began it.
"Looking ahead, we entered the new financial year with a higher
order book than the previous year and the highest level of revenue
visibility in our history. The current geopolitical environment is
driving greater interest from government agencies for our CBRN
family of products and in advanced imaging we are experiencing
heightened engagement with OEMs due to our strategic position as
the only commercial independent global supplier of CZT.
Consequently, for FY 2023 we anticipate substantial year-on-year
revenue growth and we look forward to the future with increased
confidence."
For further information, please contact:
Kromek Group plc
Arnab Basu, CEO
Paul Farquhar, CFO +44 (0)1740 626 060
finnCap Ltd (Nominated Adviser and Broker)
Geoff Nash/Kate Bannatyne/George Dollemore
- Corporate Finance +44 (0)20 7220 0500
Tim Redfern/Charlotte Sutcliffe - ECM
Luther Pendragon (Financial PR)
Harry Chathli/Claire Norbury +44 (0)20 7618 9100
About Kromek Group plc
Kromek Group plc is a leading developer of radiation detection
and bio-detection technology solutions for the advanced imaging and
CBRN detection segments. Headquartered in County Durham, UK, Kromek
has manufacturing operations in the UK and US, delivering on the
vision of enhancing the quality of life through innovative
detection technology solutions.
The advanced imaging segment comprises the medical (including CT
and SPECT), security and industrial markets. Kromek provides its
OEM customers with detector components, based on its core cadmium
zinc telluride (CZT) platform, to enable better detection of
diseases such as cancer and Alzheimer's, contamination in
industrial manufacture and explosives in aviation settings.
In CBRN detection, the Group provides nuclear radiation
detection solutions to the global homeland defence and security
market. Kromek's compact, handheld, high-performance radiation
detectors, based on advanced scintillation technology, are
primarily used to protect critical infrastructure and urban
environments from the threat of 'dirty bombs'.
The Group is also developing bio-security solutions in the CBRN
detection segment. These consist of fully automated and autonomous
systems to detect a wide range of airborne pathogens.
Kromek is listed on AIM, a market of the London Stock Exchange,
under the trading symbol 'KMK'.
Further information is available at www.kromek.com .
Operational Review
During the year to 30 April 2022, Kromek made good progress in
both the advanced imaging and chemical, biological, radiological,
and nuclear (CBRN) detection segments of the business. Kromek
delivered on its existing contracts and development programmes, won
new and repeat orders and experienced increased customer engagement
regarding future contracts. This resulted in revenue for FY 2022
increasing by 16% over the previous year, with commercial momentum
increasing throughout the year, particularly in the CBRN detection
segment. The Group also continued to increase utilisation of the
expanded production capacity that it had gained through the
processes introduced in the previous year to optimise manufacturing
across its facilities. Accordingly, and notwithstanding the impact
of supply chain pressures as described further below, Kromek ended
the year in a stronger position than it had entered it.
Advanced Imaging Segment
The advanced imaging segment comprises the medical imaging,
security screening and industrial screening markets. Kromek
provides OEM customers with detector components, based on its core
cadmium zinc telluride (CZT) platform, to enable better detection
of diseases such as cancer and cardiac conditions, contamination in
industrial manufacture and explosives in aviation settings.
In this segment, commercial engagement with customers consists
of an initial design phase followed by incorporation of the Group's
detectors and technologies into a customer's system and then the
award of a multi-year supply contract, which provides long-term
revenue visibility. The Group has an established track record of
winning orders for development purposes that transition to
multi-year supply contracts from customers in gamma probes, bone
mineral densitometry ("BMD") and single photon emission computed
tomography ("SPECT") in medical imaging as well as in security and
industrial screening. This success is evidenced by the significant
contracts awarded in H2 2019 in medical imaging and also in the
year under review in industrial imaging, which are expected to be
worth approximately US$58.1m and US$17m, respectively. As Kromek
continues to win such contracts, its revenue base expands and the
revenue profile becomes increasingly predictable.
Kromek delivered strong growth in this segment compared with the
2021 financial year as the Group continued to deliver detector
components to its customers under orders for development purposes
and multi-year supply contracts. The Group also experienced greater
customer engagement regarding future projects as normal business
has resumed following the temporary redirection of resources due to
the COVID-19 pandemic.
Medical Imaging
In recent years, leading OEMs in medical imaging have been
increasingly adopting CZT detector platforms as the enabling
technology for their product roadmaps. The rate of new product
introduction with this class of detector is increasing with both GE
Healthcare and Siemens Healthineers introducing new products in
their clinical SPECT and CT business in 2021. CZT detector
platforms enable OEMs to significantly improve the quality of
imaging, which leads to earlier and more reliable diagnosis of
disease. Kromek's CZT detector solutions are increasingly being
commercially adopted for SPECT, molecular breast imaging ("MBI")
and BMD applications. These, along with computed tomography ("CT"),
are key target areas for future growth as they address diseases
particularly associated with an ageing population such as cancer,
Alzheimer's, Parkinson's, cardiovascular illnesses and
osteoporosis. Kromek also serves the gamma probes market in medical
imaging, which are used during surgery for the removal of lymph
nodes.
The Group continued to fulfil its existing supply orders in
medical imaging and progress its development programmes. Delivery
continued to ramp up as planned to a significant OEM customer that,
in H2 2019, awarded a contract expected to be worth a minimum of
US$58.1m over an approximately seven-year period. In addition, the
Group continued delivery of a US$600k order received in H2 2021
from a different customer for the supply of detectors to be used in
niche SPECT applications. This delivery was completed by the end of
the 2021 calendar year as planned and the Group expects to continue
the supply of detectors to this longstanding customer with new
orders in the current year.
There was a significant increase in new business activity as the
impact of the pandemic - which had caused a temporary redirection
of resources in healthcare settings - continued to recede. This
applied particularly in the Group's key target areas of CT and
SPECT, supported by the growing industry adoption of new techniques
and rollout of new systems. The Group commenced commercial
development engagement with three new strategic OEM customers in
this market. These initial orders are for the supply of CZT-based
detectors for use by the OEM customers in their commercial
development programmes.
One of the Group's US medical imaging customers received FDA
approval for its system for a niche nuclear medical application,
which is using Kromek's detectors. The Group has received several
orders from this customer, which the Group expects to continue on
an ongoing basis.
Security Screening
In security screening, Kromek's technologies are used in travel,
primarily aviation, settings to enable its customers to meet the
high-performance standards they require, and as demanded by
regulatory bodies, to ensure passenger safety while increasing the
convenience and efficiency of the security process. The Group
provides OEM and government customers with components and systems
for cabin and hold luggage scanning.
During the year, the Group continued to deliver under its
existing component supply agreements in the security screening
market. In its development work, the Group completed a two-year
US$1.6m project funded by the US Department of Homeland Security
for a CZT detector platform for threat resolution for hold baggage,
hand baggage and cargo screening systems. The Group expects
commercial adoption and integration of this platform in multiple
commercial advanced baggage screening products. The Group also
entered two new commercial development engagements during the year
to customise its detector solutions for incorporation into OEM
customers' systems. This development process has been completed
with one of the customers and the customised detectors have been
delivered to the customer, and the Group expects to receive further
orders from this customer.
Industrial Screening
In industrial screening , Kromek provides OEM customers with
detector components for incorporating into scanning systems used
during manufacturing processes to identify potential
contaminants.
During the year, the Group signed a seven-year supply agreement,
worth up to US$17m, to provide CZT-based detector components for
incorporation into systems for identifying contaminants for the
purpose of product quality inspection. The contract is with a
US-based, sector-leading industrial OEM with a global customer base
and was awarded following the completion of a two-year development
programme. Initial delivery under this contract commenced during
the year and is expected to ramp up in the current financial
year.
Also, during the year, the Group was awarded a US$250k repeat
order from a US-based customer that is a global leader in aerospace
and defence technologies. The customer's system, which incorporates
Kromek detectors, is used for in-line quality control in
manufacturing processes.
CBRN Detection Segment
In CBRN detection, Kromek provides nuclear radiation detection
solutions to the global homeland defence and security market.
Kromek's compact, handheld, high-performance radiation detectors,
based on advanced scintillation technology, are primarily used to
protect critical infrastructure and urban environments from the
threat of 'dirty bombs'. The Group's portfolio also includes a
range of high-resolution detectors and measurement systems used for
civil nuclear applications, primarily in nuclear power plants and
research establishments. In addition, Kromek is developing
bio-security solutions to detect a wide range of airborne
pathogens, including SARS-CoV-2 (COVID-19).
The Group won new and repeat orders in the nuclear security and
civil nuclear markets during the year and participated in an
increasing number of tenders reflecting the growth in global
government defence spending. With the current geo-political
environment, the commercial momentum in this market increased
during the fourth quarter and has remained high into the current
financial year. Kromek also made significant progress with its
development programmes in bio-security and anticipates early
commercial deployment of its products in this segment during the
current financial year.
Nuclear Security
Kromek's nuclear security platforms - D3S and D5 - consist of a
family of products designed to cater for the varying demands of
homeland security and defence markets. In particular, the D3S
platform is widely deployed as a networked solution to protect
cities, buildings or critical infrastructure against the threat of
use of nuclear 'dirty bombs' by terrorists.
The Group was awarded a contract by a US federal entity for its
D3S-ID wearable nuclear radiation detector that is designed to
enable first responders, armed forces, border security and other
CBRN experts to detect radiological threats. The contract will be
delivered over two years and is worth up to US$1.6m. In the final
quarter of the year, this customer made a repeat order worth
US$300k and then a further order post year end of US$695k. The
Group also continued to receive repeat orders from the European
Commission for the D3S-ID.
During the year, the Group received orders from three customers
for its D5 RIID high-performance radiation detector designed for
challenging environments, which was launched in the previous year.
This included an order worth GBP173k from an existing UK government
agency customer and orders from two new customers. As further
testament to the strength of both its solutions and long-term
relationships, towards the end of the year, the UK government
agency customer awarded a further four-year contract worth GBP1.7m
for the provision of CBRN detection products and services.
The Group has put significant effort into developing new
channels in this market and are seeing increased traction for its
products. This includes entering into an agreement, post year end,
with Smiths Detection to market and distribute its D3 and D5 series
of wearable radiation detectors and identification solutions to
North and South American markets. The current geopolitical events
have provided an increased emphasis for government spending in this
segment as NATO countries are all increasing their defence budgets.
The threat of a nuclear event is also at an all-time high since the
end of the cold war. Kromek's products provide best-in-class
capability to provide early warning and mitigation capability in
case of an event.
