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Kromek Group PLC (KMK)

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Wednesday 13 January, 2021

Kromek Group PLC

Interim Results

RNS Number : 4714L
Kromek Group PLC
13 January 2021
 

13 January 2021

Kromek Group plc

("Kromek" or the "Group")

 

Interim Results

 

Kromek (AIM: KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, announces its interim results for the six months ended 31 October 2020.

 

Financial Summary

· Revenue of £4.6m (H1 2019/20: £5.3m)

· Gross margin was 54% (H1 2019/20: 58%; FY 2019/20: 47%)

· Adjusted EBITDA* was £0.9m loss (H1 2019/20: £0.6m loss)

· Loss before tax was £3.4m (H1 2019/20: £2.7m loss)

· Cash and cash equivalents at 31 October 2020 were £5.8m (30 April 2020: £9.4m; 31 October 2019: £13.4m)

* Adjusted EBITDA is defined as earnings before interest, taxation, depreciation, amortisation, other income and share-based payments. For further details, see the Financial Review below.

 

Operational Summary

·     Resumption of orders and shipments across all segments in final two months of the period with business patterns starting to return to normal and increased commercial activity post period

· Continuing commercial traction and development of D3S family of products, which has been sold in over 25 countries

Expansion of global footprint with sales commencing in a new country and engagement of five new distributors

Continued to supply products to Irish Civil Defence following contract win in 2019/20

Launch of next-generation D3 PRD and D5 RIID high-performance radiation detectors

· Nine new customers won in the civil nuclear segment and continued sales through distribution channels

· Significant progress in fast-growing bio-security market

Awarded $5.2m contract extension by 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 capable of detecting and identifying airborne pathogens

Building field deployable systems to detect presence of pathogens in high footfall areas such as hospitals, mass transport hubs and entertainment venues

· Extended medical application for CZT-based detectors from cancer diagnosis to cancer surgery through new R&D project with Adaptix Ltd and the University of Manchester

·     Received first commercial order from security screening OEM customer following achievement of highest level of European liquid explosive detection certification for cabin baggage for its scanner

· Four new patents were filed and five were granted during the period

 

Current Trading and Outlook

· Entered H2 2020/21 with extensive commercial pipeline and experiencing rebound in commercial activity

OEM customer that awarded $58.1m contract has commenced the installation, in multiple countries, of its medical imaging devices for the early detection of cardiovascular diseases. The rollout is expected to ramp-up from H2 2020/21

Two contract extensions for networked radiation detection technologies with a European government-related customer - a key step towards customer's full wide-area system rollout

Secured new sector-leading global OEM customer for development of customised detectors for industrial applications; expected to transition into multi-year supply contract

· Bio-security activity to accelerate with airport and hospital piloting of pathogen detection platform expected to commence in H2 2020/21

· Increased trading and improved visibility gives confidence of significant revenue growth in H2 2020/21 as compared to H1 2020/21

   

Dr Arnab Basu, CEO of Kromek, said: "I am pleased to report that we finished the first half of 2020/21 in a stronger position than we entered the year, resulting from a considerable uptick in trading in the last two months of the period. We are starting to see a return to some normality in business patterns as our customers recommence their commercial activities. In particular, our largest medical OEM customer has begun shipping their next-generation scanner, which, as they continue to ramp up installations in the second half of the year, will enable the fulfilment of the long-term contract we have with them.

 

"We have also made substantial progress in the development - for DARPA and other national governments - of an automated bio-detection system capable of detecting airborne pathogens. In situ trials are expected to commence during the second half of the year and we believe this new market segment will be a significant contributor to revenues in the short- to medium-term.

 

"Looking ahead, the positive momentum seen in the last two months of the first half has continued into the second half of the year with increasing detector shipments. The renewed level of activity within our customer base is underpinned by the commercial traction Kromek has demonstrated in recent years in winning multiple, high-value contracts and we are excited about our new opportunities in the bio-security market. As a result, we expect to see significant growth in second half revenue compared with H1 2020/21 and the Board continues to look to the future with confidence and optimism. "

 

 

This announcement contains inside information.

 

For further information, please contact:

 

Kromek Group plc

 

Arnab Basu, CEO

Paul Farquhar, CFO

 

+44 (0)1740 626 060

Cenkos Securities plc (Nominated Adviser and Broker)

 

Max Hartley (NOMAD)

Julian Morse (Sales)

 

+44 (0)20 7397 8900

Luther Pendragon Ltd (PR)

 

Harry Chathli

Claire Norbury

Alexis Gore

Joe Quinlan

+44 (0)20 7618 9100

 

 

Analyst Presentation

 

Arnab Basu, CEO, and Paul Farquhar, CFO, will be hosting a presentation for analysts at 9.00am GMT today via webinar. To register to participate, please contact [email protected] at Luther Pendragon.

