TIDMKMK
RNS Number : 3059B
Kromek Group PLC
07 October 2020
7 October 2020
Kromek Group plc
("Kromek" or the "Group")
Final Results
Kromek (AIM: KMK), a worldwide supplier of detection technology
focusing on the medical, security screening and nuclear markets,
announces its final audited results for the year ended 30 April
2020.
Financial Summary
-- Revenue of GBP13.1m (2018/19: GBP14.5m)
-- Gross margin was 47.3% (2018/19: 57.2%)
-- Adjusted EBITDA* of GBP0.4m loss (2018/19: GBP2.0m earnings)
-- Loss before tax excluding exceptional items was GBP5.2m (2018/19: GBP1.3m loss)
-- Exceptional loss in respect of trade receivables and amounts
recoverable on contract due to the economic and operational impacts
of COVID-19 was GBP13.1m (2018/19: GBPnil)
-- Loss before tax including exceptional items was GBP18.3m (2018/19: GBP1.3m loss)
-- Cash and cash equivalents at 30 April 2020 were GBP9.4m (30
April 2019: GBP20.6m) following planned investment in property,
plant and equipment totalling GBP7.0m
*Adjusted EBITDA is defined as earnings before interest,
taxation, depreciation, amortisation, other income, exceptional
items, early settlement discounts and share-based payments. For
further details, see the Financial Review below.
Operational Summary
-- Solid progress was made in the early part of the year with
Kromek reporting record H1 2019/2020 revenues. However, the
COVID-19 pandemic caused disruption in Q4 2019/2020 causing some
projects to be delayed into the new financial year
-- Substantial expansion programme implemented at UK
headquarters to increase CZT manufacturing capacity and D3S
production
-- Significant commercial traction with D3S family of products with sales in 22 countries:
o Successfully delivered orders of GBP2.1m from a European
government-related company, a new customer
o Expanded the geographic reach with the win of a competitive
tender to provide the D3S platform to the Irish Civil Defence under
a three-year contract
o Further contracts won from the US government and European
Commission
-- Commenced delivery on a significant $58.1m contract to
provide an OEM customer with CZT detectors and associated advanced
electronics for its state-of-the-art medical imaging systems
-- Won contracts with the Canadian Nuclear Safety Commission and
Curaçao government for civil nuclear solutions and sold radiation
mapping solution for drones to UKAEA (1) and Sellafield (2)
-- Key milestone reached in security screening with OEM customer
achieving the highest level of European liquid explosive detection
certification for cabin baggage for its scanner. Received first
commercial order post-period
-- Five new patents were filed and 20 were granted during the year
Current Trading and Outlook
-- Impact of pandemic has continued into the first four months of the new financial year
-- Two key customers whose material contracts were postponed
from the previous year have now issued instructions to
recommence
-- Business patterns now returning to normal and detector shipments are being scheduled
-- Post-period, awarded a $5.2m contract extension, by the
Defense Advanced Research Projects Agency ("DARPA"), an agency of
the US Department of Defense, to work on a mobile wide-area
bio-security system capable of detecting airborne pathogens
-- Increased visibility from customers as evidenced by largest
customer in medical imaging segment providing the Group with their
plans for the full fiscal year
-- Demand for D3S family of products continues to increase and
there is renewed procurement activities in the US, Asia and
Europe
-- New emerging segment of biological-threat detection has significant long-term implications
-- Board cautiously optimistic for the year ahead
Dr Arnab Basu, CEO of Kromek, said:
"We entered 2019/20 in a stronger position than ever before,
increasing revenues by 43% in the first half. However, the pandemic
caused markets to shut down and materially impacted both our global
customer base and supply chain resulting in overall revenues for
full year 2019 to be lower than the previous year. However, the
mitigation measures and operational progress we have made during
the year means we are well-positioned to rebound strongly.
"We have significantly expanded our production capacity and
increased sales of our popular D3S platform that is being deployed
in 22 countries, including new contracts with the US Government and
European Commission. We have also deepened our relationship with
DARPA to build a bio-surveillance system for detecting airborne
pathogens. In medical, we expect product cycles to continue to
refresh as early and better diagnostics is increasingly recognised
as critical to more effectively managing diseases like cancer and
cardiac conditions. These are substantial addressable markets
underpinned by fundamental long-term growth drivers.
"I am immensely proud of the resilience and attitude of our
staff as we have all adapted to new ways of working. It is greatly
encouraging that we are now starting to see a return to normal
business patterns, and this is feeding through into increased
activity from our customers around the world. As a result, the
Board is cautiously optimistic for the year ahead and will provide
updates to the market as the outlook becomes clearer moving
forward."
This announcement contains inside information.
For further information, please contact:
Kromek Group plc
Arnab Basu, CEO
Derek Bulmer, 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 (PR)
Harry Chathli
Claire Norbury
Alexis Gore
Joe Quinlan +44 (0)20 7618 9100
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 entered 2019/20 in a stronger position than ever before,
increasing revenue by 43% in the first half over the previous
period. The pandemic caused markets to shut down and materially
impacted both the Group's global customer base and supply chain
resulting in overall revenues for full year 2019/20 to be lower
than the previous year. However, the mitigation measures and
operational progress that Kromek made during the year mean the
Group is well-positioned to rebound strongly.
Notwithstanding the impact of the pandemic, the Group made
notable progress during the year in the strengthening of its
operations. Kromek implemented a substantial expansion programme at
its UK headquarters in Sedgefield to increase its cadmium zinc
telluride ("CZT") manufacturing capacity. The Group also continued
to gain traction for its next-generation molecular imaging single
photon emission computed tomography ("SPECT") products in medical
imaging and its D3S family of products in nuclear detection - which
management believe are the key drivers of the Group's future growth
along with newly emerging segment of biological-threat detection
.
COVID-19 Impact
The COVID-19 pandemic presented unprecedented challenges to
Kromek's supply chains and operations while adversely impacting
demand from certain customers. Some contracts were postponed to the
new financial year and two key customers have now issued
instructions to recommence their contracts.
The Group was fast to respond to the evolving public health
emergency and by the middle of March 2020, it had activated its
business continuity plan and transitioned most of its employees in
the UK and US to remote working in order to protect the health and
safety of the workforce.
The Group undertook a number of temporary mitigation measures to
bolster the liquidity of the business and its financial position.
Actions taken included the implementation of some organisational
restructuring; ceasing all discretionary capital expenditure;
curtailing all travel and non-essential spend; and securing short-
and medium-term rent concessions on some of the Group's leased
properties. Kromek has undertaken job reductions in the US and
engaged the Job Retention Scheme in the UK, furloughing a number of
staff. These measures, along with others in the pipeline, are
expected to reduce running costs and cash outflow. In addition, the
Group has secured further loans with HSBC of GBP1.4m and, in the
US, Paycheck Protection loans of around $1m. The Group has also
varied the bank covenants on the Revolving Credit Facility with
HSBC to ensure the continued availability of this instrument.
In April 2020, Kromek entered a licensing agreement with Metran
Co., Ltd, a Japan-based leading developer of medical ventilator
products and technology, with the intention to manufacture and sell
invasive emergency ventilators to support the COVID-19 crisis.
Kromek continues to see interest in the product and signed an
agreement for the supply of ventilators in a European country,
which will become effective following receipt of appropriate
certifications in that jurisdiction. The Group anticipates this
market to remain active over the next 12-18 months as countries
continue to build capacity in the fight against COVID-19 and build
resilience against any similar pandemics in the future.