Civil Nuclear
In the civil nuclear market, the Group won 32 new customers
during the year compared with 24 for 2021. Kromek continued its
programme of work under a development and supply contract awarded
in the previous financial year, worth a minimum of US$960k, which
is for a product with both nuclear security and civil nuclear
applications. The project is progressing on schedule, with the
development work being completed by the end of calendar year 2021
and the product is now in the validation phase ahead of the
commencement of supply, which is expected to start in the current
financial year.
Biological-Threat Detection
Kromek is developing bio-security solutions consisting of fully
automated and autonomous systems to detect a wide range of airborne
pathogens using genomic sequencing for the purposes of national
security and protecting public health. Since H2 2019, the Group has
been working with DARPA, an agency of the US Department of Defense,
to develop a biological-threat detection system that autonomously
senses, analyses and identifies airborne pathogens. The programme
was established to combat bioterrorism and is now also aimed at
providing an early warning system in the event of a virus outbreak
to enable action to be taken to localise the spread and prevent it
from becoming an epidemic or global pandemic. The Group is also
working under a programme funded by Innovate UK, which commenced in
2021, to develop a bio-security solution to support end-use cases
specifically for COVID-19 detection.
During the year, Kromek continued to deliver on the development
milestones under its programme with DARPA and received a US$6m
contract for the next phase. The programme is for the development
of a completely automated wide spectrum airborne pathogen detection
system that is fully mobile and runs autonomously. It is being
designed to be networkable and provide wide-area monitoring
capability in near real-time. To date, the Group have been awarded
a total of over US$13m by DARPA under this programme.
Several successful pilots were carried out for the fully
automated genomic sequencing platform in the UK and US. During the
year the Group published a white paper outlining the challenges the
world faces from the emergence of natural and synthetic pathogens.
The main recommendations of the white paper include the
implementation of a national network of automated genomic
sequencing systems. These systems can provide an early warning
alert for the emergence and understanding of the prevalence of
pathogens in the environment, and this has been fed into a
government consultation process led by the Cabinet Office, which is
aimed at forming a national strategy for bio resilience and bio
security for the UK. The initial findings are very well aligned to
the Group's platform, and it continues to work with multiple
government agencies to define use cases and widescale
implementation opportunities.
Under Kromek's programme funded by Innovate UK to develop a
solution for airborne COVID-19 detection, it successfully completed
piloting of the system at several sites, including schools,
airports and other locations. The solution is now in the
productisation phase, with a manufacturing partner having been
identified and a number of pre-production models also having been
produced. Further, the Group engaged in validation of the
technology in third-party laboratories with very positive results
on the detection levels, sensitivity and false alarm rates.
Procurement
As previously stated, growth was impeded during the year by
supply chain pressures, particularly global electronic component
shortages. Specifically, the late arrival of certain components
prevented the completion of orders totalling approximately GBP2.9m
that were scheduled to be delivered before the year end. These
orders have now begun to be shipped and the revenue is expected to
be largely recognised in the first half of the current financial
year.
Several steps were taken during the year to strengthen Kromek's
supply chain so that the Group is better positioned to be able to
manage such pressures going forward. As discussed in the Chief
Financial Officer's Review, inventories increased with components
being sourced when available rather than in accordance with what
had previously been the normal supply lead times. The Group
bolstered its procurement team during the year and have
transitioned buying cycles to accommodate the current longer lead
supply times. This has significantly helped management, enabling
greater visibility over orders. In addition, Kromek has widened and
strengthened its supplier base through establishing an increased
number of strategic, rather than transactional, relationships with
key suppliers.
R&D, IP and Manufacturing
Kromek continues to ramp up several projects that commenced in
2021 for the expansion of production capacity and increased process
automation. These programmes are resulting in greater productivity
and cost efficiency in the manufacture of CZT and non-CZT products
in both the Group's UK and US facilities.
Kromek is focused on developing the next generation of products
for commercial application in its core markets. As noted, during
the year the Group continued to advance development programmes with
a number of partners and, in particular, significantly progressed
the development of its biological-threat detection solution.
During the year, the Group applied for 8 new patents and had 9
patents granted across three patent families, bringing the total
number of patents held by Kromek to in excess of 250. The new
applications cover innovations in both of Kromek's segments.
Financial Review
Revenue
The Group generated total revenue of GBP12.1m (2021: GBP10.4m),
an increase of 16% over the prior year. However, growth was
impeded, as noted above, by global supply chain issues. The split
between product sales and revenue from R&D contracts is
detailed in the table below.
Revenue Mix 2022 2021
GBP'000 % share GBP'000 % share
-------- --------
Product 9,935 82% 5,836 56%
-------- --------
R&D 2,120 18% 4,516 44%
-------- --------
Total 12,055 10,352
-------- -------- -------- --------
Gross Margin
Gross profit at GBP5.6m (2021: GBP5.0m) represented a margin of
46.8% (2021: 48.4%). The slight reduction in gross margin is
attributable to the change in revenue mix and the increase in
component prices due to supply chain pressures.
Administration Costs
Administration costs and operating expenses increased by GBP1.3m
to GBP12.2m (2021: GBP10.9m). This increase is substantially the
net result of:
-- GBP0.2m of amortisation due to continued investment in the
technology platform and product applications;
-- GBP0.5m bad debt expense having assessed receivables at the
year end for expected credit losses;
-- a GBP0.2m increase in travel and subsistence due to the
global relaxation of travel restrictions;
-- a GBP0.5m increase in staff costs due to general salary
increases and the planned expansion of personnel to support the
biological detection project; and
-- savings of GBP0.1m relating to facility and general office expenses.
Adjusted EBITDA* and Result from Operations
Adjusted EBITDA for 2022 was a loss of GBP1.2m compared with a
loss of GBP1.7m for the prior year as set out in the table
below:
2022 2021
GBP'000 GBP'000
-------- --------
Revenue 12,055 10,352
-------- --------
Gross profit 5,636 5,006
-------- --------
Gross margin (%) 46.7% 48.4%
-------- --------
Loss before tax (6,129) (6,331)
-------- --------
EBITDA Adjustments:
-------- --------
Net interest 548 546
-------- --------
Depreciation of PPE and
right-of-use assets 1,751 1,685
-------- --------
Amortisation 2,569 2,359
-------- --------
Share-based payments 236 106
-------- --------
Exceptional Item (132) (52)
-------- --------
Adjusted EBITDA* (1,157) (1,687)
-------- --------
*Adjusted EBITDA is defined as earnings before interest,
taxation, depreciation, amortisation, exceptional items, early
settlement discounts and share-based payments. Share-based payments
are added back when calculating the Group's adjusted EBITDA as this
is currently an expense with no direct cash impact on financial
performance. Adjusted EBITDA is considered a key metric to the
users of the financial statements as it represents a useful
milestone that is reflective of the performance of the business
resulting from movements in revenue, gross margin and the costs of
the business.
The Group's loss before tax was reduced to GBP6.1m compared with
GBP6.3m in the prior year. The improvement is primarily due to the
increase in gross profit and higher other operating income as
described below, partially offset by the increase in operating
costs.
During 2022, the Group recognised a gain of GBP2.1m (2021:
GBP2.0m loss) in the statement of other comprehensive income that
arose from foreign exchange differences on the translation of
foreign operations as described in note 2 to the financial
statements. This gain has been treated as a reserve movement,
consistent with the prior year. This accounting treatment is unlike
the GBP0.2m 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 GBP0.9m for the
year (2021: GBP1.0m credit) arising from the option of surrendering
tax losses in the year that qualify for cash credit, rather than
carrying forward the tax losses to set against future taxable
profits. The Group's deferred tax provision for the year remained
static at GBPnil (2021: GBPnil) 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 GBP1.2m (2021:
GBP1.0m credit).
Earnings per Share ("EPS")
The EPS is recorded in the year on a basic and diluted basis as
1.1p loss per share (2021: 1.5p loss per share after excluding
exceptional items), reflecting the GBP0.4m reduction in loss for
the period.
R&D
The Group invested GBP5.6m in the year (2021: GBP5.5m) in
technology and product developments that were capitalised on the
balance sheet, reflecting the continuing investment in new
products, applications and platforms for the future growth of the
business. This expenditure was capitalised in accordance with IAS38
to the extent that it related to projects in the later stage
(development phase) of the project lifecycle.
The Group continues to advance its development roadmap in
relation to the automated wide-area detection of biological and
viral pathogens, involving portable DNA sequencing. It is the
Board's belief that this technology platform, which enables the
identification of COVID-19 and other biological pathogens, offers
significant medium-term opportunities for the Group in this
critical market.
The other key areas of development continue to be the
development and expansion of the D5 suite of products and the SPECT
platforms. All such investments in research and development are
linked to contract deliverables and, in the Board's belief, add to
the significant future revenue opportunities that the Group's
technology offers. The Group continues to undertake this investment
to strengthen its commercial advantage.
During the year, the Group undertook expenditure on patents and
trademarks of GBP0.2m (2021: GBP0.2m) with 8 new patents filed and
9 patents granted across 3 patent families.
Other Income
The Group generated total other operating income of GBP1.4m
(2021: GBP0.4m), which predominantly comprises the forgiveness of
Paycheck Protection Programme (PPP) loans in the US. The Group had
been granted PPP loans totalling US$1.8m (GBP1.4m) in the prior
year and, during the period under review, applied for, and
received, forgiveness for repayment from the US Government. In the
prior year period, GBP0.3m of the GBP0.4m of other operating income
comprised UK Government grants in response to COVID-19. The balance
of remaining other operating income relates to grants received from
the Coronavirus Job Retention Scheme provided by the UK Government
in response to COVID-19's economic impact on businesses and other
small miscellaneous grants.
Capital Expenditure
Capital expenditure in the year amounted to GBP0.7m (2021:
GBP0.5m), which primarily relates to modest capital expenditure
across lab and computer equipment and manufacturing projects.
Financing Activities
The Group's US operations secured an Economic Injury Disaster
Loan of GBP0.4m in August 2021.
Cash Balance
Cash and cash equivalents were GBP5.1m as of 30 April 2022 (30
April 2021: GBP15.6m). The GBP10.5m decrease in cash during 2022
was primarily due to the combination of the following:
-- Adjusted EBITDA loss for the year of GBP1.2m, which includes
the PPP loan forgiveness of GBP1.4m
-- Net cash used in financing activities of GBP1.6m
-- A net increase in working capital of GBP4.8m
-- R&D tax receipts of GBP1.3m
-- Investment in product development and other intangibles, with
capitalised development costs of GBP5.6m and IP additions of
GBP0.2m
-- Capital expenditure of GBP0.7m
-- Impact of foreign exchange of GBP1.0m
Working capital increased by GBP4.8m as a result of the
following:
-- A GBP4.3m increase in inventories held on 30 April 2022 to
GBP10.5m (30 April 2021: GBP6.2m). This increase was primarily in
order to secure surety of critical electronic components for
delivery of FY 2023 revenues in response to supply chain pressures.