 

 

About Kromek Group plc

 

Kromek Group plc is a technology group (global HQ in County Durham) and a leading developer of high performance radiation detection products based on cadmium zinc telluride ("CZT") and other advanced technologies. Using its core technology platforms, Kromek designs, develops and produces x-ray and gamma ray imaging and radiation detection products for the medical, security screening and nuclear markets.

 

The Group's products provide high resolution information on material composition and structure and are used in multiple applications, ranging from the identification of cancerous tissues to hazardous materials, such as explosives, and the analysis of radioactive materials.

 

The Group's business model provides a vertically integrated technology offering to customers, from radiation detector materials to finished products or detectors, including software, electronics and application specific integrated circuits ("ASICs").

 

The Group has operations in the UK and US (California and Pennsylvania), and is selling internationally through a combination of distributors and direct OEM sales.

 

Currently, the Group has over one hundred full-time employees across its global operations. Further information on Kromek Group is available at www.kromek.com and https://twitter.com/kromekgroup .

 

 

Overview

 

Kromek experienced an uptick in commercial activity in the final two months of H1 2020/21, with the increased momentum continuing into the second half of the year, following a period of disruption caused by the COVID-19 pandemic. Towards the end of the period, normal business patterns began to resume and projects that had been postponed from the previous year started to recommence. The Group has established, and is delivering on, a firm commercial pipeline for the second half of year and is well positioned to meet the backlog in demand for its products in its key nuclear, medical and security segments as well as the substantial emerging opportunities in the biological-threat detection market.

 

Medical Imaging

 

Kromek has established itself as a key supplier of CZT-based detector modules for medical imaging, which represents a significant market opportunity for the Group supported by fundamental long-term drivers. As previously noted, the outbreak of COVID-19 necessitated a temporary redirection of hospital resources away from routine scans and elective surgeries. However, in the final two months of the period and post period, the Group has seen a return in demand for its detector modules for medical imaging with shipments resuming and business patterns starting to normalise. By adopting Kromek's CZT detector platforms, OEMs are able to significantly improve the quality of medical imaging with lower radiation doses and at reduced cost. In particular, the Group's detector solutions are increasingly being adopted for single photon emission computed tomography ("SPECT") and molecular breast imaging ("MBI") applications, which are key target areas for future growth.

 

Kromek continued to work with its significant OEM customer, that in H2 2018/19 awarded the Group a contract expected to be worth a minimum of $58.1m over approximately a seven-year period, to provide CZT detectors and associated advanced electronics to be used in the customer's state-of-the-art medical imaging systems. Towards the end of the period, the Group recommenced delivery under this contract and, post period end, the customer began installing its scanners in multiple countries. This rollout is continuing to ramp through H2 2020/21, which the Group expects to enable a return to the contracted delivery schedule for H2 2020/21, and the Group is receiving increasing forward visibility under this contract.

 

During the period, the Group entered a new area of medical application for its CZT-based detectors: improving patient outcomes from cancer surgery. The Group commenced development of a new system that will distinguish between healthy and non-healthy tissue, enabling surgeons to confidently remove the minimum amount of healthy tissue and reducing the risks of multiple surgeries and of the cancer spreading. The system is being developed under a three-year project that has received grant funding from Innovate UK and is being conducted in partnership with Adaptix Ltd, the developer of a Flat Panel X-ray Source (FPS), and the University of Manchester.   

 

The Group continued to progress development of its ultra-low dose MBI technology based on its CZT-based SPECT detectors. This technology can significantly improve the early detection of breast cancer in women with dense breast tissues, which will positively impact patient outcomes and potentially reduce cost of treatment. Under this three-year project, which commenced in 2018, Kromek is working alongside partners in the Newcastle-upon-Tyne Hospitals NHS Foundation Trust in the UK and an OEM partner. The project is entering the prototype validation stage following a successful proof-of-feasibility for the target reduction of dose and scan time.  

 

Nuclear Detection

 

Nuclear Security

 

Kromek continued to meet commercial demand and further build out the technicality of its D3S platform, which is widely deployed as a networked solution to protect cities, buildings or critical infrastructure against the security threat of 'dirty bombs'. This family of high-performance handheld nuclear detectors was originally developed through a programme of the Defense Advanced Research Projects Agency ("DARPA"), an agency of the US Department of Defense. The D3S has now been fully commercialised and continues to attract orders from businesses and government agencies around the world - and has now been sold in more than 25 countries.

 

During the period, the Group continued to expand the commercial footprint of the D3S with sales commencing in a further country and five new distributors being appointed across five countries. In addition, the Group developed online platforms for product training and support activities for, as well as marketing of, its nuclear detector products, which have allowed the Group to support its customers globally at a time when travel still remains restricted.

 

The Group supplied further products to the Irish Civil Defence Agency, following a contract win in 2019/20, and its work with the European Commission for infrastructure protection continued to develop throughout the period.

 

The Group has continued to deliver on development programmes for government organisations. It is adding further technical innovation capability to the D3S family of products under a contract extension with the Countering Weapons of Mass Destruction Office, which is a component within the US Department of Homeland Security. Kromek also continues to provide D3S-related customisation for military operational transition under the contract awarded to the Group by the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense (JPEO-CBRND). 