With the lifting of lockdowns in the UK and the US, Kromek's
workforce that are required to be onsite have been able to return
to the Group's facilities as Kromek now starts to resume full scale
production. Business is showing signs of returning to normal
trading, with orders being issued and shipments, once again, being
scheduled. However, this still remains a challenge for certain
parts of the world where both movement of people and goods continue
to be hindered by restrictions.
Medical Imaging
Medical imaging represents a significant market opportunity for
Kromek with SPECT and molecular breast imaging ("MBI") as key
target growth areas for the Group's CZT-based detector
solutions.
Kromek continued to make progress in this market during the
year. In particular, the Group commenced delivery on one of its
most significant contracts to date, which had been awarded in H2
2018/19, to provide an OEM customer with CZT detectors and
associated advanced electronics to be used in its state-of-the-art
medical imaging systems. The contract is expected to be worth a
minimum of $58.1m over an approximately seven-year period.
In recent years, leading OEMs in medical imaging have been
increasingly adopting CZT detector platforms as the enabling
technology for their product roadmaps - leading to growing demand
for Kromek's solutions. However, because of COVID-19 related
factors, hospital resources have been temporarily redirected and
logistics constraints hamper new system installations.
Consequently, some orders were postponed as medical OEM customers
were required to delay new systems sales and product introductions.
While this disruption has had a significant impact on Kromek's
medical imaging business, the Group expects this to be short-term
and believes the market opportunity remains substantial. In
addition, normal business patterns are returning and some customers
are now beginning to resume orders with detector production and
shipments being scheduled.
The Group also progressed the development of its ultra-low dose
MBI technology based on its CZT-based SPECT detectors. 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.
Nuclear Detection
Nuclear Security
Kromek continued to see opportunities and demands for its D3S
platform, which is attracting business interest across the globe -
and has been sold in more than 22 countries.
A key achievement was the award of a strategically significant
contract, worth GBP1.1m, by a European-government related company,
a new customer, for the provision of D3S-related technologies,
which was subsequently extended by GBP1.0m to provide technology
integration. The customer works with a European government to
detect and protect against potential nuclear threats. The Group has
successfully delivered this contract and its solutions are being
actively deployed by the customer for wide-area threat
monitoring.
Kromek was awarded a new and an extension contract worth over
$1m in total under two initiatives by the US government:
-- The Countering Weapons of Mass Destruction Office, which is a
component within the US Department of Homeland Security, has
awarded Kromek a $0.7m extension contract to add further technical
innovation capability to the D3S family of products.
-- The Joint Program Executive Office for Chemical, Biological,
Radiological and Nuclear Defense (JPEO-CBRND) awarded Kromek a
$0.4m contract to provide D3S-related customisation for military
operational transition, which will leverage the DARPA SIGMA Program
sensor and technology.
The D3S platform was used in active deployments and field-tests
in multiple locations of strategic importance and high risk across
the US, Asia and Europe. This includes deployment under an
initiative, for which the Group was awarded a EUR0.2m contract, by
the European Commission's Directorate-General for Migration and
Home Affairs, working alongside security authorities in Belgium,
Luxembourg, The Netherlands and Spain, to allow the law enforcement
authorities to validate new and emerging technologies for homeland
protection. The European Commission used the D3S-ID and D3S Drone
radiation detectors for the protection of public spaces across
multiple European locations covering high-risk venues such as
airports, train stations and other public areas. Following this
initiative, the Group has received an additional order for software
development to expand the capabilities of the D3S Drones as well as
more detectors for a new trial application.
Kromek also continued to expand the geographic reach of the D3S
with the win of a competitive tender to provide its D3S platform to
the Irish Civil Defence under a three-year contract worth up to
EUR0.2m. The first units are now in use and further orders are
expected shortly. In addition, the Swiss Government has listed the
D3S-ID for use at waste and recycling sites.
The Group's business and product development pipeline have
remained good. During the year, Kromek launched the latest version
of the D3S for first responders, the D3M PRD. The Group has
continued to execute on multiple US government sponsored
programmes, including the development of a fully ruggedised radio
isotope identification device (RIID), which is expected to be
launched later this calendar year. The Group is starting to see
renewed procurement activities in the US, Asia and Europe after a
period of slowdown over the last six months. The Group has
continued to strengthen and expand its distribution network both in
Europe and Asia. This includes new in-country partners for the D3S
in France, Spain, Italy, Poland and Serbia.
Civil Nuclear
In the civil nuclear markets, the Group won several new
contracts globally for its portfolio of high-resolution detectors
and measurement systems used in nuclear power plants, research and
for other applications. This included contracts with the Canadian
Nuclear Safety Commission as well as other government customers.
This was supplemented by the home market, where the Group's
radiation mapping solutions for drones were sold to UKAEA and
Sellafield. Kromek's markets in civil nuclear continue to expand
with new customers and repeat orders from existing customers.
Security Screening
In security screening, the Group continued to provide its OEM
and government customers with components and systems for cabin and
hold luggage scanning applications. This includes delivery on the
$2.7m expansion order, which was received at the end of the 2018/19
year, under Kromek's long-term contract to provide key components
for a US-based customer's security screening system for the
detection of explosives. The order expansion reflects the growing
recognition of the strength of Kromek's detection solution and
credentials as a high-quality product supplier. The Group continues
to receive increasing 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 also reached a key milestone with another OEM customer
in the security screening market, which achieved the highest level
of European liquid explosive detection certification for cabin
baggage for their new generation scanner that is based on Kromek
technologies. This certification enabled commercial deployment of
the product and, post period, the Group has received the first
commercial order from its customer.
Biological-Threat Detection
Post period, Kromek was awarded a contract extension worth up to
$5.2m by DARPA, a long-standing customer, to advance the
development of a solution for the detection and identification of
pathogens in an urban environment via a vehicle-mounted
biological-threat identifier. However, in response to the outbreak
of COVID-19, the project is expected to be expanded beyond the
development of a mobile wide-area bio-surveillance system against
possible bioterrorism.
Once fully developed over the next few months, the technology
should be able to sample air and identify the presence of any
biological pathogen - including COVID-19 or any mutant version that
may emerge over time. It is intended that the technology will be
used to immediately flag the presence of someone with a contagious
disease and allow effective mitigation of the risk of transmission.
By placing samplers in high footfall areas, such as airports and
hospitals, or where people are in close proximity for long periods,
for example in transport vessels such as aircraft and care homes,
threats can be identified without having to individually test
people. Knowing a carrier is infected with a disease before they
infect further individuals is key to halting the onset of an
outbreak and before it causes major global disruption.
The Group expects to continue further development, piloting, and
commercial deployments of this solution over the coming months.
Manufacturing Facilities
In order to meet growing demand for Kromek's products, the Group
continued its planned programme to significantly increase its
production capacity and optimise the manufacturing process. During
the year, Kromek successfully completed a substantial expansion
programme at its UK headquarters in Sedgefield by increasing both
the number of furnaces for growing CZT and material processing
tools. In addition, the Group expanded the product assembly space
for new and existing handheld radiation detector products in its
existing UK factory.
The CZT manufacturing process capability was enhanced with
advanced automated sensor assembly capability, significantly
improving both process capability and operational capacity. As part
of the process, Kromek will be introducing new CZT processing
technology, which is expected to further enhance process quality,
yield and manufacturing throughput.
This investment in the UK headquarters follows the relocation of
the Group's US operations to a new purpose-built premise near
Pittsburgh, Pennsylvania. The site move was completed during the
year with the operation moving in its entirety during June 2019,
which has enabled a ramp-up in production for CZT-based cameras to
serve the SPECT market. Both the UK and US manufacturing sites are
certified to ISO9001:2015 through the annual ISO audit cycle.