As such, the Group sourced component inventory when available,
rather than in accordance with normal supply lead times. There was
significant component price inflation caused by the constrained
market supply, which also contributed to the increased spend on
inventories;
-- GBP0.2m decrease in trade and other receivables, reflecting the timing of receipts; and
-- a GBP1.7m increase in trade and other payables to GBP8.9m
(2021: GBP7.2m) due to the timing of invoicing around the year
end.
Outlook
Kromek has had a positive start to the new financial year with a
significantly larger order book than at the same point last year
and the highest level of revenue visibility in its history. The
Group has excellent visibility over full year revenue forecasts
with approximately 53% of its forecast revenue contracted, 37%
going through contract negotiation and the remaining 10% expected
to be provided by its regular repeat order business.
As a result, the Group anticipates a substantial year-on-year
increase in revenue, in line with market expectations, with
accelerated growth in both its advanced imaging and CBRN detection
segments.
The anticipated growth is based on delivery under existing
long-term contracts, new orders won last year and the sustained
demand being received for Kromek's products. In particular, the
current geopolitical environment is driving increased interest from
government agencies in Kromek's products in the CBRN detection
segment. In advanced imaging, Kromek's CZT-based products continue
to be in high demand from both existing and new OEM customers.
The Group continues to maintain tight cost control, improve
collections and manage cash flow. The Group is also effectively
managing its supply chain and the current challenges around
obtaining critical components. The high revenue visibility for the
current year means the Group can manage its inventories efficiently
and avoid potential delays in the delivery of orders.
Looking further ahead, Kromek is operating in multiple
substantial markets where its technology enables the Group's
advanced imaging customers to differentiate their products, forming
an important part of the roadmap of major OEMs, and allowing its
CBRN detection customers to enhance national defence. The demand
for technology that enables early medical diagnosis to improve
patient outcomes and government vigilance to the threat of
terrorism will continue. In addition, its strategic position in the
advanced imaging segment was significantly strengthened during the
year with Kromek becoming the only commercial independent global
supplier of CZT. Consequently, the Board continues to look to the
future with great confidence.
Kromek Group plc
Group statement of comprehensive income
For the year ended 30 April 2022
2022 2021
Note GBP'000 GBP'000
Continuing operations
Revenue 3 12,055 10,352
Cost of sales (6,419) (5,346)
--------- ---------
Gross profit 5,636 5,006
Other operating income 4 1,410 379
Distribution costs (551) (287)
Administrative expenses (12,208) (10,935)
--------- ---------
Operating loss (before exceptional
items) (5,713) (5,837)
Exceptional impairment reversal
on trade receivables and amounts
recoverable on contracts 7 132 52
Operating results (post exceptional
items) (5,581) (5,785)
--------- ---------
Finance income 34 2
Finance costs (582) (548)
--------- ---------
Loss before tax 5 (6,129) (6,331)
Tax 8 1,211 978
--------- ---------
Loss for the year from continuing
operations (4,918) (5,353)
========= =========
Loss for the year from continuing
operations (before exceptional
items) (5,050) (5,405)
========= =========
Loss per share 9
- basic (p) (1.1) (1.5)
The notes form part of these financial statements.
Kromek Group plc
Group statement of other comprehensive income
For the year ended 30 April 2022
2022 2021
GBP'000 GBP'000
Loss for the year (4,918) (5,353)
------- --------
Items that are or may be subsequently
reclassified to profit or loss:
Exchange differences on translation
of foreign operations 2,063 (1,981)
Total comprehensive loss for the
year (2,855) (7,334)
======= ========
The notes form part of these financial statements.
Kromek Group plc
Consolidated statement of financial position
As at 30 April 2022
2022 2021
Note GBP'000 GBP'000
Non-current assets
Goodwill 10 1,275 1,275
Other intangible assets 11 28,375 24,144
Property, plant and equipment 12 10,944 11,200
Right-of-use assets 3,874 4,076
-------- ---------
44,468 40,695
-------- ---------
Current assets
Inventories 13 10,503 6,202
Trade and other receivables 6,429 6,644
Current tax assets 942 1,015
Cash and bank balances 5,081 15,602
-------- ---------
22,955 29,463
-------- ---------
Total assets 67,423 70,158
-------- ---------
Current liabilities
Trade and other payables (7,855) (6,174)
Borrowings 14 (5,716) (5,387)
Lease obligation (375) (399)
-------- ---------
(13,946) (11,960)
Net current assets 9,009 17,503
-------- ---------
Non-current liabilities
Deferred income (1,131) (1,071)
Lease obligation (4,161) (4,256)
Borrowings 14 (749) (2,816)
-------- ---------
(6,041) (8,143)
-------- ---------
Total liabilities (19,987) (20,103)
-------- ---------
Net assets 47,436 50,055
-------- ---------
Equity
Share capital 4,319 4,319
Share premium account 72,943 72,943
Merger reserve 21,853 21,853
Translation reserve 2,063 -
Accumulated losses (53,742) (49,060)
-------- --------
Total equity 47,436 50,055
-------- --------
The notes form part of these financial statements.
Kromek Group plc
Consolidated statement of changes in equity
For the year ended 30 April 2022
Share
Share premium Merger Translation Retained Total
capital account reserve reserve losses equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at
1 May 2020 3,446 61,600 21,853 1,981 (43,813) 45,067
Loss for the
year - - - - (5,353) (5,353)
Exchange difference
on translation
of foreign operations - - - (1,981) - (1,981)
--------- -------- ------------- ---------- --------
Total comprehensive
loss for the
year - - - (1,981) (5,353) (7,334)
Issue of share
capital 873 - - - - 873
Premium on shares
issued less
expenses - 11,343 - - - 11,343
Credit to equity
for equity-settled
share-based
payments - - - - 106 106
--------- -------- --------- ------------- ---------- --------
Balance at
30 April 2021 4,319 72,943 21,853 - (49,060) 50,055
--------- -------- --------- ------------- ---------- --------
Loss for the
year - - - - (4,918) (4,918)
Exchange difference
on translation
of foreign operations - - - 2,063 - 2,063
--------- -------- --------- ------------- ---------- --------
Total comprehensive
loss for the
year - - - 2,063 (4,918) (2,855)
Credit to equity
for equity-settled
share-based
payments - - - - 236 236
--------- -------- --------- ------------- ---------- --------
Balance at
30 April 2022 4,319 72,943 21,853 2,063 (53,742) 47,436
--------- -------- --------- ------------- ---------- --------
The notes form part of these financial statements.
Kromek Group plc
Consolidated statement of cash flows
For the year ended 30 April 2022
2022 2021
Note GBP'000 GBP'000
Net cash used in operating activities 15 (3,530) (1,309)
-------- ---------
Investing activities
Interest received 34 2
Purchases of property, plant and
equipment (651) (454)
Purchases of patents and trademarks (179) (156)
Capitalisation of development costs (5,619) (5,463)
-------- ---------
Net cash used in investing activities (6,415) (6,071)
-------- ---------
Financing activities
Net proceeds on issue of shares - 12,216
New borrowings 760 3,215
Payment of borrowings (1,340) (595)
Payment of lease liability (646) (395)
Interest paid (340) (309)
-------- ---------
Net cash (used in)/generated from
financing activities (1,566) 14,132
Net (decrease)/increase in cash
and cash equivalents (11,511) 6,752
Cash and cash equivalents at beginning
of year 15,602 9,444
Effect of foreign exchange rate
changes 990 (594)
Cash and cash equivalents at end
of year 5,081 15,602
-------- ---------
The notes form part of these financial statements.
Kromek Group plc
Notes to the consolidated financial statements
For the year ended 30 April 2022
1. General information
Kromek Group plc is a company incorporated and domiciled in the
United Kingdom under the Companies Act 2006. These financial
statements are presented in pounds sterling because that is the
currency of the primary economic environment in which the Group
operates. Foreign operations are included in accordance with the
policies set out in note 2.
The Group prepares its consolidated financial statements in
accordance with UK-adopted IFRS.
The Board is currently evaluating the impact of the adoption of
all other standards, amendments and interpretations but does not
expect them to have a material impact on the Group's operation or
results.
2. Significant accounting policies
Basis of preparation
The Group's financial statements have been prepared in
accordance with IFRS and International Financial Reporting
Interpretations Committee ("IFRIC").
The financial statements have been prepared on the historical
cost basis modified for assets recognised at fair value on
acquisition. Historical cost is generally based on the fair value
of the consideration given in exchange for the assets. The
principal accounting policies adopted are set out below.
Basis of consolidation
The consolidated financial statements incorporate the results
and net assets of the Group and entities controlled by the Group
(its subsidiaries) made up to 30 April each year. Control is
achieved where the Group has the power to govern the financial and
operating policies of an investee entity so as to obtain benefits
from its activities.
The results of subsidiaries acquired during the year are
included in the consolidated income statement from the effective
date of acquisition or up to the effective date of disposal, as
appropriate. Where necessary, adjustments are made to results of
subsidiaries to bring the accounting policies used into line with
those used by the Group. All intra-Group transactions, balances,
income and expenses, and profits are eliminated on
consolidation.
Going concern
As at 30 April 2022, the Group had net current assets of GBP9.0m
(30 April 2021: GBP17.5m) and cash and cash equivalents of GBP5.1m
(30 April 2021: GBP15.6m) as set out in the consolidated statement
of financial position. The Group made a loss before tax of
GBP6,129k in the year (2021: GBP6,331k).
The Directors have prepared detailed forecasts of the Group's
financial performance over the next twelve months from the date of
this report. Given the rapidly changing macroeconomic landscape and
the Group's forecast financial performance for the next twelve
months, management also prepared a financial forecast based on a
sensitised and severe but plausible scenario. It should be noted
that in each scenario, the Board has specifically excluded any
significant upsides from these scenarios or mitigating cost
reductions.
The forecasts prepared by the Directors indicate that the Group
will breach its net debt:EBITDA bank covenant during the forecast
period. In response to these potential breaches, the Board has
negotiated with HSBC that the Group shall not be required to ensure
compliance with this leverage covenant up to and including the
January 2023 quarterly compliance review. As this waiver is
conditional at the date of signing this report, should the
condition not be met, it would result in the early repayment of the
outstanding bank debt. The conditional nature of the bank waiver
gives rise to an event which may cast significant doubt over the
Group's ability to continue as a going concern. The Directors are
comfortable that the conditions will be met, and acknowledge if
they are not met, there is sufficient mitigation due to the Group
having various ongoing fundraising opportunities at its disposal.