 

Alongside its commercial activities, the Group retains its commitment to investing in product development. In September, Kromek launched the D3 PRD, the new all-in-one, high-accuracy personal radiation detector ("PRD") for first responders, armed forces, border security and CBRNE experts. This product meets a growing market demand for a standalone gamma-only device, while offering market-leading dose accuracy, speed to alarm and an ultra-low false positive number.

 

In addition, post period end, the Group launched the D5 RIID, the world's smallest high-performance radioisotope identification device ("RIID"). This ruggedised device, with ultra-low false alarm rate, is designed for military, homeland security and industrial use. It is the first device to be launched in Kromek's new D5 product range, which expands the Group's radiation detection portfolio to encompass devices specifically designed for more challenging use cases and harsh environments.  

 

In recent months, the Group has benefitted from a marked pick-up in procurement processes across the US, Asia and Europe. This includes the post-period award of two contract extensions by a European government-related company to provide network solutions of the Group's D3S-related technologies to counter nuclear terrorism. The contract extensions, which are worth a total of £460k in the current financial year, are a further step towards Kromek providing a full wide-area system rollout for this customer to protect critical infrastructure and public spaces.

 

Defence and security spending is on the rise around the world and Kromek's products meet a demand for technology-led solutions to some of the most pressing global security challenges.

 

Civil Nuclear

 

The Group won nine new customers in the civil nuclear segment and continued to win repeat business from its current customers. The pipeline of enquiries and orders in this segment has remained robust throughout the period and has continued in the second half of this year. Following a successful online product demonstration of the drone-based radiation mapping system, the Group has seen widening interest for this product from a range of new sectors, including mining and waste management.

 

Security Screening

 

While there was a slowdown in security screening activity during the period, as a result of the impact of the COVID-19 pandemic on the travel industry, the Group continued to receive interest in its technologies that can meet the high-performance standards demanded by customers to ensure passenger safety while increasing the convenience and efficiency of the security process. The Group provided its OEM and government customers with components and systems for cabin and hold luggage scanning applications. In particular, the Group received its first commercial order from a security screening OEM customer whose next-generation scanner, based on Kromek technologies, achieved the highest level of European liquid explosive detection certification for cabin baggage.

 

The Group is completing a two-year $1.6m development 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 baggage screening products.

 

Post period end, in the industrial security segment, the Group secured a development agreement, worth up to $660k, with a US-based, sector-leading OEM with a global customer base. The Group will customise one of its CZT detector platforms for incorporation into the customer's systems for identifying contaminations during production processes. The majority of the development programme will be delivered during the current financial year and, following completion, it is expected to transition to a multi-year supply contract. 

 

Biological-Threat Detection

 

The outbreak of COVID-19 has exposed the world to the severity of biological threats and their potential impact on public health and the global economy, and has demonstrated the need to rapidly evolve bio-security systems and associated technologies. Kromek significantly progressed its activities in this market during the period.

 

Under a DARPA-funded programme that was established to combat bioterrorism, Kromek is developing a biological-threat detection solution to form part of a mobile wide-area bio-surveillance system. This was accelerated during the period with the award of a contract extension by DARPA worth up to $5.2m. Kromek's technology enables the automated detection and identification of airborne pathogens and virus mutations using DNA sequencing. Under the DARPA programme, it is intended to be deployed in an urban environment via a vehicle-mounted biological-threat identifier system that is also capable of being located in high footfall areas such as hospitals and airports.

 

As also announced today, Kromek has commenced a £1.25m programme to customise the Group's biological threat-detection solution to support end-use cases and undergo piloting with those user groups. Funded by Innovate UK, the programme aims to advance solutions that are designed to address and mitigate the impacts of COVID-19. Kromek is currently engaging with potential customers for the system to develop deployment models and identify how it can best fit their needs. The Group will provide customisation of the system ahead of piloting - with airport and hospital pilots expected to commence by the end of this financial year. The Group anticipates successful pilots will result in commercial deployment in 2021/22.

 

R&D, Product Development and IP

 

Kromek has a core focus on developing the next generation of products for commercial application in its core markets. As noted, during the period the Group continued to advance development programmes with a number of partners in the nuclear security and medical imaging markets as well as launching new products in its D3S portfolio and, in particular, significantly progressed the development of its biological-threat reduction solution. The Group applied for four new patents and had five patents granted during the period.

 

 

Financial Review

 

Revenue for the six-month period ended 31 October 2020 was £4.6m (H1 2019/20: £5.3m) as a result of the COVID-19 related disruption described above.

 

Gross margin for the period was 54% compared with 58% for H1 2019/20 due to revenue mix. Gross profit was £2.5m (H1 2019/20: £3.1m), reflecting the lower H1 revenue year-on-year.