R&D, Product Development and IP
The Group conducts continuous appraisal of a global supply chain
for electronics components, critical materials and partner
capabilities to ensure readiness for both changing customer and
market demands. Kromek has continued to expand its IP portfolio
through its core technology and product developments, in line with
its key aims for IP protection: protect products; create market
position and freedom to operate; and increase property value.
During the year, the Group applied for five new patents and had
20 patents granted across 10 patent families. The new applications
cover innovations across Kromek's nuclear, medical and
biological-threat detection offerings and, while relating to
targeted product developments, will also provide value beyond these
fields. For example, the patent applications in the nuclear field
can apply to multiple uses of scintillator detectors; the medical
application will provide valuable IP, which underpins a key benefit
of CZT; and the biological applications cover components that will
have uses far beyond CBRN detection.
Financial Review
Kromek started the year well, with half-year revenue increasing
by 43% to GBP5.3m (H1 2018/19: GBP3.7m), and the Group felt
confident of delivering another year of strong growth. However, the
Group's financial year end of 30 April 2020 was at the height of
global lockdown measures following a highly disrupted Q4 2019/2020
from January 2020 onwards. As noted in the announcement of 1 May
2020, the Group experienced a material impact on its operations
because of the COVID-19 outbreak with delays in certain projects
due to constraints imposed upon sub-contractors, suppliers, and
customers. The Group was also informed that two of its key
contracts would be delayed until the new financial year. Both
customers have now issued instruction to re-commence, though
initially at lower levels than originally contracted.
As a result, revenue was reduced by 10% to GBP13.1m (2018/19:
GBP14.5m) and gross margin to GBP6.2m (2018/19: GBP8.3m). Due to
higher administration costs of GBP10.6m (2018/19: GBP9.0m), the
adjusted EBITDA decreased to a loss of GBP0.4m compared with
earnings of GBP2.0m for the prior year.
Revenue
The Group generated total revenue of GBP13.1m (2018/19:
GBP14.5m). The split between Product sales and revenue from R&D
contracts is detailed in the table below:
Revenue Mix 2019/20 2018/19
GBP'000 % share % share
-------- -------
Product 10,314 79% 12,060 83%
-------- -------
R&D 2,806 21% 2,467 17%
-------- -------
Total 13,120 14,517
-------- -------- ------- --------
Revenue was directly affected in Q4 2019/2020 by the impact of
COVID-19. To strengthen its cash position, the Group negotiated an
early payment from a specific customer in exchange for an early
settlement discount. In line with IFRS 15 accounting standard,
these discounts (amounting to GBP0.7m; 2018/19: GBPnil) have been
netted off against revenue. Without this discount, revenue would
have been GBP13.8m and gross profit would have been GBP6.9m with a
gross margin of 50.0%.
Gross Margin
The year-on-year decrease in revenue, combined with a reduction
in gross margin, resulted in a fall in gross profit to GBP6.2m
(2018/19: GBP8.3m). The fall in gross margin to 47.3% (2018/19:
57.2%) is attributable to three key elements. Firstly, a lower
margin yield associated with the initial year of the commencement
of production of the seven-year medical imaging contract announced
in early 2019. The second key element, as noted above, results from
a discount on an early settlement to one key customer in airport
security relating to a substantial call-off and payment ahead of
schedule. This both de-risked this commercial opportunity, but also
ensured that the Group could record further receipts of $2m at the
year-end and thus strengthen its cash position. The third key
element to the reduction in gross margin was the cost impact of
bought in goods where alternative suppliers had to be sought to
complete the products and services that could be shipped during the
final two months of the year.
Administration Costs
Administration costs and operating expenses increased by GBP1.6m
to GBP10.6m (2018/19: GBP9.0m). This increase is substantially the
net result of:
-- GBP1.2m additional staff costs due to the planned expansion
of the sales and production teams, plus technology personnel to
support the biological detection project.
-- GBP0.3m additional costs of depreciation largely relating to
the capital expenditure on the furnace and fabrication expansion of
GBP6.1m.
-- GBP0.3m additional costs of amortisation due to continued
investment in the technology platform and product applications.
-- GBP(0.7)m foreign exchange credit largely due to a surplus
realised on the Group's US$ overdraft facility settled during the
year.
-- GBP0.5m relating to a combination of other items, including
an increase in the US cost base, largely compensated by the foreign
exchange gain noted above.
Exceptional Items
The Group has recorded an exceptional Item of GBP13.1m being
substantially the write down of Amounts Recoverable On Contract
("AROC") brought about by the uncertainty of COVID-19. As set out
last year, the Group had planned to reduce the significant debtor
balance regarding AROC and the Group's management had undertaken
several visits to China to effect this. That process looked very
promising during the period up to January 2020, but the onset of
COVID-19 in China, and subsequently the rest of the world,
resulting in the financial status of the Group's customers becoming
uncertain. Consequently, the Board has prudently chosen to take a
full provision against the AROC balance.
The Board is confident that once there is greater clarity on the
flow of funds through investment and movement of goods and people,
both globally and within China, this position will reverse, and the
Group will see the opportunities materialise. The Group has secured
a contract addendum for medical imaging systems with its major
customer that sets out clear call-off schedules and a commitment to
a multi-year opportunity, which also assists in monitoring any
changes in deemed credit status. As the Chinese economy reopens and
this contract addendum becomes effective, the Board remains
committed to creating value from this relationship, but also more
widely from the investment in the underlying technology. Kromek's
exposure and reputation for this technology in China is growing and
the Group's network and support structures in the region will
ensure that it can effectively work with its customers and expand
its opportunities.
Adjusted EBITDA* and Result from Operations
Primarily due to the impact of COVID-19 on the Group's
operations, adjusted EBITDA for 2019/20 was a loss of GBP0.4m
compared with earnings of GBP2.0m for the prior year as set out in
the table below:
2019/20 2018/19
GBP'000 GBP'000
--------- --------
Revenue 13,120 14,517
--------- --------
Gross profit margin 6,208 8,309
--------- --------
Gross margin (%) 47.3% 57.2%
--------- --------
Loss before Tax (18,345) (1,270)
--------- --------
EBITDA Adjustments:
--------- --------
Non- COVID-19 Related Items:
--------- --------
Net interest 544 364
--------- --------
Depreciation of PPE and
Right of Use assets 1,185 879
--------- --------
Amortisation 2,142 1,806
--------- --------
Share-based payments 225 195
--------- --------
COVID-19 Related Items:
--------- --------
Early settlement discount 746 -
--------- --------
Exceptional Item 13,062 -
--------- --------
Adjusted EBITDA* (441) 1,974
--------- --------
*Adjusted EBITDA is defined as earnings before interest,
taxation, depreciation, amortisation, other income, exceptional
items and share-based payments. The impact of COVID-19 has resulted
in an exceptional item of GBP13.1m relating to receivables and AROC
and a specific airport security customer early settlement discount
of GBP0.7m 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. This definition has changed from
2018/19 to include the exceptional item and early settlement
discount. However, in 2018/19 there were no exceptional items or
such specific early settlement discounts meaning the Adjusted
EBITDA from 2018/19 has not changed.
The GBP2.4m decrease in adjusted EBITDA in 2019/20 compared with
2018/19 is substantially a result of a loss in gross profit of
GBP2.1m due to the lower revenue and reduction in gross profit
margin noted above.
Loss before tax for the year increased to GBP18.3m (2018/19:
GBP1.3m loss), largely due to the loss in gross profit of GBP2.1m,
additional administration costs of GBP1.6m and the exceptional item
of GBP13.1m.