The Directors consider it to be almost certain that sufficient
financial support could be raised from one or more of these
opportunities to repay the bank in the unlikely instance that the
condition of the bank waiver is not met.
In both the original and the severe but plausible scenario
forecasts, there is an assumption that additional financing will be
available to the Group. The requirement for future funding results
in conditions that may cast significant doubt over the Group's
ability to continue as a going concern. The Board is exploring a
number of such opportunities that are available, and has concluded
that it is almost certain the required mitigating financing will be
secured. As a consequence, the Board is confident that the Group
will have sufficient resources and working capital to meet its
present and foreseeable obligations for a period of at least twelve
months from approval of these financial statements. Accordingly,
the Board continues to adopt the going concern basis in preparing
the Group financial statements.
Business combinations
The Group financial statements consolidate those of the Company
and its subsidiary undertakings. Subsidiaries are entities
controlled by the Group. Control exists when the Group has the
power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that are
currently exercisable or convertible are taken into account. The
financial information of subsidiaries is included from the date
that control commences until the date that control ceases.
Intra-Group balances and transactions, and any unrealised income
and expenses arising from intra-Group transactions, are eliminated
in preparing the consolidated financial information.
Acquisitions on or after 1 May 2010
For acquisitions on or after 1 May 2010, the Group measures
goodwill at the acquisition date as:
-- the fair value of the consideration transferred; plus
-- the recognised amount of any non-controlling interests in the acquiree; plus
-- the fair value of the existing equity interest in the acquiree; less
-- the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
When the excess is negative, the negative goodwill is recognised
immediately in profit or loss.
Costs related to the acquisition, other than those associated
with the issue of debt or equity securities, are expensed as
incurred.
Goodwill
Goodwill arising in a business combination is recognised as an
asset at the date that control is acquired (the acquisition date).
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interest in the
acquiree and the fair value of the acquirer's previously held
equity interest (if any) in the entity over the net of the
acquisition-date amounts of the identifiable assets acquired and
the liabilities assumed.
If, after reassessment, the Group's interest in the fair value
of the acquiree's identifiable net assets exceeds the sum of the
consideration transferred, the amount of any non-controlling
interest in the acquiree and the fair value of the acquirer's
previously held equity interest in the acquiree (if any), the
excess is recognised immediately in profit or loss as a bargain
purchase gain.
Goodwill is not amortised but is reviewed for impairment at
least annually. For the purpose of impairment testing, goodwill is
allocated to each of the Group's cash-generating units expected to
benefit from the synergies of the combination. Cash-generating
units to which goodwill has been allocated are tested for
impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying amount of the unit,
the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other
assets of the unit pro-rata on the basis of the carrying amount of
each asset in the unit. An impairment loss recognised for goodwill
is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill
is included in the determination of the profit or loss on
disposal.
Contracts with customers
The Group recognises revenue in line with IFRS 15 'Revenue from
contracts with customers'. Revenue represents income derived from
contracts for the provision of goods and services by the Group to
customers in exchange for consideration in the ordinary course of
the Group's activities.
The Board disaggregates revenue by sales of goods or services,
grants and contract customers. Sales of goods and services
typically include the sale of product on a run rate or ad-hoc
basis. Grants include technology development with parties such as
Innovate UK as detailed above. Customer contracts represents
agreements that the Group has entered into that typically span a
period of more than 12 months.
Performance obligations
Upon approval by the parties to a contract, the contract is
assessed to identify each promise to transfer either a distinct
good or service or a series of distinct goods or services that are
substantially the same and have the same pattern of transfer to the
customer. Goods and services are distinct and accounted for as
separate performance obligations in the contract if the customer
can benefit from them either on their own or together with other
resources that are readily available to the customer, and they are
separately identifiable in the contract.
Transaction price
At the start of the contract, the total transaction price is
estimated as the amount of consideration to which the Group expects
to be entitled in exchange for transferring the promised goods and
services to the customer, excluding sales taxes. Variable
consideration, such as price escalation and early settlements, is
included based on the expected value or most likely amount only to
the extent that it is highly probable that there will not be a
reversal in the amount of cumulative revenue recognised. The
transaction price does not include estimates of consideration
resulting from contract modifications, such as change orders, until
they have been approved by the parties to the contract. The total
transaction price is allocated to the performance obligations
identified in the contract in proportion to their relative
standalone selling prices. Given the bespoke nature of many of the
Group's products and services, which are designed and/or
manufactured under contract to the customer's individual
specifications, there are sometimes no observable standalone
selling prices. Instead, standalone selling prices are typically
estimated based on expected costs plus contract margin consistent
with the Group's pricing principles or based on market knowledge of
selling prices relating to similar product.
Revenue and profit recognition
Revenue is recognised as performance obligations are satisfied
as control of the goods and services is transferred to the
customer.
For each performance obligation within a contract, the Group
determines whether it is satisfied over time or at a point in time.
The Group has determined that the performance obligations of the
majority of its contracts are satisfied at a point in time.
Performance obligations are satisfied over time if one of the
following criteria is satisfied:
- the customer simultaneously receives and consumes the benefits
provided by the Group's performance as it performs;
- the Group's performance creates or enhances an asset that the
customer controls as the asset is created or enhanced; or
- the Group's performance does not create an asset with an
alternative use to the Group and it has an enforceable right to
payment for performance completed to date.
For each performance obligation to be recognised over time, the
Group recognises revenue using an input method, based on costs
incurred in the period. Revenue and attributable margin are
calculated by reference to reliable estimates of transaction price
and total expected costs, after making suitable allowances for
technical and other risks. Revenue and associated margin are
therefore recognised progressively as costs are incurred, and as
risks have been mitigated or retired. The Group has determined that
this method faithfully depicts the Group's performance in
transferring control of the goods and services to the customer.
If the over-time criteria for revenue recognition are not met,
revenue is recognised at the point in time that control is
transferred to the customer, which is usually when legal title
passes to the customer and the business has the right to payment.
Kromek's standard terms of delivery are FCA Delivery Location
(Incoterms 2020), unless otherwise stated.
The Group's contracts that satisfy the over-time criteria are
typically product development contracts where the customer
simultaneously receives and consumes the benefit provided by the
Group's performance. In some specific arrangements, due to the
highly specific nature of the contract deliverables tailored to the
customer requirements and the breakthrough technology solutions
that Kromek provides, the Group does not create an asset with an
alternative use but retains an enforceable right to payment and
recognises revenue over time on that basis.
When it is probable that total contract costs will exceed total
contract revenue, the expected loss is recognised immediately as an
expense.
Contract modifications
The Group's contracts are sometimes amended for changes in
customers' requirements and specifications. A contract modification
exists when the parties to the contract approve a modification that
either changes existing, or creates new, enforceable rights and
obligations. The effect of a contract modification on the
transaction price and the Group's measure of progress towards the
satisfaction of the performance obligation to which it relates, is
recognised in one of the following ways:
(a) prospectively as an additional, separate contract;
(b) prospectively as a termination of the existing contract and
creation of a new contract; or
(c) as part of the original contract using a cumulative catch
up.
The majority of the Group's contract modifications are treated
under either (a) (for example, the requirement for additional
distinct goods or services) or (b) (for example, a change in the
specification of the distinct goods or services for a partially
completed contract), although the facts and circumstances of any
contract modification are considered individually as the types of
modifications will vary contract-by-contract and may result in
different accounting outcomes.
Costs to obtain a contract
The Group expenses pre-contract bidding costs that are incurred
regardless of whether a contract is awarded. The Group does not
typically incur costs to obtain contracts that it would not have
incurred had the contracts not been awarded.
Costs to fulfil a contract
Contract fulfilment costs in respect of over-time contracts are
expensed as incurred. No such costs have been incurred in the year
under review or in previous years. Contract fulfilment costs in
respect of point-in-time contracts are accounted for under IAS 2,
Inventories.
Sale of Inventories
Inventories include raw materials, work-in-progress and finished
goods recognised in accordance with IAS 2 in respect of contracts
with customers that have been determined to fulfil the criteria for
point-in-time revenue recognition under IFRS 15. Also included are
inventories for which the Group does not have a contract. This is
often because fulfilment costs have been incurred in expectation of
a contract award. The Group does not typically build inventory to
stock. Inventories are stated at the lower of cost, including all
relevant overhead and net realisable value. The Group continued to
adopt the policy of valuing its recyclable material. In accordance
with the standard, this is valued at the lower of cost and net
realisable value, less the cost required to bring the material back
into use
Contract receivables
Contract receivables represent amounts for which the Group has
an unconditional right to consideration in respect of unbilled
revenue recognised at the balance sheet date and comprises costs
incurred plus attributable margin. The Group does not plan,
anticipate or offer extended payment terms within its contractual
arrangements unless express payment interest charges are applied
and represent a value over and above that contracted or invoiced
with the customer.
Contract liabilities
Contract liabilities represent the obligation to transfer goods
or services to a customer for which consideration has been
received, or consideration is due, from the customer.
Leases
The Group recognises a right-of-use ("ROU") asset and a lease
liability at the lease commencement date. The ROU asset is
initially measured at cost, which comprises the initial amount of
the lease liability adjusted for any lease payments made at or
before the commencement date, plus any initial direct costs
incurred, and an estimate of costs to dismantle and remove the
underlying asset or to restore the underlying asset or the site on
which it is located, less any lease incentives received.
The ROU asset is subsequently depreciated using the
straight-line method from the commencement date to the earlier of
the end of the useful life of the ROU or the end of the lease term.
The estimated useful lives of the ROU assets are determined on the
same basis as those of property and equipment. In addition, the ROU
is periodically reduced by impairment losses, if any, and adjusted
for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease, or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate.
Lease payments included in the measurement of the lease
liability comprise fixed payments.
The lease liability is measured at amortised cost using the
effective interest method. It is remeasured when there is a change
in future lease payments arising from a change in an index or rate,
if there is a change in the Group's estimate of the amount expected
to be payable under a residual value guarantee, or if the Group
changes its assessment of whether it will exercise a purchase,
extension or termination option.
When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying amount of the ROU
asset, or is recorded in profit or loss if the carrying amount of
the ROU has been reduced to zero.
The Group has elected not to recognise ROU assets and lease
liabilities for short-term leases of machinery that have a lease
term of 12 months or less and leases of low value assets, including
IT equipment and leased cars. The Group recognises the lease
payments associated with these leases as an expense on a
straight-line basis over the lease term.
Foreign currencies
The individual results of each Group company are presented in
the currency of the primary economic environment in which it
operates (its functional currency). For the purpose of the
consolidated financial statements, the results and financial
position of each Group company are expressed in pounds sterling,
which is the functional currency of the Company and the
presentation currency for the consolidated financial statements.