 

Operating costs increased by £0.2m to £5.6m (H1 2019/20: £5.4m) due largely to increased depreciation and amortisation expense and adverse foreign exchange costs, partially offset by lower travel and facility costs. Loss before tax of £3.4m (H1 2019/20: £2.7m loss) reflects higher operating costs and lower gross profit. There was an adjusted EBITDA loss for the period of £0.9m (H1 2019/20 £0.6m loss). Adjusted EBITDA is calculated as per the following table:

 

 

 

 

H1 2020/21

(Unaudited)

H1 2019/20 (Unaudited)

Full Year 2019/20

(Audited)

 

£'000

£'000

£'000

 

 

 

 

Loss before tax

(3,399)

(2,653)

(18,345)

EBITDA adjustments:-

 

 

 

Net interest

306

311

544

Depreciation

821

544

1,185

Amortisation

1,279

1,087

2,142

Share-based payments

120

100

225

COVID-19 related items

 

 

 

Early settlement discount

-

-

746

Exceptional items

-

-

13,062

Adjusted EBITDA*

(873)

(611)

(441)

 

*Adjusted EBITDA is defined as earnings before interest, taxation, depreciation, amortisation, other income and share-based payments. The figure for FY 2019/20 also excludes an exceptional item and early settlement discount related to the impact of COVID-19 comprising an exceptional item of £13.1m relating to the write down of receivables and AROC and a specific airport security customer early settlement discount of £0.7m, as neither are in the normal course of events and are significant in their size, practice, and nature. Share-based payments are added back when calculating the Group's adjusted EBITDA as this is currently an expense with a zero direct cash impact on financial performance. Adjusted EBITDA is considered a key metric to the users of the financial statements as it represents a useful milestone that is reflective of the performance of the business resulting from movements in revenue, gross margin and the costs of the business.

 

Investment in product development was £2.7m for the six-month period ended 31 October 2020 (H1 2019/20: £1.8m). The expenditure in H1 2020/21 was in near-term product development, reflecting the continuing commitment to the future growth of the business with new and enhanced products that can be commercially marketed. Amortisation of such development activity in the period was £1.0m (H1 2019/20: £0.7m). 

 

Cash and cash equivalents at:

·31 October 2020 were £5.8m (including £4.7m utilised on the revolving credit facility (RCF) and £1.4m of drawn term loan);

· 30 April 2020 were £9.4m (including £4.9m utilised on the RCF); and at

· 31 October 2019 were £13.4m (including £5.0m utilised on the RCF).

 

The net decrease in cash of £3.6m during H1 2020/21 was a combination of the following:

· An adjusted EBITDA loss for the period of £0.9m

· Net cash generated from financing activities of £1.5m

· A £1.0m reduction in working capital

· Investment in product development and other intangibles, with capitalised development costs of £2.6m and IP additions of £0.1m

· Capital expenditure of £0.3m

· Adverse foreign exchange movements of £0.2m

 

The net cash generated from financing activities of £1.5m in H1 2020/21 comprised loans received in the period of £2.3m less £0.8m of loan repayments and interest paid. The loans received of £2.3m were £0.8m of Paycheck Protection Program Loans secured by the Group's US operations and a £1.4m HSBC term loan.

 

The £1.0m reduction in working capital was due to a decrease of £2.8m in payables partially offset by a net £1.8m increase in inventories and receivables during the period. This £2.8m outflow was largely comprised of payments related to a planned build-up of inventory in the year ended 30 April 2020 in anticipation of an uptick in shipments in the last quarter of 2019/20 and for normal activity levels in H1 2020/21. As a result of the COVID-19 disruption in H1 2020/21, inventory levels remained relatively consistent with the 2019/20 year-end position. With normal business patterns now resuming and customer demand expected to continue to increase through H2 2020/21 and into 2021/22, the Group anticipates inventory levels to fall, which will release cash. Accordingly, the Group does not expect a material change in the cash position at year end compared with 31 October 2020.

 

 

Outlook

 

The final two months of the first half saw an uptick in trading and the momentum has carried into the second half of the year as business patterns begin to return to normal. The Group has fully adapted to working within global pandemic conditions and any interruption in its ability to service customers has been minimised. The Group does not expect the current UK lockdown to have any material impact on its business operations, however, it is mindful of the potential disruption that could be caused by prolonged restrictions, such as on international travel, in the event of further deterioration of conditions in the countries where it operates.

 

As customers start to resume the rollout of their next-generation products based on Kromek technology, consequently detector shipments have increased. Specifically, in medical imaging, the Group's OEM customer that awarded the contract expected to be up to $58.1m, has commenced installing its medical imaging scanners in multiple countries, with the rollout expected to ramp-up from H2 2020/21. The Group has received multiple contracts from new and existing customers in recent months, underscoring the pronounced rebound in sales and commercial activity across the Group's key segments of medical imaging, nuclear detection and security screening. The renewed level of activity within its customer base is underpinned by the commercial traction Kromek has demonstrated in recent years in winning several, high-value contracts. As a result, the Group expects revenue in the second half of the year to be significantly higher than in H1 2020/21.