During 2019/20, the Group recognised other comprehensive income
of GBP1.0m (2018/19: GBP1.2m income) that arose in respect of
exchange differences on a net investment in a foreign operation as
described in note 2 to the financial statements. Unlike the GBP0.7m
gain resulting from foreign exchange on consolidation and
revaluations and realisation of working capital balances noted
above that were expensed to the profit and loss account, this gain
has been treated as a reserve movement, consistent with the prior
year.
Tax
The Group continues to benefit from the UK Research and
Development Tax Credit, resulting from the investment in technology
developments, and recorded a credit of GBP0.9m for the year
(2018/19: GBP1.0m).
Following a review, the Group has revisited the historical
treatment of deferred tax in relation to development costs
capitalised in Kromek's US operations since reporting under IFRS.
As a result, through a prior year adjustment, a deferred tax
liability has now been recognised on the Group's balance sheet as
at 30 April 2019 totalling GBP0.9m with the corresponding
adjustments made to the profit and loss account and retained
earnings. This liability has subsequently been fully eliminated
during the year ending 30 April 2020 following an offset with a
deferred tax asset arising in the Group's US operations relating to
accumulated losses to date. Please refer to note 2 to the financial
statements for a summary of the adjustments made.
Due to the elimination of the deferred tax liability and the UK
Research and Development Tax Credit, the tax charge for the year is
a credit of GBP1.8m (2018/19: GBP0.6m credit).
Earnings per Share ("EPS")
Due to a GBP3.5m loss after tax from continuing operations
(after excluding exceptional Items) for the year, the EPS is
recorded in the year on a basic and diluted basis as 1.0p loss per
share (2018/19 restated: 0.2p loss per share). Due to a GBP16.5m
loss after tax from continuing operations (including exceptional
items) for the year, the EPS is recorded in the year on a basic and
diluted basis as 4.8p loss per share (2018/19 restated: 0.2p loss
per share).
R&D
The Group invested GBP5.3m in the year (2018/19: GBP2.7m) in
technology and product developments that were capitalised on the
balance sheet, reflecting the ongoing investment in new products
and new applications for the future growth of the business. This
capitalisation is higher in the current year because of two key
factors. Firstly, last year the figure was artificially reduced due
to the facility move in the US during the first half of 2018/19 and
the restrictions this disruption placed on development work.
Secondly, the Group has chosen to pursue the opportunity in
automated wide-area detection of biological pathogens, involving
portable DNA sequencing. It is the Board's belief that this
technology will enable the identification of the COVID-19 threat in
public spaces and offers opportunities for the Group in this
critical market. This is a position endorsed by the US government
with DARPA awarding Kromek a major contract in May 2020 as part of
the development of this platform and product applications.
The other key areas of development continue to be the expansion
in the D3S suite of products and the SPECT platforms. All such
investments in research and development are linked to contract
deliverables and the Board's belief in 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 (2018/19: GBP0.2m) with five new patents
filed and 20 patents granted across 10 patent families.
Capital Expenditure
Capital expenditure in the year amounted to GBP7.0m (2018/19:
GBP3.6m). As previously stated, this planned increase relates
primarily to the expansion of the CZT growth facility,
manufacturing processes and capacity in both the UK and US. Over
recent years, the Group has demonstrated that it can now replicate
this capability on multiple sites and significantly implement and
scale up operations. This is a major achievement by the Group and
the many members of Kromek's team that have worked on this project.
The capital project is now installed, commissioned and in operation
- delivering against multiple projects, but particularly against
the major medical imaging contract announced in early 2019.
Cash Balance
Cash and cash equivalents were GBP9.4m as of 30 April 2020 (30
April 2019: GBP20.6m). The decrease in cash during 2019/20 was a
combination of the following:
-- An adjusted EBITDA loss for the year of GBP0.4m.
-- Net cash used in financing activities of GBP0.9m.
-- GBP0.4m reduction in working capital, excluding the
exceptional write off of the AROC balance of GBP13.1m.
-- R&D Tax Credit receipts of GBP0.9m.
-- Investment in product development and other intangibles, with
capitalised development costs of GBP5.3m and IP additions of
GBP0.2m.
-- Capital expenditure of GBP7.0m, as noted above.
-- GBP1.3m conversion of the Investment in long-term cash deposits into a more liquid form.
The movement in key working capital balances is analysed as
follows:
-- A GBP3.2m increase in inventories held on 30 April 2020 to
GBP6.4m (30 April 2019: GBP3.2m). Following the $58.1m medical
imaging contract awarded in January 2019, the Group is holding more
component stock and work in progress to meet the call-off plan of
the contract. Due to delays driven by COVID-19, a substantial
element of shipments intended for March and April 2020 were held
back due to customer requests. A revised call-off plan has been
received during August 2020 and it is anticipated that this
inventory will begin to flow into a monthly rolling production and
shipment plan.
-- A GBP1.3m increase in trade and other receivables (excluding
exceptional items) reflecting the timing of invoicing and payments
during the strict lockdown of the Group's Q4.
-- A GBP3.9m increase in trade and other payables to GBP8.8m
(2018/19: GBP4.9m). This increase is due to capital expenditure in
the year and the timing of invoicing around the year end.
Additionally, there has been a build-up of inventory to meet the
needs of the medical imaging contract noted above. The Group also
secured a GBP0.7m grant during the year regarding job creation in
County Durham following the aforementioned $58.1m medical imaging
contract, which is currently recognised on the balance sheet as
deferred income.
-- As noted last year, in March 2019 the Group renewed its
existing Revolving Credit Facility with HSBC. The facility was
extended to GBP5.0m from GBP3.0m and the renewal period was
increased to a minimum of three years, with an additional option
for up to five years. At 30 April 2020, GBP3.1m of the facility was
drawn (30 April 2019: GBP3.0m) to support the working capital
expansion. A further GBP1.8m of the facility has been used to fund
plant and machinery. Given the downward impacts on immediate
outlook because of COVID-19, Kromek has renegotiated the bank
covenants to ensure that the Group can continue to rely on the
flexibility of this facility.
Outlook
Kromek's position as a leading manufacturer of next-generation
CZT-based products, supplying substantial growing markets and
multi-year contracts, gives the business a degree of
resilience.
The disruption in the final quarter of the 2019/20 year carried
through to the first four months of the new financial year. Normal
business patterns are now returning and some customers are
beginning to resume orders with detector production and shipments
being scheduled. Two customers who had postponed their contracts
have now issued instructions to recommence work. Additionally, the
Group is experiencing increasing visibility from its customers,
including from Kromek's largest customer in the medical imaging
segment who has provided it with visibility on their plans for the
full fiscal year. Demand for D3S family of products continues to
increase and there is renewed procurement activities in the US,
Asia and Europe after a period of slowdown over the past six
months. As a result, the Board is cautiously optimistic for the
year ahead and will provide updates to the market as the outlook
becomes clearer moving forward.
From a long-term perspective, Kromek's key addressable markets
benefit from fundamental growth drivers. The Group expects to see
the refresh of product cycles continue in the medical sector, which
is being transformed by CZT-based radiation detection. Early and
better diagnostics is recognised as one of the means to deal more
effectively with diseases like cancer and cardiac conditions. This
pandemic has shown some of the vulnerabilities in the western
healthcare systems and the lack of resilience due to
under-investment over the last decade, which is expected to drive
growth in addition to new demands in countries like China, India
and Brazil. In the nuclear detection segment, security authorities
continue to invest in sophisticated technologies, while
bio-security is an emerging focus with significant long-term
implications and monitoring and surveillance is expected to become
the only way to deal with threats from novel viruses such as
COVID-19.