The Directors have applied IAS 21 The Effects of Changes in Foreign
Exchange Rates and have concluded that the inter-company loans held
by Kromek Limited substantially form part of the net investment in
Kromek USA (Kromek Inc, eV Products, Inc. and Nova R&D, Inc.),
and so any gain or loss arising on the inter-company loan balances
are recognised as other comprehensive income in the period.
In preparing the results of the individual companies,
transactions in currencies other than the entity's functional
currency (foreign currencies) are recognised at the average
exchange rate for the month to which the transaction relates. At
each statement of financial position date, monetary assets and
liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing at that date. Non-monetary
items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when
the fair value was determined. Non-monetary items that are measured
in terms of historical cost in a foreign currency are not
retranslated. Exchange differences are recognised in profit or loss
in the period in which they arise.
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations are
translated at exchange rates prevailing on the statement of
financial position date. Income and expense items are translated at
the average exchange rates for the period, unless exchange rates
fluctuate significantly during that period, in which case the
exchange rates at the date of transactions are used. Exchange
differences arising, if any, are recognised in other comprehensive
income and accumulated in equity. On consolidation, the results of
overseas operations are translated into pounds sterling at rates
approximating to those ruling when the transactions took place. All
assets and liabilities of overseas operations, including goodwill
arising on the acquisition of those operations, are translated at
the rate ruling at the statement of financial position date.
Exchange differences arising on translating the opening net assets
at opening rate and the results of overseas operations at actual
rate are recognised directly in other comprehensive income and are
credited/(debited) to the retranslation reserve.
Government grants
Government grants are not recognised until there is reasonable
assurance that the Group will comply with the conditions attaching
to them and that the grants will be received.
Government grants towards job creation and growth are normally
recognised as income over the useful economic life of the capital
expenditure to which they relate.
Government grants are recognised in the income statement so as
to match them with the related expenses that they are intended to
compensate. Grants that relate to capital expenditure are offset
against related depreciation costs. Where grants are received in
advance of the related expenses, they are initially recognised in
the balance sheet and released to match the related expenditure.
Non-monetary grants are recognised at fair value.
The Group has received Government grants in relation to the
Coronavirus Job Retention Scheme (CJRS) provided by the UK
Government in response to COVID-19's impact on business. The Group
has elected to account for these grants as other operating income,
rather than to off-set the Government grants within administrative
expenses; accordingly, the gross impact is disclosed on the face of
the Statement of Comprehensive Income. Total Government grants
included as other operating income total GBP19k (2021:
GBP379k).
Operating result
Operating loss is stated as loss before tax, finance income and
costs.
Exceptional items
Exceptional items are those items that, in the judgement of
management, need to be disclosed separately by virtue of their
nature, size or incidence. Exceptional items, such as impairment
reversals, have been classified separately in order to draw them to
the attention of the reader of the accounts and, in the opinion of
the Board, to show more accurately the underlying results of the
Group.
Retirement benefit costs
The Group operates two defined contribution pension schemes for
UK employees, one of which is an auto-enrolment workplace pension
scheme established following the UK Pensions Act 2008. The
employees of the Group's subsidiaries in the US are members of a
state-managed retirement benefit scheme operated by the US
Government.
Payments to defined contribution retirement benefit schemes are
charged as an expense as they fall due. For these schemes, the
assets are held separately from those of the Group in independently
administered funds. Payments made to US state-managed retirement
benefit schemes are dealt with as payments to defined contribution
schemes where the Group's obligations under the schemes are
equivalent to those arising in a defined contribution retirement
benefit scheme.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax. Tax is recognised in the income statement except
to the extent that it relates to items recognised directly in
equity, in which case it is recognised in equity. The UK R&D
tax credit is calculated using the current rules as set out by HMRC
and is recognised in the income statement during the period in
which the R&D programmes occurred.
i) Current tax
The tax credit is based on the taxable loss for the year.
Taxable loss differs from net loss as reported in the income
statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted at the date of the statement of financial
position.
ii) Deferred tax
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the Consolidated Statement of Financial Position and the
corresponding tax bases used in the computation of taxable profit
and is accounted for using the statement of financial position
liability method. Deferred tax liabilities are generally recognised
for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from the initial recognition of
goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
and interests in joint ventures, except where the Group is able to
control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each
statement of financial position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled, or the asset is
realised, based on tax laws and rates that have been enacted or
substantively enacted at the date of the statement of financial
position. Deferred tax is charged or credited in the income
statement, except when it relates to items charged or credited in
other comprehensive income, in which case the deferred tax is also
dealt with in other comprehensive income. Deferred tax assets and
liabilities are offset when there is a legally enforceable right to
set off current tax assets against current tax liabilities and when
they relate to income taxes levied by the same taxation authority
and the Group intends to settle its current tax assets and
liabilities on a net basis.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and any recognised impairment loss.
Depreciation is recognised so as to write off the cost or
valuation of assets (other than land and properties under
construction) less their residual values over their useful lives,
using the straight-line method, on the following bases:
Plant and machinery 6% to 25%
Fixtures, fittings and equipment 15%
Computer equipment 25%
Lab equipment 6% to 25%
The gain or loss arising on the disposal or scrappage of an
asset is determined as the difference between the sales proceeds
and the carrying amount of the asset, and is recognised in
income.
Internally-generated intangible assets - research and
development expenditure
Expenditure on research activities is recognised as an expense
in the period in which it is incurred.
An internally-generated intangible asset arising from the
Group's product development is recognised only if all of the
following conditions are met:
-- the technical feasibility of completing the intangible asset
so that it will be available for use or sale;
-- its intention to complete the intangible asset and use or
sell it;
-- its ability to use or sell the intangible asset;
-- how the intangible asset will generate probable future
economic benefits. Among other things, the entity can demonstrate
the existence of a market for the output of the intangible asset or
the intangible asset itself or, if it is to be used internally, the
usefulness of the intangible asset;
-- the availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset; and
-- its ability to measure reliably the expenditure attributable
to the intangible asset during its development.
Research expenditure is written off as incurred. Development
expenditure is also written off, except where the Directors are
satisfied as to the technical, commercial and financial viability
of individual projects. In such cases, the identifiable expenditure
is deferred and amortised over the period during which the Group is
expected to benefit. This period normally equates to the life of
the products to which the development expenditure relates. Where
expenditure relates to developments for use rather than direct
sales of product, the cost is amortised straight-line over a
2-15-year period. Provision is made for any impairment.
Amortisation of the intangible assets recognised on the
acquisitions of Nova R&D, Inc. and eV Products, Inc. are
recognised in the income statement on a straight-line basis over
their estimated useful lives of between five and fifteen years.
Patents and trademarks
Patents and trademarks are measured initially at purchase cost
and are amortised on a straight-line basis over their estimated
useful lives.
Impairment of tangible and intangible assets, excluding
goodwill
At each statement of financial position date, the Group reviews
the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the
extent of the impairment loss (if any). Where the asset does not
generate cash flows that are independent from other assets, the
Group estimates the recoverable amount of the cash generating unit
(CGU) to which the asset belongs. When a reasonable and consistent
basis of allocation can be identified, corporate assets are also
allocated to individual CGUs, or otherwise they are allocated to
the smallest group of CGUs for which a reasonable and consistent
allocation basis can be identified.
An intangible asset with an indefinite useful life is tested for
impairment at least annually and whenever there is an indication
that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate of 11.35% (2021: 9.47%) that reflects current
market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows
have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss
is recognised immediately in profit or loss, unless the relevant
asset is carried at a revalued amount, in which case the impairment
loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (or
CGU) in prior years. A reversal of an impairment loss is recognised
immediately in profit or loss, unless the relevant asset is carried
at a revalued amount, in which case the reversal of the impairment
loss is treated as a revaluation increase.
Inventories
Inventories are stated at the lower of cost and net realisable
value. The Group continue to adopt a policy of valuing recyclable
material. Costs comprise direct materials and, where applicable,
direct labour costs and those overheads that have been incurred in
bringing the inventories to their present location and condition.
Cost is calculated in the statement of financial position at
standard cost, which approximates to historical cost determined on
a first in, first out basis. Net realisable value represents the
estimated selling price less all estimated costs of completion and
costs to be incurred in marketing, selling and distribution. Work
in progress costs are taken as production costs, which include an
appropriate proportion of attributable overheads.
Provision is made for obsolete, slow moving or defective items
where appropriate. This is reviewed by operational finance at least
every six months. Given the nature of the products and the
gestation period of the technology, commercial rationale
necessitates that this provision is reviewed on a case-by-case
basis.
Provisions for liabilities
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is more
likely than not that an outflow of resources will be required to
settle the obligation, and the amount can be reliably estimated.
Such provisions are measured at the present value of management's
best estimate of the expenditure required to settle the present
obligation at the balance sheet date. The discount rate used to
determine the present value reflects current market assessments of
the time value of money. Provisions are not recognised for future
operating losses.
Financial instruments
(i) Recognition and initial measurement
Trade receivables are initially recognised when they are
originated. All other financial assets and financial liabilities
are initially recognised when the Group becomes a party to the
contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a
significant financing component) or financial liability is
initially measured at fair value plus, for an item not at Fair
Value Through Profit or Loss (FVTPL), transaction costs that are
directly attributable to its acquisition or issue. A trade
receivable without a significant financing component is initially
measured at the transaction price.
(ii) Classification and subsequent measurement
Financial assets
(a) Classification
On initial recognition, a financial asset is classified as
measured at: amortised cost; Fair Value through Other Comprehensive
Income (FVOCI) - debt investment; FVOCI - equity investment; or
FVTPL.
Financial assets are not reclassified subsequent to their
initial recognition unless the Company changes its business model
for managing financial assets in which case all affected financial
assets are reclassified on the first day of the first reporting
period following the change in the business model.
A financial asset is measured at amortised cost if it meets both
of the following conditions:
-- It is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
-- Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
On initial recognition of an equity investment that is not held
for trading, the Group may irrevocably elect to present subsequent
changes in the investment's fair value in OCI. This election is
made on an investment-by-investment basis.
All financial assets not classified as measured at amortised
cost or FVOCI as described above are measured at FVTPL.
Investments in subsidiaries are carried at cost less
impairment.
Cash and cash equivalents comprise cash balances and call
deposits.
(b) Subsequent measurement and gains and losses
Financial assets at FVTPL - these assets (other than derivatives
designated as hedging instruments) are subsequently measured at
fair value. Net gains and losses, including any interest or
dividend income, are recognised in profit or loss.