 

Looking further ahead, the Group's key addressable markets continue to benefit from long-term growth drivers. In medical imaging, there remains a fundamental demand to improve screening for diseases such as cancer and cardiovascular illnesses as well as other conditions such as osteoporosis that require early diagnosis and intervention to improve patient outcomes. Similarly, in the nuclear security market, governments remain vigilant to the threat of terrorism and defence procurement spending is rising, which is leading to heightened demand for Kromek's technology. Additionally, the Group anticipates developments in its new market segment of biological-threat detection to accelerate and multiple milestones to be achieved in the second half of the year that will enable commercial deployment in 2021/22.

 

Consequently, the Board continues to look to the future with confidence and optimism.

 

 

 

 

 

Consolidated condensed income statement

For the six months ended 31 October 2020

 

 

 

Six months ended 31 October

2020

£'000

 

Six months

ended 31 October

2019

£'000

 

Year

ended

30 April 2020

£'000

 

 

 

(Unaudited)

 

(Unaudited)

 

(Audited)

 

 

 

 

 

 

 

 

 

Note

 

 

 

 

 

 

Continuing operations

 

 

 

 

 

 

 

Revenue

4

 

4,576

 

5,333

 

13,120

Cost of sales

 

 

(2,083)

 

(2,240)

 

(6,912)

 

 

 

 

 

 

 

 

Gross profit

 

 

2,493

 

3,093

 

6,208

 

 

 

 

 

 

 

 

Distribution costs

 

 

(128)

 

(190)

 

(336)

Administrative expenses (including operating expenses)

 

 

(5,458)

 

(5,245)

 

(10,611)

 

 

 

 

 

 

 

 

Operating loss

 

 

(3,093)

 

(2,342)

 

(4,739)

 

 

 

 

 

 

 

 

Exceptional impairment losses on trade receivables and amounts recoverable on contract

 

 

-

 

-

 

(13,062)

 

 

 

 

 

 

 

 

Operating results (post exceptional items)

 

 

(3,093)

 

(2,342)

 

(17,801)

 

 

 

 

 

 

 

 

Finance income

 

 

1

 

45

 

60

Finance costs

 

 

(307)

 

(356)

 

(604)

 

 

 

 

 

 

 

 

Loss before tax

 

 

(3,399)

 

(2,653)

 

(18,345)

 

 

 

 

 

 

 

 

Tax

5

 

385

 

389

 

1,805

 

 

 

 

 

 

 

 

Loss from continuing operations

 

 

(3,014)

 

(2,264)

 

(16,540)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses per share

 

 

 

 

 

 

 

 

-basic (p)

7

 

(0.9)

 

(0.7)

 

(4.8)

-diluted (p)

 

 

(0.9)

 

(0.7)

 

(4.8)

Consolidated condensed statement of comprehensive income

For the six months ended 31 October 2020

 

 

 

Six months ended 31 October

2020

£'000

(Unaudited)

 

Six months

ended

31 October

2019

£'000

(Unaudited)

 

Year

ended

30 April 2020

£'000

(Audited)

 

Loss for the period

 

(3,014)

 

 

(2,264)

 

 

(16,540)

 

Items that may be recycled to the income statement

 

 

 

 

 

Exchange gains/(losses) on translation of foreign operations

(640)

 

(35)

 

1,047

Total comprehensive loss for the period

(3,654)

 

(2,299)

 

(15,493)

Consolidated condensed statement of financial position

As at 31 October 2020

 

 

Note

 

31 October

2020

£'000

 

Restated*

31 October

2019

£'000

 

 

30 April 2020

£'000

Non-current assets

 

 

(Unaudited)

 

(Unaudited)

 

(Audited)

Goodwill

 

 

1,275

 

1,275

 

1,275

Other intangible assets

 

 

23,048

 

18,986

 

21,878

Property, plant and equipment

8

 

12,052

 

11,365

 

12,551

Right-of-use asset

 

 

3,597

 

3,809

 

3,852

 

 

 

 

 

 

 

 

 

 

 

39,972

 

35,435

 

39,556

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Inventories

 

 

6,579

 

4,014

 

6,416

Trade and other receivables

 

 

6,282

 

20,823

 

8,210

Current tax assets

 

 

1,415

 

515

 

1,031

Cash and bank balances

 

 

5,810

 

13,437

 

9,444

 

 

 

 

 

 

 

 

 

 

 

20,086

 

38,789

 

25,101

 

 

 

 

 

 

 

 

Total assets

 

 

60,058

 

74,224

 

64,657

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

 

(5,966)

 

(5,369)

 

(8,795)

Lease obligation

 

 

(328)

 

(270)

 

(324)

Borrowings

 

 

(3,654)

 

(3,607)

 

(3,669)

Provisions for liabilities

 

 

  -

 

  -

 

-

 

 

 

 

 

 

 

 

 

 

 

(9,948)

 

(9,246)

 

(12,788)

 

 

 

 

 

 

 

 

Net current assets

 

 

10,138

 

29,543

 

12,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Deferred tax liability

 