With substantial long-term market drivers and significantly
expanded production capacity in place, Kromek is well positioned to
deliver on demand from around the world for next-generation
radiation detection technologies.
Kromek Group plc
Consolidated income statement
For the year ended 30 April 2020
Restated*
2020 2019
Note GBP'000 GBP'000
Continuing operations
Revenue 3 13,120 14,517
Cost of sales (6,912) (6,208)
--------- ----------
Gross profit 6,208 8,309
Other operating income 3 - -
Distribution costs (336) (184)
Administrative expenses (10,611) (9,031)
--------- ----------
Operating loss (before exceptional
items) (4,739) (906)
Exceptional impairment losses
on trade receivables and amounts
recoverable on contract 6 (13,062) -
Operating results (post exceptional
items) (17,801) (906)
--------- ----------
Finance income 60 155
Finance costs (604) (519)
--------- ----------
Loss before tax 4 (18,345) (1,270)
Tax 7 1,805 637
--------- ----------
Loss for the year from continuing
operations (16,540) (633)
Loss for the year from continuing
operations (before exceptional
items) (3,478) (633)
Loss per share 8
- basic (p) (4.8) (0.2)
* diluted (p) (4.8) (0.2)
*see notes 2 and 9 in the accounts
Kromek Group plc
Consolidated statement of comprehensive income
For the year ended 30 April 2020
Restated*
2020 2019
GBP'000 GBP'000
Loss for the year (16,540) (633)
-------- ----------
Items that are or may be subsequently
reclassified to profit or loss:
Exchange differences on translation
of foreign operations 1,047 1,189
Total comprehensive (loss)/income
for the year (15,493) 556
-------- ----------
*see note 2 in the accounts
Kromek Group plc
Consolidated statement of financial position
As at 30 April 2020
Restated*
2020 2019
Note GBP'000 GBP'000
Non-current assets
Goodwill 1,275 1,275
Other intangible assets 21,878 18,165
Investments - long-term cash
deposits - 1,250
Property, plant and equipment 12,551 6,252
Right-of-use asset 3,852 3,975
-------- ---------
39,556 30,917
-------- ---------
Current assets
Inventories 6,416 3,227
Trade and other receivables 8,210 19,997
Current tax assets 1,031 987
Cash and bank balances 9,444 20,616
-------- ---------
25,101 44,827
-------- ---------
Total assets 64,657 75,744
-------- ---------
Current liabilities
Trade and other payables (8,795) (4,884)
Borrowings 10 (3,669) (3,133)
Lease obligation (324) (273)
-------- ---------
(12,788) (8,290)
Net current assets 12,313 36,537
-------- ---------
Non-current liabilities
Deferred tax liability 2, 9 - (868)
Deferred income (1,021) -
Lease obligation (3,844) (3,938)
Borrowings 10 (1,937) (2,313)
-------- ---------
(6,802) (7,119)
-------- ---------
Total liabilities (19,590) (15,409)
-------- ---------
Net assets 45,067 60,335
-------- ---------
Equity
Share capital 3,446 3,446
Share premium account 61,600 61,600
Merger reserve 21,853 21,853
Translation reserve 1,981 934
Accumulated losses (43,813) (27,498)
-------- --------
Total equity 45,067 60,335
-------- --------
*see notes 2 and 9 in the accounts
The financial statements of Kromek Group plc (registered number
08661469) were approved by the Board of Directors and authorised
for issue on 6 October 2020. They were signed on its behalf by:
Dr Arnab Basu MBE
Chief Executive Officer
Kromek Group plc
Consolidated statement of changes in equity
For the year ended 30 April 2020
Share Accumulated
Share premium Merger Translation income/ Total
capital account reserve reserve (losses) equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
May 2018 as
previously
reported 2,604 42,625 21,853 (269) (26,557) 40,256
Prior year
adjustment
(see notes 2
and 9) - - - 14 (503) (489)
Balance at 1
May 2018
restated 2,604 42,625 21,853 (255) (27,060) 39,767
Restated loss
for the year
(see notes 2
and 9) - - - - (633) (633)
Restated
exchange
difference on
translation
of foreign
operations
(see notes 2
and 9) - - - 1,189 - 1,189
-------- -------- ------------ ------------ --------------------
Total
comprehensive
income/(losses)
for the year - - - 1,189 (633) 556
Issue of share
capital net
of expenses 842 18,975 - - - 19,817
Credit to equity
for
equity-settled
share-based
payments - - - - 195 195
-------- -------- -------- ------------ ------------ --------------------
Balance at 30
April 2019
restated 3,446 61,600 21,853 934 (27,498) 60,335
-------- -------- -------- ------------ ------------ --------------------
Loss for the
year - - - - (16,540) (16,540)
Exchange
difference
on translation
of foreign
operations - - - 1,047 - 1,047
-------- -------- -------- ------------ ------------ --------------------
Total
comprehensive
income/(losses)
for the year - - - 1,047 (16,540) (15,493)
Issue of share
capital net
of expenses - - - - - -
Credit to equity
for
equity-settled
share-based
payments - - - - 225 225
-------- -------- -------- ------------ ------------- ----------------------
Balance at 30
April 2020 3,446 61,600 21,853 1,981 (43,813) 45,067
-------- -------- -------- ------------ ------------- ----------------------
Kromek Group plc
Consolidated statement of cash flows
For the year ended 30 April 2020
2020 2019
Note GBP'000 GBP'000
Net cash inflow/(used in) operating
activities 11 179 (4,777)
-------- ---------
Investing activities
Investment receipts from money market
account 1,250 -
Interest received 60 155
Purchases of property, plant and
equipment (6,965) (3,644)
Purchases of patents and trademarks (243) (210)
Capitalisation of development costs (5,256) (2,731)
-------- ---------
Net cash used in investing activities (11,154) (6,430)
-------- ---------
Financing activities
Net proceeds on issue of shares - 19,817
New borrowings 2,100 2,557
Payment of borrowings (2,105) (111)
Payment of lease liability (539) (486)
Interest paid (365) (293)
-------- ---------
Net cash (used in)/generated from
financing activities (909) 21,484
Net (decrease)/increase in cash
and cash equivalents (11,884) 10,277
Cash and cash equivalents at beginning
of year 20,616 9,488
Effect of foreign exchange rate
changes 712 851
Cash and cash equivalents at end
of year 9,444 20,616
-------- ---------
Kromek Group plc
Notes to the consolidated financial statements
For the year ended 30 April 2020
1. General information
Kromek Group plc is a company incorporated and domiciled in the
United Kingdom under the Companies Act. 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's financial information has been prepared in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union ("EU") and on a basis
consistent with that adopted in the previous year.
The Group adopted IFRS 15 'Revenue from contracts with
customers' from 1 May 2018 and revenue is recognised in accordance
with this standard. IFRS 16 'Leases' became mandatory for adoption
on 1 January 2019 and was early adopted from 1 May 2018. IFRS 9
'Financial Instruments', which is mandatory for years commencing on
or after 1 January 2018, was also adopted last financial year. For
further analysis in relation to the adoption of these standards,
refer to the 2018/19 annual report.
There were no other new standards or amendments or
interpretations to existing standards that became effective during
the year that were material to the Group.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 30 April 2020 or
2019 but is derived from those accounts. Statutory accounts for
2019 have been delivered to the registrar of companies, and those
for 2020 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified and (ii) did
not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
2. Significant accounting policies
Basis of preparation
The Group's financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union ("IFRSs") and IFRIC
interpretations.
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.
Restatement
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 GBP868k
as at 30 April 2019 (30 April 2018: GBP503k).