Financial assets at amortised cost - these assets are
subsequently measured at amortised cost using the effective
interest method. The amortised cost is reduced by impairment
losses. Interest income, foreign exchange gains and losses and
impairment are recognised in profit or loss. Any gain or loss on
derecognition is recognised in profit or loss.
Financial liabilities and equity
Financial instruments issued by the Group are treated as equity
only to the extent that they meet the following two conditions:
(a) They include no contractual obligations upon the Group to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Group; and
(b) Where the instrument will or may be settled in the Group's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Group's own
equity instruments or is a derivative that will be settled by the
Group exchanging a fixed amount of cash or other financial assets
for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of
issue are classified as a financial liability. Where the instrument
so classified takes the legal form of the Group's own shares, the
amounts presented in these financial statements for called up share
capital and share premium account exclude amounts in relation to
those shares.
Financial liabilities are classified as measured at amortised
cost or FVTPL. A financial liability is classified as at FVTPL if
it is classified as held for trading, it is a derivative or it is
designated as such on initial recognition. Financial liabilities at
FVTPL are measured at fair value and net gains and losses,
including any interest expense, are recognised in profit or loss.
Other financial liabilities are subsequently measured at amortised
cost using the effective interest method. Interest expense and
foreign exchange gains and losses are recognised in profit or loss.
Any gain or loss on derecognition is also recognised in profit or
loss.
Where a financial instrument that contains both equity and
financial liability components exists these components are
separated and accounted for individually under the above
policy.
Intra-Group financial instruments
Where the Group enters into financial guarantee contracts to
guarantee the indebtedness of other companies within its Group, the
Group considers these to be insurance arrangements and accounts for
them as such. In this respect, the Group treats the guarantee
contract as a contingent liability until such time as it becomes
probable that the Group will be required to make a payment under
the guarantee.
(iii) Impairment
The Group recognises loss allowances for expected credit losses
(ECLs) on financial assets measured at amortised cost, debt
investments measured at FVOCI and contract assets (as defined in
IFRS 15).
The Group measures loss allowances at an amount equal to
lifetime ECL, except for other debt securities and bank balances
for which credit risk (i.e. the risk of default occurring over the
expected life of the financial instrument) has not increased
significantly since initial recognition, which are measured as
twelve-month ECL.
Loss allowances for trade receivables and contract assets are
always measured at an amount equal to lifetime ECL. When
determining whether the credit risk of a financial asset has
increased significantly since initial recognition and when
estimating ECL, the Group considers reasonable and supportable
information that is relevant and available without undue cost or
effort. This includes both quantitative and qualitative information
and analysis, based on the Company's historical experience and
informed credit assessment and including forward-looking
information.
The Group assumes that the credit risk on a financial asset may
have increased if it is more than 120 days past due. This is
assessed on a case-by-case basis, taking into consideration the
commercial relationship and historical pattern of payments.
The Group considers a financial asset to be at risk of default
when:
-- The borrower is unlikely to pay its credit obligations to the
Group in full, without recourse by the Group to actions such as
realising security (if any is held); or
-- The financial asset is more than 120 days past due, subject
to management discretion and commercial relationships.
Lifetime ECLs are the ECLs that result from all possible default
events over the expected life of a financial instrument.
Twelve-month ECLs are the portion of ECLs that result from
default events that are possible within 12 months after the
reporting date (or a shorter period if the expected life of the
instrument is less than 12 months).
The maximum period considered when estimating ECLs is the
maximum contractual period over which the Group is exposed to
credit risk.
Measurement of ECLs
Credit losses are measured and assessed on an individual balance
by balance basis. In calculating, the Group uses its historical
experience, external indicators and forward-looking information to
calculate the expected credit losses. The general approach
incorporates a review for any significant increase in counterparty
credit risk since inception.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial
assets carried at amortised cost and debt securities at FVOCI are
credit impaired. A financial asset is "credit impaired" when one or
more events that have a detrimental impact on the estimated future
cash flows of the financial asset have occurred.
Write-offs
The gross carrying amount of a financial asset is written off
(either partially or in full) to the extent that there is no
realistic prospect of recovery. If there is recovery of the
financial asset, a reversal will be recognised in the profit and
loss.
Share-based payments
Equity-settled share-based payments to employees and others
providing similar services are measured at the fair value of the
equity instruments at the grant date and spread over the period
during which the employees become unconditionally entitled to the
options, which is based on a period of employment of three years
from grant date. In accordance with IFRS 2, from a single entity
perspective, Kromek Group plc recognises an increase in investment
and corresponding increase in equity to represent the
settlement.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on the Group's estimate of
equity instruments that will eventually vest. The vesting date is
determined based on the date an employee is granted options,
usually three years from date of grant. At each statement of
financial position date, the Group revises its estimate of the
number of equity instruments expected to vest as a result of the
effect of non-market-based vesting conditions and taking into
account the average time in employment across the year. The impact
of the revision of the original estimates, if any, is recognised in
profit or loss such that the cumulative expense reflects the
revised estimate, with a corresponding adjustment to equity
reserves.
Cash
Cash, for the purposes of the statement of cash flows, comprises
cash in hand and term deposits repayable between one and twelve
months from balance sheet date, less overdrafts repayable on
demand.
3. Operating segments
Products and services from which reportable segments derive
their revenues
For management purposes, the Group is organised into two
geographical business units from which the Group currently operates
(US and UK) and it is these operating segments for which the Group
is providing disclosure. Both business units serve the three
principal key markets in which the Group operates (nuclear
detection, medical imaging and security screening). However,
typically, the US business unit focuses principally on medical
imaging and the UK focuses on nuclear detection and security
screening. However, this arrangement is flexible and can vary based
on the geographical location of the Group's customer. In addition
to the three principal key markets described above, the Group's UK
operations are developing a biological-threat detection technology,
which the Board believes will be a key market for the Group in the
near future.
The chief operating decision maker is the Board of Directors,
which assesses the performance of the operating segments using the
following key performances indicators: revenues, gross profit and
operating profit.
The amounts provided to the Board with respect to assets and
liabilities are measured in a way consistent with the financial
statements.
The turnover, profit on ordinary activities and net assets of
the Group are attributable to two business segments. The first
segment relates to the development of digital colour X-ray imaging
enabling direct materials identification as well as developing a
number of detection products in the industrial and consumer
markets. The second segment relates to the development of a
technology platform, as described above, which aims to identify
airborne pathogens.
Analysis by geographical area
A geographical analysis of the revenue from the Group's
customers, by destination, is as follows:
2022 2021
GBP'000 GBP'000
United Kingdom 2,033 1,627
North America 5,807 5,693
Asia 1,556 610
Europe 2,601 2,387
Australasia 58 3
Africa - 32
-------- --------
Total revenue 12,055 10,352
-------- --------
The Group has aggregated its market sectors into two reporting
segments being the operational business units in the UK and US. The
UK operations comprise Kromek Group plc and Kromek Limited and the
US operations comprise Kromek Inc, eV Products Inc, and Nova
R&D Inc. The Board currently considers this to be the most
appropriate aggregation due to the main markets that are typically
addressed by the UK and US business units and the necessary
skillsets and expertise.
A geographical analysis of the Group's revenue by origin is as
follows:
Year ended 30 April 2022:
UK Operations US Operations Total for
GBP'000 GBP'000 Group
GBP'000
Revenue from sales
Revenue by segment:
-Sale of goods and services 9,036 9,013 18,049
-Revenue from grants 646 - 646
-Revenue from contract customers 1,227 245 1,472
Total sales by segment 10,909 9,258 20,167
Removal of inter-segment sales (5,564) (2,548) (8,112)
-------------- -------------- ----------
Total external sales 5,345 6,710 12,055
-------------- -------------- ----------
Segment result - operating
loss before exceptional items (3,732) (1,981) (5,713)
Interest received 34 - 34
Interest expense (348) (234) (582)
Exceptional items - 132 132
Loss before tax (4,046) (2,083) (6,129)
Tax credit 1,228 (17) 1,211
-------------- -------------- ----------
Loss for the year (2,818) (2,100) (4,918)
-------------- -------------- ----------
Reconciliation to adjusted
EBITDA:
Net interest 314 234 548
Tax (1,228) 17 (1,211)
Depreciation of PPE and right-of-use
assets 1,010 741 1,751
Amortisation 1,548 1,021 2,569
Share-based payment charge 236 - 236
Reversal of exceptional items - (132) (132)
Adjusted EBITDA (938) (219) (1,157)
-------------- -------------- ----------
Other segment information
Property, plant and equipment
additions 124 527 651
Right-of-use assets 2,048 3,458 5,506
Depreciation of PPE and right-of-use
assets 1,010 741 1,751
Release of capital grant (44) - (44)
Intangible asset additions 4,199 1,599 5,798
Amortisation of intangible
assets 1,548 1,021 2,569
-------------- -------------- ----------
Statement of financial position
Total assets 39,494 27,929 67,423
-------------- -------------- ----------
Total liabilities (13,376) (6,611) (19,987)
-------------- -------------- ----------
Year ended 30 April 2021:
UK Operations US Operations Total for
GBP'000 GBP'000 Group
GBP'000
Revenue from sales
Revenue by segment:
-Sale of goods and services 5,346 5,395 10,741
-Revenue from grants 474 - 474
-Revenue from contract customers 3,346 894 4,240
Total sales by segment 9,166 6,289 15,455
Removal of inter-segment sales (3,526) (1,577) (5,103)
-------------- -------------- ----------
Total external sales 5,640 4,712 10,352
-------------- -------------- ----------
Segment result - operating
loss before exceptional items (1,594) (4,243) (5,837)
Interest received 2 - 2
Interest expense (324) (224) (548)
Exceptional items - 52 52
Loss before tax (1,916) (4,415) (6,331)
Tax credit 989 (11) 978
-------------- -------------- ----------
Loss for the year (927) (4,426) (5,353)
-------------- -------------- ----------
Reconciliation to adjusted
EBITDA:
Net interest 322 224 546
Tax (989) 11 (978)
Depreciation of PPE and right-of-use
assets 997 688 1,685
Amortisation 1,370 989 2,359
Share-based payment charge 106 - 106
Exceptional items - (52) (52)
Adjusted EBITDA 879 (2,566) (1,687)
-------------- -------------- ----------
Other segment information
Property, plant and equipment
additions 354 100 454
Right-of-use assets 2,048 3,131 5,179
Depreciation of PPE and right-of-use
assets 997 688 1,685
Release of capital grant (44) - (44)
Intangible asset additions 4,576 1,043 5,619
Amortisation of intangible
assets 1,370 989 2,359
-------------- -------------- ----------
Statement of financial position
Total assets 47,466 22,692 70,158
-------------- -------------- ----------
Total liabilities (13,638) (6,465) (20,103)
-------------- -------------- ----------
Inter-segment sales are charged on an arms-length basis.