 

-

 

(868)

 

-

Deferred income

 

 

(1,068)

 

-

 

(1,021)

Finance lease liabilities

 

 

(3,575)

 

(3,815)

 

(3,844)

Borrowings

 

 

(3,928)

 

(2,156)

 

(1,937)

 

 

 

 

 

 

 

 

Total liabilities

 

 

  (18,519)

 

  (16,085)

 

(19,590)

 

 

 

 

 

 

 

 

Net assets

 

 

41,539

 

58,139

 

45,067

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Share capital

10

 

3,449

 

3,447

 

3,446

Share premium account

 

 

61,603

 

61,602

 

61,600

Capital redemption reserve

 

 

21,853

 

21,853

 

21,853

Translation reserve

 

 

1,341

 

889

 

1,981

Retained earnings

 

 

(46,707)

 

(29,662)

 

(43,813)

 

 

 

 

 

 

 

 

Total equity

 

 

41,539

 

58,139

 

45,067

 

 

 

 

 

 

 

 

 

*See note 3 to the financial statements.

 

 

 

Consolidated condensed statement of changes in equity

For the six months ended 31 October 2020

 

 

Equity attributable to equity holders of the Group

 

Balance at 1 May 2020

3,446

 

61,600

 

 

21,853

 

1,981

 

(43,813)

 

45,067

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

-

 

-

 

 

-

 

-

 

(3,014)

 

(3,014)

Other comprehensive income for the period

 

-

 

 

-

 

 

 

-

 

 

(640)

 

 

-

 

 

(640)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive gain for the period

-

 

-

 

 

-

 

(640)

 

(3,014)

 

(3,654)

 

Transactions with shareholders recorded in equity

 

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital net of expenses

3

 

-

 

 

-

 

-

 

-

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium on shares issued less expenses

 

-

 

 

3

 

 

 

-

 

 

-

 

 

-

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit to equity for equity-settled share-based payments

 

-

 

 

-

 

 

 

-

 

 

-

 

 

120

 

 

120

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 October 2020

3,449

 

61,603

 

 

21,853

 

1,341

 

(46,707)

 

41,539

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 May 2019 as reported

 

3,446

 

 

61,600

 

 

 

21,853

 

 

949

 

 

(26,645)

 

 

61,203

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior period adjustment (see note 3)

-

 

-

 

 

-

 

(15)

 

(853)

 

(868)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 May 2019 (restated)

3,446

 

61,600

 

 

21,853

 

934

 

(27,498)

 

60,335

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

-

 

-

 

 

-

 

-

 

(2,264)

 

(2,264)

Other comprehensive income for the period

-

 

-

 

 

-

 

(35)

 

-

 

(35)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss for the period

 

-

 

 

-

 

 

 

-

 

 

(35)

 

 

(2,264)

 

 

(2,299)

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with shareholders recorded in equity

 

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital net of expenses

1

 

-

 

 

-

 

-

 

-

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium on shares issued less expenses

 

-

 

 

1

 

 

 

-

 

 

-

 

 

-

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit to equity for equity-settled share-based payments

 

-

 

 

-

 

 

 

-

 

 

-

 

 

100

 

 

100

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 October 2019 (restated)

3,447

 

61,602

 

 

21,853

 

899

 

(29,662)

 

58,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 May 2019 as reported

 

3,446

 

 

61,600

 

 

 

21,853

 

 

949

 

 

(26,645)

 

 

61,203

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior period adjustment (see note 3)

-

 

-

 

 

-

 

(15)

 

(853)

 

(868)

 

Balance at 1 May 2019 (restated)

 

3,446

 

 

61,600

 

 

 

21,853

 

 

934

 

 

(27,498)

 

 

60,335

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

-

 

-

 

 

-

 

-

 

(16,540)

 

(16,540)

Other comprehensive income for the period

 

-

 

 

-

 

 

 

-

 

 

1,047

 

 

-

 

 

1,047

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss for the year

 

-

 

 

-

 

 

 

-

 

 

1,047

 

 

(16,540)

 

 

(15,493)

 

Transactions with shareholders recorded in equity

 

 

 

 

 

 

 

 

 

 

 

 

Issue of share capital net of expenses

 

-

 

 

-

 

 

 

-

 

 

-

 

 

-

 

 

-

Credit to equity for equity-settled share-based payments

 

-

 

 

-

 

 

 

-

 

 

-

 

 

255

 

 

225

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 30 April 2020

3,446

 

61,600

 

 

21,853

 

1,981

 

(43,813)

 

45,067

 

 

 

 

 

 

 

 

 

 

 

 

 

                           

Consolidated condensed statement of cash flows

For the six months ended 31 October 2020

 

 

Note

 

Six months ended 31 October

2020

£'000

 

Six months

ended 31 October

2019

£'000

 

Year

ended

30 April 2020

£'000

 

 

 

(Unaudited)

 

(Unaudited)

 

(Audited)

 

 

 

 

 

 

 

 