The adjustment reduced the tax credit for the year ending 30
April 2019 by GBP350k to GBP637k (previously reported as GBP987k)
and, consequentially, increased the loss for the year from
continuing operations by GBP350k (previously reported as a loss of
GBP283k). As a result, restatements were made as at 30 April 2018
and 30 April 2019 to adjust the translation reserve by GBP14k from
a debit balance of GBP269k to GBP255k and GBP29k from GBP949k to
GBP934, respectively. The comprehensive losses for the year set out
in the total comprehensive income on the consolidated statement of
comprehensive income for the year ended 30 April 2019 were restated
by a net amount of GBP379k to GBP556k (previously reported as
GBP935k).
The impact was to reduce net assets and equity as at 30 April
2019 by GBP868k (1 May 2018 by GBP489k).
There was no impact to the statement of cash flows.
As the effect of the restatement is limited to deferred tax
liabilities and equity and has no impact on the loss before tax, no
third balance sheet has been presented.
This deferred tax liability accrued to 30 April 2019 has been
fully eliminated during the year ending 30 April 2020 following an
offset with a deferred tax asset arising in the Group's US
operations relating to accumulated losses accrued in the year to 30
April 2020.
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
Assessment
The Directors have a reasonable expectation that the going
concern basis of accounting remains appropriate and that the Group
has adequate resources to continue in operation for the next 18
months based on its cash flow forecasts prepared.
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. During and as at the
year ended 30 April 2020, the Group was not in breach of any of its
covenants at any testing period. The RCF facility is subject to
renewal in April 2022.
As previously set out, COVID-19 has represented a significant
challenge for the Group and, as a result, post year-end the Board
has revised its forecasts for the next 18 months taking into
account the impact of COVID-19. This has resulted in a 'revised
base case budget'. Under this revised base case budget in the
period to 30 April 2022, the Group was forecasting:
- to breach its original EBIT:Finance charge covenant on 30
April 2021, which is tested on an annual basis; and
- to breach its original net debt:EBITDA covenant on 31 October
2020, which is tested on a quarterly basis.
In response to these potential breaches the Board has negotiated
a waiver in respect of the first covenant, which will means the
covenant will not be tested until April 2022, and a waiver in
respect of the second covenant for the three periods ending 31
October 2020, 31 January 2021 and 30 April 2021.
As a result of obtaining these waivers, the revised base case
forecast does not indicate any breaches of its covenants over the
next 18 months.
The revised base case forecast indicates that the Group will
continue to operate within the existing facilities, should they
remain available, until the RCF renewal in April 2022.
Stress Testing
The Board has conducted a series of stress testing of future
financial performance which model a range of future continued
impacts following COVID-19. These stress tests typically focused on
the level and timing of revenue and working capital requirement. In
the Board's severe, but plausible downside scenario the following
assumptions have been applied:
-- 24% reduction in revenues when compared to the revised base
case budget for year to 30 April 21.
-- A return to revenue levels consistent with the revenue for
the year ending 30 April 2019 between April 2021 and April
2022;
-- An increase to 120 day working capital window from payment of
direct cost suppliers to receipt of customer cash.
-- Delayed cash inflows for specific instances in addition to
extension to working capital cycle increase. The impact being to
delay GBP0.7m to June 2021 and delay GBP3.2m from late in the
forecast period to outside of the April 2022 window.
This severe but plausible downside scenario indicates a breach
of the net debt: EBITDA covenant from the compliance quarter ending
31 July 2021 as well as breaching its covenant in relation to Group
credit balances on 31 October 2021. The effect of which could be
that the facilities would become repayable on demand. In addition,
in this severe but plausible downside scenario the Directors have
identified additional controllable mitigations (notably reducing
payroll costs and discretionary expenditure on tangible and
intangible assets), the effect of which is that the Group could
continue to operate within the existing facilities, should they
remain available.
Resilience/response to COVID-19
The Board has taken quick and effective action to protect the
Group's cash flow including:
-- Conducted a 30% cost rationalisation across the US operating
sites, representing annual savings of more than $1.4m.
-- Secured GBP0.8m of Paycheck Protection Program Loans in the US.
-- Negotiated a commercial agreement with an existing customer
in the security screening market, to forward purchase product with
up-front payment terms, effectively bringing forward $2m of cash 12
months early.
-- Secured grant funding in respect of expansion projects in
County Durham to the value of GBP0.7m.
-- Secured a new Term Loan with HSBC in the UK worth GBP1.4m,
available for spend on capital projects. This was negotiated at a
competitive rate with that available under the UK CBILs
programme.
-- Positioned the Group to be able to manufacture ventilators
that can potentially be used as an emergency device in any second
wave of COVID-19 or similar pandemic.
Material Uncertainty
In the severe but plausible downside scenario described above,
the Group would be required to renegotiate its net debt:EBITDA bank
covenant within the 12-month going concern period and, whilst the
Directors believe that they would have the ability to renegotiate
or waive this covenant, there is no certainty that this would be
the case. Accordingly, the continued availability of the Group's
bank facilities through the forecast period and the successful
replacement on expiry of the RCF in April 2022 represents a
material uncertainty that may cast significant doubt on the ability
of the Group and Company to continue as a going concern and,
therefore, to continue realising their assets and discharging their
liabilities in the normal course of business. The financial
statements do not include any adjustments that would result from
the basis of preparation being inappropriate.
As noted, the Board has specifically excluded any significant
upsides from the scenarios detailed above for the sole purposes of
the parameters of this financial stress test. However, COVID-19
does represent significant opportunities for the Group. Kromek's
biological detection capabilities have grown significantly over the
last 24 months following successful extensions on contracts with US
government agencies (DARPA) that build on the Group's existing
SIGMA network offerings. The development of this unique and
ground-breaking technology platform, which aims to identify
airborne pathogens within 60 minutes, is in a standalone market.
This technology has the potential to be significant in detecting,
controlling, monitoring and mitigating the effects of future
pandemics. Further, the Group has positioned itself under license
agreements to manufacture ventilators that can be used as resources
in future pandemics drawing on existing skills and capabilities of
its workforce. These ventilators are currently going through a
validation and homologation process in territories that the Group
has contingent orders from.
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 adopted IFRS 15 'Revenue from contracts with
customers' from 1 May 2018 and revenue is recognised in accordance
with this standard. 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 have 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 Ex works sellers' site
(incoterms@2010), 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 current
or previous years. Contract fulfilment costs in respect of
point-in-time contracts are accounted for under IAS 2
Inventories.
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. It also includes
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.
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
IFRS 16 'Leases' became mandatory for adoption on 1 January 2019
and was early adopted by the Group from 1 May 2018. 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. 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 pound 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 come to the conclusion that the
inter-company loans held by Kromek Limited, substantially form part
of the net investment in Kromek USA, 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 rates of
exchange prevailing on the dates of the transactions. 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 sterling at rates approximating to those ruling
when the transactions took place. All assets and liabilities of
overseas operations, including goodwill arising on the acquisition
of those operations, are translated at the rate ruling at the
statement of financial position date. Exchange differences arising
on translating the opening net assets at opening rate and the
results of overseas operations at actual rate are recognised
directly in other comprehensive income and are credited/(debited)
to the retranslation reserve.
Government grants
Government grants are not recognised until there is reasonable
assurance that the Group will comply with the conditions attaching
to them and that the grants will be received.
Government grants towards job creation and growth are normally
recognised as income over the useful economic life of the capital
expenditure to which they relate.
Government grants are recognised in the income statement so as
to match them with the related expenses that they are intended to
compensate. Grants that relate to capital expenditure are offset
against related depreciation costs. Where grants are received in
advance of the related expenses, they are initially recognised in
the balance sheet and released to match the related expenditure.