No other additions of non-current assets have been recognised
during the year other than property, plant and equipment, and
intangible assets.
No impairment losses were recognised in respect of property,
plant and equipment and intangible assets including goodwill.
The accounting policies of the reportable segments are the same
as the Group's accounting policies described in note 2. Segment
loss represents the loss reported by each segment. This is the
measure reported to the Group's Chief Executive for the purpose of
resource allocation and assessment of segment performance.
Revenues from major products and
services
The Group's revenues from its major 2022 2021
products and services were as follows: GBP'000 GBP'000
Product revenue 9,935 5,836
Research and development revenue 2,120 4,516
--------------- ---------------
Consolidated revenue 12,055 10,352
--------------- ---------------
Information about major customers
Included in revenues arising from US operations are revenues of
approximately GBP2,178k (2021: GBP1,934k) that arose from the
Group's largest commercial customer. Included in revenues arising
from UK operations are revenues of approximately GBP955k (2021:
GBP2,784k) that arose from a major Governmental organisation
customer.
4. Other Operating Income
During the financial year, other operating income comprised the
forgiveness of PPP loans granted by the US Government and grants
received from the Coronavirus Job Retention Scheme provided by the
UK Government in response to COVID-19's economic impact on
businesses.
2022 2021
GBP'000 GBP'000
Coronavirus Job Retention Scheme 19 129
Miscellaneous 17 -
PPP loan forgiveness 1,374 -
Other government grants - 250
--------------- ---------------
Total other operating income 1,410 379
--------------- ---------------
5. Loss before tax for the year
Loss before tax for the year has been arrived at after
charging/(crediting):
2022 2021
GBP'000 GBP'000
Net foreign exchange losses 155 80
Research and development costs recognised
as an expense 1,308 1,116
Depreciation of property, plant and equipment 1,751 1,685
Release of capital grant (44) (44)
Amortisation of internally-generated intangible
assets 2,569 2,359
Cost of inventories recognised as expense 3,003 3,899
Exceptional items - reversal of trade receivables
and AROC (see note 7) (132) (52)
Staff costs (see note 6) 9,543 8,806
---------------- ----------------
6. Staff costs
The average monthly number of employees (excluding non-executive
directors) was:
2022
Number 2021 Number
Directors (executive) 3 2
Research and development, production 133 118
Sales and marketing 5 7
Administration 13 12
------- -----------
154 139
------- -----------
Their aggregate remuneration comprised:
2022 2021
GBP'000 GBP'000
Wages and salaries 8,069 7,618
Social security costs 739 682
Pension scheme contributions 499 400
Share-based payments 236 106
--------- ---------
9,543 8,806
--------- ---------
The total Directors' emoluments (including non-executive
directors) was GBP890k (2021: GBP640k). The aggregate value of
contributions paid to money purchase pension schemes was GBP24k
(2021: GBP28k) in respect of four directors (2021: four directors).
There has been no exercise of share options by the Directors in the
period and therefore no gain recognised in the year (2021:
nil).
The highest paid director received emoluments of GBP270k (2021:
GBP231k) and amounts paid to money purchase pension schemes was
GBP4k (2021: GBP15k).
Key management compensation:
2022 2021
GBP'000 GBP'000
Wages and salaries and other short-term
benefits 1,050 888
Social security costs 112 125
Pension scheme contributions 32 29
Share-based payment expense 146 106
-------- --------
1,340 1,148
-------- --------
Key management comprise the Executive Directors and senior
operational staff.
7. Exceptional Items
Exceptional items, booked to operating costs, comprised the
following:
2022 2021
GBP'000 GBP'000
Reversal of trade receivables and
AROC (132) (52)
--------- ---------
Total exceptional items (132) (52)
--------- ---------
The immediate and ongoing impact of the COVID-19 pandemic has
created significant economic uncertainty on a global scale. The
expected credit losses are reviewed annually, or when there is a
significant change in external factors potentially impacting credit
risk, such as COVID-19, and are updated where management's
expectations of credit losses change.
Management group and measure the expected credit losses of trade
receivables based on operational market and geographical region. As
illustrated in note 3, the Group operates across a number of
geographical areas.
The Group has reversed GBP132k in 2022 (2021: GBP52k) 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 GBP13,062k was presented in FY2020 as an
exceptional item arising as a result of COVID-19 in accordance with
the Group's accounting policy, as it was considered to be one-off
in nature, size and incidence. It represented a full write down of
invoiced debtors and AROC. The amounts have been fully written down
as management have concluded that any collateral is not considered
to be material. No adjustment or reversal to the impairment
calculated in 2020, specific to one of the contracts, has been
included in 2021 and 2022 on the basis that the recoverability of
this receivable remains uncertain.
From a tax perspective, this impairment has increased the
taxable losses in the prior year period, however no deferred tax
asset has been recognised as it is not yet certain that there will
be future taxable profits available.
Asia still represents a significant technology opportunity for
the Group; however, the Group is currently uncertain of timescales
to full market traction. Any subsequent reversal of the amount
recognised in future years would also be recognised as an
exceptional item.
8. Tax
Recognised in the income statement
2022 2021
GBP'000 GBP'000
Current tax credit:
UK corporation tax on losses in the year 942 1,014
Adjustment in respect of previous periods 286 (25)
Foreign taxes paid (17) (11)
-------- ---------
Total current tax 1,211 978
Deferred tax:
Origination and reversal of timing differences - -
Adjustment in respect of previous periods - -
Total deferred tax - -
-------- ---------
Total tax credit in income statement 1,211 978
-------- ---------
A UK corporation rate of 19% (effective 1 April 2020) was
substantively enacted on 17 March 2020, reversing the previously
enacted reduction in the rate from 19% to 17%. This will increase
the Company's future current tax charge accordingly. The deferred
tax asset at 30 April 2022 has been calculated at 19% (2021: 19 %).
The corporate tax rate will increase to 25% from 19% with effect
from April 2023.
Reconciliation of tax credit
The charge for the year can be reconciled to the profit in the
income statement as follows:
2022 2021
GBP'000 GBP'000
Loss before tax (6,129) (6,331)
Tax at the UK corporation tax rate of 19%
(2021: 19%) 1,165 1,203
Non-taxable income/expenses not deductible (184) 614
Effect of R&D 456 451
Effect of other tax rates/credits 124 -
Share scheme deduction under Part 12 CTA 2009 - 5
Unrecognised movement on deferred tax (815) (1,648)
Adjustment in respect of previous periods 286 (26)
Effects of overseas tax rates 179 379
Total tax credit for the year 1,211 978
---------- ----------
There are no tax items charged to other comprehensive
income.
The effect of R&D is the tax impact of capitalised
development costs being deducted in the year in which they are
incurred.
The rate of corporation tax for the year is 19% (2021: 19%). A
UK corporation rate of 19% (effective 1 April 2020) was
substantively enacted on 17 March 2020, reversing the previously
enacted reduction in the rate from 19% to 17%. Accordingly,
deferred tax has been provided in line with the rates at which
temporary differences are expected to reverse.
The other tax jurisdiction that the Group currently operates in
is the US. Any deferred tax arising from the US operations is
calculated at 27.59%, which represents the federal plus state tax
rate.
9. Losses per share
As the Group is loss making, dilution has the effect of reducing
the loss per share. The calculation of the basic earnings per share
is based on the following data:
2022 2021
Losses GBP'000 GBP'000
Losses for the purposes of basic and
diluted losses per share being net
losses attributable to owners of the
Group (4,918) (5,353)
----------- -----------
2022 2021
Number of shares Number Number
Weighted average number of ordinary
shares for the purposes of basic losses
per share 431,851,820 358,912,092
Effect of dilutive potential ordinary
shares:
Share options 350,556 372,638
----------- -----------
Weighted average number of ordinary
shares for the purposes of diluted
losses per share 432,202,376 359,284,730
----------- -----------
2022 2021
Basic (p) (1.1) (1.5)
------ -----
Basic earnings per share is calculated by dividing the loss
attributable to shareholders by the weighted average number of
ordinary shares in issue during the year. IAS 33 requires
presentation of diluted EPS when a company could be called upon to
issue shares that would decrease earnings per share or increase the
loss per share. For a loss-making company with outstanding share
options, net loss per share would be decreased by the exercise of
options. Therefore, the anti-dilutive potential ordinary shares are
disregarded in the calculation of diluted EPS.
10. Intangible Assets including Goodwill
GBP'000
Cost
At 1 May 2021 and 30 April 2022 1,275
-------
Accumulated impairment losses
At 1 May 2021 and 30 April 2022 -
-------
Carrying amount
At 30 April 2022 and 30 April 2021 1,275
-------
Goodwill acquired in a business combination is allocated, at
acquisition, to the cash generating units (CGUs) that are expected
to benefit from that business combination. Before recognition of
impairment losses, the carrying amount of goodwill had been
allocated as follows:
Goodwill Intangibles
CGU GBP'000 GBP'000
US 1,275 10,862
UK - 17,513
-------------- -----------
Total 1,275 28,375
-------------- -----------
The goodwill arose on the acquisition of Nova R&D, Inc. in
2010, and represents the excess of the fair value of the
consideration given over the fair value of the identifiable assets
and liabilities acquired.
Goodwill has been allocated to Kromek USA (a combination of eV
Products and Nova R&D Inc.) as a cash generating unit (CGU).
This is reported in note 3 within the segmental analysis of the US
operations.
Impairment tests
The Group tests goodwill annually for impairment or more
frequently if there are indications that goodwill might be
impaired, by comparing the carrying value of the goodwill to its
value in use on a discounted cash flow basis.
The Group tests intangible assets with finite lives for
impairment if an indicator exists. The Board considers the
potential impact of COVID-19 on the future prospects of the
business to be an indicator of impairment and has carried out an
impairment test by comparing the carrying value of each CGU to its
value in use on a discounted cash flow basis.
In undertaking the impairment test, management considered both
internal and external sources of information. The impairment
testing did not identify any impairments in either CGU.
Forecast cash flows
Management has prepared cash flow forecasts for 10 years (UK)
and 15 years (US) plus a perpetuity. This exceeds the five years as
set out in the standard but has been used on the basis that the
entity is in the early stage of its maturity and will not have
reached steady state after five years. Management have visibility
over contracts in place and in the pipeline that enable it to
forecast accurately and the cash flows are based on the useful
economic life of the 'know how', which is considered to be the
essential asset.
US
The key assumptions to the value in use calculations are set out
below:
- Growth rate. The 2022 model does not include any revenue
growth in years 1 and 2 (see below for comparatives). This growth
rate comprises both capacity increases as a result of increases in
raw material to finished product efficiencies and price increases,
factoring in existing contracts and those in the pipeline and is
reflective of historical growth rates as well as and the Company's
share of the overall markets the US CGU operates in. No growth is
assumed after 10 years.