Net cash used in operating activities

9

 

(1,890)

 

(876)

 

179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in long term cash deposits

 

 

-

 

1,250

 

1,250

Interest received

 

 

1

 

45

 

60

Purchases of property, plant and equipment

 

 

(295)

 

(5,459)

 

(6,965)

Purchases of patents and trademarks

 

 

(114)

 

(111)

 

(243)

Capitalisation of research and development costs

 

 

(2,667)

 

(1,738)

 

(5,256)

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(3,075)

 

(6,013)

 

(11,154)

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans received

 

 

2,283

 

2,000

 

2,100

Proceeds on issue of shares

 

 

3

 

2

 

-

Interest paid

 

 

(189)

 

(233)

 

(365)

Payment of loan and borrowings

 

 

(307)

 

(1,683)

 

(2,105)

Finance lease repayments

 

 

(272)

 

(265)

 

(539)

 

 

 

 

 

 

 

 

Net cash generated from/(used in) financing activities

 

 

1,518

 

(179)

 

(909)

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(3,447)

 

(7,068)

 

(11,884)

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

9,444

 

20,616

 

20,616

 

 

 

 

 

 

 

 

Effect of foreign exchange rate changes

 

 

(187)

 

(111)

 

712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

 

5,810

 

13,437

 

9,444

 

 

 

 

 

Notes to the unaudited interim statements

For the six months ended 31 October 2020

 

1.   Basis of preparation

This interim financial report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The auditors reported on the Kromek Group plc financial statements for the year ended 30 April 2020, their report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The Group's consolidated annual financial statements for the year ended 30 April 2020 have been filed with the Registrar of Companies and are available on the Group's website www.kromek.com .

 

2.  Going concern

The Directors have a reasonable expectation that the going concern basis of accounting remains appropriate and that the Group has adequate resources and facilities to continue in operation for the next 12 months based on its cash flow forecasts prepared. Accordingly, the Group's unaudited interim statements for the six months ended 31 October 2020 have been prepared on a going concern basis which contemplates the realisation of assets and the settlement of liabilities and commitments in the normal course of operations.

 

The Group meets its day-to-day working capital requirements from cash receipts from sales as well as external borrowings comprising a Revolving Credit facility (RCF) and capex facility from HSBC for which there are certain covenants attached. The RCF facility is subject to renewal in April 2022. The Group renegotiated its banking covenants in response to COVID-19 and secured waivers in relation to certain covenants. As a result of obtaining these waivers, the management forecast does not indicate any breaches of its covenants over the next 12 months. The management forecast indicates that the Group will continue to operate within the existing facilities, should they remain available, until the RCF renewal in April 2022.

 

3.  Interim report

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

 

Restatement as reported in the 2020 Annual Report: Following a review, management revisited the historical treatment of deferred tax in relation to development costs capitalised in the US subsidiaries since reporting under IFRS. As a result of management's review, a prior year adjustment has been made to recognise a non-current deferred tax liability of £868k as at 31 October 2019. For more detail, please refer to the 2020 Annual Report.

4.   Business and geographical segments

Products and services from which reportable segments derive their revenues

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

 

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

 

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

 

Analysis by geographical area

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

 

 

Six months ended 31 October

2020

£'000

 

Six months

ended 31 October

2019

£'000

 

Year

ended

30 April 2020

£'000

 

 

(Unaudited)

 

(Unaudited)

 

(Audited)

 

 

 

 

 

 

 

United Kingdom

 

683

 

1,916

 

2,541

North America

 

3,055

 

2,362

 

7,606

Asia

 

197

 

113

 

893

Europe

 

630

 

940

 

2,075

Australasia

 

11

 

2

 

5

 

 

 

 

 

 

 

Total revenue

 

4,576

 

5,333

 

13,120

 

 

 

 

 

 

 

 

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

 

Six months ended 31 October 2020

 

UK Operations

£'000

 

USA Operations

£'000

 

Total for Group

£'000

Revenue from sales

Revenue by segment:

-Sale of goods and services

2,255

 

1,615

 

3,870

-Revenue from grants

8

 

-

 

8

-Revenue from contract customers

2,266

 

320

 

2,586

Total sales by segment

4,529

 

1,935

 

6,464

Removal of inter-segment sales

(1,317)

 

(571)

 

(1,888)

Total external sales

3,212

 

1,364

 

4,576

 

 

 

 

 

 

Segment result - operating loss

(537)

 

(2,556)

 

(3,093)

Net interest

(179)

 

(127)

 

(306)

Loss before tax

(716)

 

(2,683)

 

(3,399)

Tax credit

385

 

-

 

385

Loss for the period

(331)

 

(2,683)

 

(3,014)

Other information

 

 

 

 

 

Property, plant and equipment additions

229

 

66

 

295

Depreciation of property, plant and equipment

483

 

338

 

821

Intangible asset additions

2,172

 

609

 

2,781

Amortisation of intangible assets

777

 

502

 

1,279

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Total assets

35,203

 

24,855

 

60,058

Total liabilities

(11,887)

 

(6,632)

 

(18,519)

 

Inter-segment sales are charged at prevailing market prices.