Non-monetary grants are recognised at fair value.
Operating result
Operating loss is stated as loss before tax, finance income and
costs.
Exceptional items
Exceptional items are those items that, in the judgement of
management, need to be disclosed separately by virtue of their
nature, size or incidence. Exceptional items 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 a defined contribution pension scheme for
employees.
Payments to defined contribution retirement benefit schemes are
charged as an expense as they fall due. For these schemes, the
assets of the schemes are held separately from those of the Group
in independently administered funds. Payments made to 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 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 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 by the statement of financial position
date.
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 statement of financial position date.
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
Fixtures and equipment are 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 the development expenditure relates to. 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 14.86% (2019: 13.47%) 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. 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. Items which have not shown activity for between
12-18 months will be provided for at a rate of 50%, and those which
have not shown activity in 18 months or longer will be provided for
at a rate of 100% after consideration is given to the full or
residual value where appropriate. 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 has
increased significantly if it is more than 30 days past due.
The Group considers a financial asset to be in 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 90 days past due.
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
ECLs are a probability-weighted estimate of credit losses.
Credit losses are measured as the present value of all cash
shortfalls (i.e. the difference between the cash flows due to the
entity in accordance with the contract and the cash flows that the
Group expects to receive). ECLs are discounted at the effective
interest rate of the financial asset.
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.
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.
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. 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 deposits repayable on demand, 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 on these operating segments that the Group is
providing disclosure. Both business units operate in the three key
markets of the Group (nuclear detection, medical imaging and
security screening). However, typically, the US business unit
focuses on medical imaging and the UK on nuclear detection and
security screening. However, this arrangement is flexible and can
vary based on the geographical location of the Group's
customer.
The chief operating decision maker is the Board of Directors,
who assess performance of the 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 one business segment, i.e. 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.
Analysis by geographical area
A geographical analysis of the revenue from the Group's
customers by destination is as follows:
2020 2019
GBP'000 GBP'000
United Kingdom 2,541 2,267
North America 7,606 4,869
Asia 893 5,452
Europe 2,075 1,905
Australasia 5 24
-------- --------
Total revenue 13,120 14,517
-------- --------
Total revenue from contracts with customers was GBP12,835k
(2019: GBP13,497k).
The Group has aggregated its market sectors into two reporting
segments being the operational business units in the UK and US. The
UK operations consists of Kromek Group Plc and Kromek Limited. The
US operations consists of Kromek Inc, eV Products Inc, and Nova
R&D Inc. The Board currently consider this to be the most
appropriate aggregation due to the main markets that are typically
addressed by the UK and US and necessary skillsets and
expertise.
A geographical analysis of the Group's revenue by origin is as
follows:
Year ended 30 April 2020
UK Operations US Operations Total for
GBP'000 GBP'000 Group
GBP'000
Revenue from sales
Revenue by segment:
-Sale of goods and services 8,312 7,205 15,517
-Revenue from grants 285 - 285
-Revenue from contract customers 811 342 1,153
Total sales by segment 9,408 7,547 16,955
Removal of inter-segment sales (2,600) (1,235) (3,835)
-------------- -------------- ----------
Total external sales 6,808 6,312 13,120
-------------- -------------- ----------
Segment result - operating
(loss)/profit before exceptional
items (1,906) (2,833) (4,739)
Interest received 60 - 60
Interest expense (326) (278) (604)
Exceptional items - (13,062) (13,062)
(Loss)/profit before tax (2,172) (16,173) (18,345)
Tax credit 904 901 1,805
-------------- -------------- ----------
(Loss)/profit for the year (1,268) (15,272) (16,540)
-------------- -------------- ----------
Reconciliation to adjusted
EBITDA:
Net interest 266 278 544
Other operating income - - -
Tax (904) (901) (1,805)
Depreciation of PPE and right-of-use
asset 545 640 1,185
Amortisation 1,148 994 2,142
Share-based payment charge 225 - 225
One-off customer financing
discount - 746 746
Exceptional items - 13,062 13,062
Adjusted EBITDA 12 (453) (441)
-------------- -------------- ----------
Other segment information
Property, plant and equipment
additions 5,888 1,077 6,965
Right-of-use assets 1,136 3,429 4,565
Depreciation of PPE and right-of-use
asset 545 640 1,185
Release of capital grant (33) - (33)
Intangible asset additions 3,973 1,526 5,499
Amortisation of intangible
assets 1,148 994 2,142
-------------- -------------- ----------
Statement of financial position
Total assets 40,997 23,660 64,657
-------------- -------------- ----------
Total liabilities (13,925) (5,665) (19,590)
-------------- -------------- ----------
Year ended 30 April 2019 as restated (see note 2)
UK Operations US Operations Total for
GBP'000 GBP'000 Group
GBP'000
Revenue from sales
Revenue by segment:
-Sale of goods and services 6,718 4,694 11,412
-Revenue from grants 1,020 - 1,020
-Revenue from contract customers 82 4,534 4,616
Total sales by segment 7,820 9,228 17,048
Removal of inter-segment sales (1,251) (1,280) (2,531)
-------------- -------------- ----------
Total external sales 6,569 7,948 14,517
-------------- -------------- ----------
Segment result - operating
loss (1,652) 746 (906)
Interest received 155 - 155
Interest expense (197) (322) (519)
Loss before tax (1,694) 424 (1,270)
Tax credit 1,020 (383) 637
-------------- -------------- ----------
(Loss)/profit for the year (674) 41 (633)
-------------- -------------- ----------
Reconciliation to adjusted
EBITDA:
Net interest 42 322 364
Other operating income - - -
Tax (1,020) 383 (637)
Depreciation of PPE and right-of-use
asset 432 447 879
Amortisation 1,085 721 1,806
Non-recurring other income - - -
Share-based payment charge 184 11 195
Adjusted EBITDA 49 1,925 1,974
-------------- -------------- ----------
Other segment information
Property, plant and equipment
additions 569 3,075 3,644
Right-of-use asset 1,051 3,257 4,308
Depreciation of PPE and right-of-use
asset 432 447 879
Intangible asset additions 1,309 1,632 2,941
Amortisation of intangible
assets 1,085 721 1,806
-------------- -------------- ----------
Statement of financial position
Total assets 41,370 33,506 74,876
-------------- -------------- ----------
Total liabilities (7,097) (7,444) (14,541)
-------------- -------------- ----------
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) earned 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 products and services were
as follows:
2020 2019
GBP'000 GBP'000
Product revenue 10,314 12,060
Research and development revenue 2,806 2,457
--------------- ---------------
Consolidated revenue 13,120 14,517
--------------- ---------------
Information about major customers
Included in revenues arising from US operations are revenues of
approximately GBP2,234k (2019: GBP4,092k) that arose from the
Group's largest customer. Included in revenues arising from UK
operations are revenues of approximately GBP1,542k (2019:
GBP1,066k) that arose from a major customer.