- Discount rates. Management have derived a pre-tax discount
rate of 11.35% (2021: 9.47%) using the latest market assumptions
for the risk-free rate, the equity premium and the net cost of
debt, which are all based on publicly available sources, as well as
adjustments for forecasting risk for which management considered
the historical growth of the entity as well as the visibility of
cash flows from a contracted perspective, which are all based on
publicly available sources. The discount rate is higher than that
used in 2021. The key drivers of this change are the changes in
market assumptions for US corporate bond yields and risk-free
rates.
The Challenge Model Base Case incorporates the following into
the US forecast:
-- Revised year 1 and year 2 cashflows to match the severe but
plausible budget conducted as part of the Going Concern review.
-- Extended the forecast period to 15 years (plus perpetuity),
on the basis that the asset base is expected to generate revenues
over a much longer period of time than modelled by management.
-- Modelled a smoother increase in revenues from the year 1 and
year 2 budgets to year 15 whilst taking into consideration
potential capacity constraints.
UK
- Growth rate. The model does not include any growth in years 1
and 2 (see below for comparatives), with a 5% growth rate from year
3 onwards. This growth rate comprises both capacity increases as a
result of increases in raw material to finished product
efficiencies and price increases, factoring in existing contracts
and those in the pipeline and is reflective of historical growth
rates as well as and the Company's share of the overall markets the
UK CGU operates in. No growth is assumed after 10 years.
- Discount rates. Management have derived a pre-tax discount
rate of 10.50% (2021: 9.13%) using the latest market assumptions
for the risk-free rate, the equity premium and the net cost of
debt, which are all based on publicly available sources, as well as
adjustments for forecasting risk for which management considered
the historical growth of the entity as well as the visibility of
cash flows from a contracted perspective. The discount rate is
higher than that used in 2021. The key drivers of this change are
the changes in market assumptions for UK corporate bond yields and
risk-free rates.
The Challenge Model Base Case incorporates the following into
the UK forecast:
-- Revised year 1 and year 2 cashflows to match the severe but
plausible budget conducted as part of the Going Concern review.
-- Extended the forecast period to 15 years (plus perpetuity),
on the basis that the asset base is expected to generate revenues
over a much longer period of time than modelled by management.
-- Modelled a smoother increase in revenues from the year 1 and year 2 budgets to year 10.
Sensitivities
The headrooms in the base case models are GBP30,209k (US CGU)
and GBP34,729k (UK CGU). The table below sets out the impact of the
following reasonable changes in assumption on the headroom of each
CGU:
US Headroom UK Headroom
Challenge base model GBP119,554k GBP112,343k
------------ ------------
Combination of Discount GBP85,450k GBP70,641k
Rate +2% and Challenge
model
------------ ------------
Combination of Discount GBP171,904 GBP179,612
Rate
-2% and Challenge model
------------ ------------
The Directors have reviewed the recoverable amount of the CGU
and do not consider there to be any impairment in 2022 or 2021.
11. Other intangible assets
Patents,
trademarks
Development & other
costs intangibles Total
GBP'000 GBP'000 GBP'000
Cost
At 1 May 2021 29,055 7,344 36,399
Additions 5,619 179 5,798
Exchange differences 1,206 390 1,596
----------- ------------ --------
At 30 April 2022 35,880 7,913 43,793
----------- ------------ --------
Amortisation
At 1 May 2021 6,944 5,311 12,255
Charge for the year 2,056 513 2,569
Exchange differences 296 298 594
----------- ------------ --------
At 30 April 2022 9,296 6,122 15,418
----------- ------------ --------
Carrying amount
At 30 April 2022 26,584 1,791 28,375
----------- ------------ --------
At 30 April 2021 22,111 2,033 24,144
----------- ------------ --------
The Group amortises capitalised development costs on a
straight-line basis over a period of 2-15 years rather than against
product sales directly relating to the development expenditure. Any
impairment of development costs are recognised immediately through
the profit and loss.
Patents and trademarks are amortised over their estimated useful
lives, which is on average 10 years.
The carrying amount of acquired intangible assets arising on the
acquisitions of Nova R&D, Inc. and eV Products, Inc. as at the
30 April 2022 was GBP357k (2021: GBP488k), with amortisation to be
charged over the remaining useful lives of these assets which is
between 3 and 13 years.
The amortisation charge on intangible assets is included in
administrative expenses in the consolidated income statement.
Further details on impairment testing are set out in note
10.
12. Property, plant and equipment
Fixtures
Computer Plant and and
Lab equipment equipment machinery fittings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost or valuation
At 1 May 2021 209 1,335 17,418 542 19,504
Additions 1 76 527 47 651
Exchange differences - 52 676 30 758
At 30 April 2022 210 1,463 18,621 619 20,913
--------------- ---------- ---------- --------- --------
Accumulated depreciation
and impairment
At 1 May 2021 33 1,032 6,956 283 8,304
Charge for the year 42 118 1,078 50 1,288
Exchange differences - 39 324 14 377
--------------- ---------- ---------- --------- --------
At 30 April 2022 75 1,189 8,358 347 9,969
--------------- ---------- ---------- --------- --------
Carrying amount
At 30 April 2022 135 274 10,263 272 10,944
--------------- ---------- ---------- --------- --------
At 30 April 2021 176 303 10,462 259 11,200
--------------- ---------- ---------- --------- --------
13. Inventories
2022 2021
GBP'000 GBP'000
Raw materials 3,554 2,022
Work-in-progress 6,304 3,707
Finished goods 645 473
-------- --------
10,503 6,202
-------- --------
The cost of inventories recognised as an expense during the year
in respect of continuing operations was GBP5,006k (2021:
GBP3,899k).
The write-down of inventories to net realisable value amounted
to GBP852k (2021: GBP496k). The reversal of write-downs amounted to
GBP94k (2021: GBP120k).
14. Borrowings
2022 2021
GBP'000 GBP'000
Secured borrowing at amortised
cost
Revolving credit facility and
capex facility 4,500 4,900
Other borrowings 1,965 3,303
-------- --------
6,465 8,203
-------- --------
Total borrowings
Amount due for settlement within
12 months 5,716 5,387
-------- --------
Amount due for settlement after
12 months 749 2,816
-------- --------
The Group has a GBP5.0m revolving credit facility (RCF) with
HSBC, which also incorporates a capex facility. This facility was
for an initial 36-month period with an option to extend to years 4
and 5. The Group opted to extend the facility to year 4 being the
year to March 2023, which was agreed by the Bank. This loan is
repaid on a quarterly basis in an amount equal to 1/20th of the
drawn capex loan. Once repaid, the Group is able to draw down the
repaid amount against the original RCF. The facility is secured by
a debenture and a composite guarantee across the Group. The
interest rate on the RCF is Bank of England Base Rate +2.5% with a
repayment term of six months from date of drawdown. The fair value
equates to the carrying value.
The RCF and capex facility from HSBC have certain covenants
attached. The Group has been in compliance with all of the Bank's
covenant requirements during the year other than the compliance
period 30 April 2022, when the Group breached its leverage
covenant. This breach was subsequently waived by HSBC and the Board
has negotiated with HSBC that the Group shall not be required to
ensure compliance with this leverage covenant up to and including
the January 2023 quarterly compliance review . This waiver is
conditional at the date of signing this report, however, the Board
are confident that the Group will be able to satisfy the condition
.
In the prior year, the Group successfully secured a 2-year,
GBP1.4m Term Loan with HSBC which attracts interest at 3.49% per
annum over Bank of England Base Rate. This loan is repayable in
August 2022.
Other borrowings comprise a loan with the landlord in the US in
respect of the facility occupied by eV Products, Inc. This loan is
repaid in equal instalments on a monthly basis and attracts
interest at 7.50% per annum. At 30 April 2022, the total loan due
to the landlord was GBP0.4m (2021: GBP0.5m). Of this, GBP0.2m is
due within 12 months (2021: GBP0.2m) and GBP0.2m (2021: GBP0.3m) is
due after 12 months.
The Group's US operations were eligible to apply for an Economic
Injury Disaster Loan. A loan of GBP0.1m was approved and secured in
June 2020. A further loan of GBP0.4m was approved and secured in
August 2021. This loan attracts interest at a rate of 3.75% per
annum and the maturity date is 30 years from the date of the loan
note.
Due to the disruption to the Group's business caused by
COVID-19, in 2021 the Group's US operations successfully secured
GBP1.4m of Paycheck Protection Program Loans offered to businesses
in the US. During the year, the Group applied for full forgiveness
of these loans and was successful in its application. This loan
forgiveness has been recorded as other operating income (note
4).
Finance lease liabilities are secured by the assets leased. The
borrowings are at a fixed interest rate with repayment periods not
exceeding five years.
The weighted average interest rates paid during the year were as
follows:
2022 2021
% %
Revolving credit facility 2.80 3.00
Other borrowing facilities 6.60 6.70
15. Notes to the cash flow statement
2022 2021
GBP'000 GBP'000
Loss for the year (4,918) (5,353)
Adjustments for:
Finance income (34) (2)
Finance costs 582 548
Income tax credit (1,211) (978)
Depreciation of property, plant and equipment
and ROU 1,751 1,685
Amortisation of intangible assets 2,569 2,359
Share-based payment expense 236 106
PPP loan forgiveness (1,443) -
Impairment of intangible asset - 30
Loss on disposal - 82
-------- ---------
Operating cash flow before movements in
working capital (2,468) (1,523)
(Increase)/decrease in inventories (4,301) 214
Decrease in receivables 215 1,566
Increase/(decrease) in payables 1,741 (2,571)
Cash used in operations (4,813) (2,314)
Income taxes received 1,283 1,005
-------- ---------
N et cash used in operating activities (3,530) (1,309)
-------- ---------
Cash and cash equivalents
2022 2021
GBP'000 GBP'000
Cash and bank balances 5,081 15,602
-------- --------
Cash and cash equivalents comprise cash and term bank deposits
repayable between one and twelve months from balance sheet date,
net of outstanding bank overdrafts. The carrying amount of these
assets is approximately equal to their fair value.
16. Events after the balance sheet date
There have been no further events after the reporting date that
require adjustment or disclosure in line with IAS10 events after
the reporting period.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR EAAPFEFSAEAA
(END) Dow Jones Newswires
August 02, 2022 02:00 ET (06:00 GMT)
Kromek (LSE:KMK)
Historical Stock Chart
From Jun 2024 to Jul 2024
Kromek (LSE:KMK)
Historical Stock Chart
From Jul 2023 to Jul 2024