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

4.  Business and geographical segments (continued)

 

Six months ended 31 October 2019

 

UK Operations

£'000

 

USA Operations

£'000

 

Total for Group

£'000

Revenue from sales

Revenue by segment:

-Sale of goods and services

2,867

 

2,770

 

5,637

-Revenue from grants

508

 

-

 

508

-Revenue from contract customers

310

 

30

 

340

Total sales by segment

3,685

 

2,800

 

6,485

Removal of inter-segment sales

(642)

 

(510)

 

(1,152)

Total external sales

3,043

 

2,290

 

5,333

 

 

 

 

 

 

Segment result - operating loss

(573)

 

(1,769)

 

(2,086)

Net interest

(163)

 

(148)

 

(47)

Loss before tax

(736)

 

(1,917)

 

(2,653)

Tax credit

389

 

-

 

389

Loss for the period

(347)

 

(1,917)

 

(2,264)

Other information

 

 

 

 

 

Property, plant and equipment additions

4,963

 

496

 

5,459

Depreciation of property, plant and equipment

221

 

323

 

544

Intangible asset additions

1,044

 

805

 

1,849

Amortisation of intangible assets

573

 

514

 

1,087

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Total assets

38,059

 

36,182

 

74,241

Total liabilities

(9,536)

 

(5,698)

 

(15,234)

 

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

 

5.  Tax

The Group has recognised R&D tax credits of £385k for the six months ended 31 October 2020 (six months ended 31 October 2019: £398k).

6.  Dividends

The directors do not recommend the payment of a dividend (six months ended 31 October 2019: £nil).

7.  Losses per share

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

Losses

 

 

Six months ended 31 October

2020

£'000

 

Six months

ended 31 October

2019

£'000

 

Year

ended

30 April 2020

£'000

 

 

(Unaudited)

 

(Unaudited)

 

(Audited)

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

 

 

(3,014)

 

(2,264)

 

(16,540)

 

 

 

 

 

 

 

 

 

 

Six months ended 31 October

2020

 

Six months

ended 31 October

2019

 

Year

ended

30 April 2020

 

 

Thousands

 

Thousands

 

Thousands

 

 

(Unaudited)

 

(Unaudited)

 

(Audited)

Number of shares

 

 

 

 

 

 

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

 

344,751

 

344,642

 

344,644

 

 

 

 

 

 

 

Effect of dilutive potential ordinary shares:

 

 

 

 

 

 

  Share options and warrants

 

340

 

1,573

 

1,085

 

 

 

 

 

 

 

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

 

345,745

 

346,215

 

345,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (p)

 

(0.9)

 

(0.7)

 

(4.8)

Diluted (p)

 

(0.9)

 

(0.7)

 

(4.8)

 

 

 

 

 

 

 

 

Due to the Group having losses in each of the periods, the fully diluted loss per share for disclosure purposes, as shown in the income statement, is the same as for the basic loss per share.

 

8.  Property, plant and equipment

During the six months ended 31 October 2020, the Group acquired property, plant and equipment with a cost of £295k (six months ended 31 October 2019: £5,459k).

 

9.  Notes to the cash flow statement

 

 

 

Six months ended 31 October

2020

£'000

 

Six months

ended 31 October

2019

£'000

 

Year

ended

30 April 2020

£'000

 

 

(Unaudited)

 

(Unaudited)

 

(Audited)

 

Loss for the period

 

(3,014)

 

(2,264)

 

(16,540)

 

 

 

 

 

 

 

Adjustments for:

 

 

 

 

 

 

Finance income

 

(1)

 

(45)

 

(60)

Finance costs

 

307

 

356

 

604

Income tax credit

 

(385)

 

(389)

 

(1,805)

Depreciation of property, plant and equipment

 

821

 

544

 

1,185

Amortisation of intangible assets

 

1,279

 

1,087

 

2,142

Share-based payment expense

 

120

 

100

 

225

 

 

 

 

 

 

 

Operating cash flows before movements in working capital

 

(873)

 

(611)

 

(14,249)

 

 

 

 

 

 

 

 

(Increase) in inventories

 

(163)

 

(787)

 

(3,189)

Decrease/ (increase) in receivables

 

1,928

 

(826)

 

11,787

(Decrease)/ increase in payables

 

(2,782)

 

485

 

4,932

 

 

 

 

 

 

 

Cash used in operations

 

(1,890)

 

(1,739)

 

(719)

 

 

 

 

 

 

 

Income taxes received

 

-

 

863

 

898

 

 

 

 

 

 

 

Net cash used in operating activities

 

(1,890)

 

(876)

 

179

 

 

 

 

 

 

 

 

10.  Share capital

During the period, 250,000 ordinary shares (six months ended 31 October 2019: 12,000) were issued to satisfy the exercise of employee share options.

 

 

11.  Events after the balance sheet date

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

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