4. Loss before tax for the year
Loss before tax for the year has been arrived at after
(crediting)/charging:
2020 2019
GBP'000 GBP'000
Net foreign exchange losses/(gains) (653) 82
Research and development costs recognised
as an expense 5,457 5,432
Depreciation of property, plant and equipment 1,185 879
Release of capital grant (33) -
Amortisation of internally-generated intangible
assets 2,142 1,806
Cost of inventories recognised as expense 4,654 4,152
Exceptional items - impairment of trade receivables
and AROC (see note 6) 13,062 -
Early settlement costs 746 -
Staff costs (see note 5) 8,776 7,696
---------------- ----------------
5. Staff costs
The average monthly number of employees (excluding non-executive
directors) was:
2020
Number 2019 Number
Directors (executive) 2 2
Research and development, production 116 95
Sales and marketing 8 7
Administration 13 12
------- -----------
139 116
------- -----------
Their aggregate remuneration comprised:
Restated
2020 2019
GBP'000 GBP'000
Wages and salaries 7,432 6,602
Social security costs 754 570
Pension scheme contributions 365 329
Share-based payments 225 195
--------- --------
8,776 7,696
--------- --------
The current period classification of certain wage and salary
expenses has been revised and comparatives have been represented on
a consistent basis. There is no impact to the statement of profit
and loss as all of the reclassifications occur within the
administrative expense line item on the income statement.
The total Directors' emoluments (including non-executive
directors) was GBP580k (2019: GBP728k). The aggregate value of
contributions paid to money purchase pension schemes was GBP21k
(2019: GBP21k) in respect of three directors (2019: three
directors). There has been no exercise of share options by the
Directors in the period and therefore no gain recognised in the
year (2019: nil).
The highest paid director received emoluments of GBP221k (2019:
GBP306k) and amounts paid to money purchase pension schemes was
GBP10k (2019: GBP10k).
Key management compensation:
2020 2019
GBP'000 GBP'000
Wages and salaries and other short-term
benefits 980 1,127
Social security costs 130 136
Pension scheme contributions 28 27
Share-based payment expense 185 184
-------- --------
1,323 1,474
-------- --------
Key management comprise the Executive Directors and senior
operational staff.
6. Exceptional Items
Exceptional items, booked to operating costs, comprised the
following:
2020 2019
GBP'000 GBP'000
Impairment of trade receivables
and AROC 13,062 -
--------- ---------
Total exceptional items 13,062 -
--------- ---------
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.
This impairment relates to two separate contracts with specific
customers within this geographical area 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. This charge of GBP13,062k has
therefore been presented as an exceptional item arising as a result
of COVID-19 in accordance with the Group's accounting policy, as it
is considered to be one-off in nature, size and incidence. It
represents 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.
From a tax perspective, this impairment has increased the
taxable losses in the 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.
7. Tax
Recognised in the income statement
Restated*
2020 2019
GBP'000 GBP'000
Current tax credit:
UK corporation tax on losses in the year 1,030 642
Adjustment in respect of previous periods (129) (5)
Foreign taxes paid - -
-------- ----------
Total current tax 901 637
Deferred tax:
Origination and reversal of timing differences 904 -
Adjustment in respect of previous periods - -
Total deferred tax 904 -
-------- ----------
Total tax credit in income statement 1,805 637
-------- ----------
*see note 2
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 2020 has been calculated at 19% (2019:
17%).
Reconciliation of tax credit
The charge for the year can be reconciled to the profit in the
income statement as follows:
Restated*
2020 2019 GBP'000
GBP'000
Loss before tax 18,345 1,270
Tax at the UK corporation tax rate of 19%
(2019: 19.0%) 3,486 241
(Non-taxable income)/expenses not deductible (3,754) (223)
Effect of R&D 553 771
Rate differences effect of R&D (255) -
Share scheme deduction under Part 12 CTA
2009 1 9
Unrecognised movement on deferred tax 239 (96)
Adjustment in respect of previous periods (129) (5)
Effects of overseas tax rates 1,664 (60)
Total tax credit for the year 1,805 637
---------- --------------
*see note 2
Further details of deferred tax are given in note 9. 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.
Adjustment in respect of previous periods relate to additional
R&D tax credits the Group receives following final
submission.
The rate of corporation tax for the year is 19% (2019: 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 28.89% which represents the federal plus state tax
rate.
8. Losses per share
The calculation of the basic and diluted earnings per share is
based on the following data:
Losses
Restated*
2020 2019
GBP'000 GBP'000
Losses for the purposes of basic and
diluted losses per share being net
losses attributable to owners of the
Group (16,540) (633)
----------- -----------
2020 2019
Number of shares Number Number
Weighted average number of ordinary
shares for the purposes of basic losses
per share 344,644,492 275,073,400
Effect of dilutive potential ordinary
shares:
Share options 1,084,826 2,581,104
----------- -----------
Weighted average number of ordinary
shares for the purposes of diluted
losses per share 345,729,318 277,654,504
----------- -----------
2020 2019
Basic (p) (4.8) (0.2)
Diluted (p) (4.8) (0.2)
------ -----
*see note 2
Due to the Group having losses in each of the years, 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.
9. Deferred tax liabilities
The following are the major deferred tax liabilities and assets
recognised by the Group and movements thereon during the current
and prior reporting period.
Restated
fair value Restated
revaluation accelerated Restated Restated
of acquired capital short term tax Restated
intangibles allowances timing differences losses total
GBP'000 GBP'000 GBP'000 GBP'000 GBP000
At 1 May 2019 339 1,069 (154) (1,254) -
Prior year adjustment
(note 2) 121 2,446 (168) (1,531) 868
Restated at 1 May 2019 460 3,515 (322) (2,785) 868
(Credit)/charge to profit
or loss (71) 1,441 (194) (2,044) (868)
------------ ------------ ------------------- -------- --------
At 30 April 2020 389 4,956 (516) (4,829) -
------------ ------------ ------------------- -------- --------
Deferred tax assets and liabilities are offset where the Group
has a legally enforceable right to do so. The following is the
analysis of the deferred tax balances (after offset) for financial
reporting purposes:
Restated*
2020 2019
GBP'000 GBP'000
Deferred tax liabilities 4,829 3,974
Deferred tax assets (4,829) (3,106)
-------- ---------
- 868
-------- ---------
*see note 2
At the statement of financial position date, the Group has
unused tax losses of GBP27,614k (2019: GBP20,632k) available for
offset against future profits. A deferred tax asset has been
recognised in respect of GBP4,484k (2019: GBP6,763k) of such
losses. The asset is considered recoverable because it can be
offset to reduce future tax liabilities arising in the Group. No
deferred tax asset has been recognised in respect of the remaining
GBP23,130k (2019: GBP13,869k) as it is not yet considered
sufficiently certain that there will be future taxable profits
available. All losses may be carried forward indefinitely subject
to a significant change in the nature of the Group's trade with US
losses having a maximum life of 20 years.
10. Borrowings
2020 2019
GBP'000 GBP'000
Secured borrowing at amortised
cost
Revolving credit facility and
capex facility 4,900 3,000
Other borrowings 706 2,446
-------- --------
5,606 5,446
-------- --------
Total borrowings
Amount due for settlement within
12 months 3,669 3,133
-------- --------
Amount due for settlement after
12 months 1,937 2,313
-------- --------
During the prior year, the Group successfully renewed its
revolving credit facility, which also incorporates a Capex
facility. Previously a 24-month facility, this facility is now a 36
months deal with a plus 1, plus 1 option with regards to years 4 to
5. In addition to the extension of the renewal period, the quantum
of the facility has increased from GBP3.0m to GBP5.0m. In October
2019, an additional GBP2.0m was drawn down to help facilitate
capital expenditure purposes. This is repaid on a quarterly basis
in an amount equal to 1/20(th) of the drawn Capex loan. Once
repaid, the Group was able to draw down the repaid amount against
the original RCF. This facility is secured by a debenture and a
composite guarantee across the Group. The terms of the RCF are a
nominal interest rate of LIBOR+2.5% and a repayment term of six
months from date of drawdown. The fair value equates to the
carrying value.
Other borrowings comprise a loan with the landlord in the
US.
In the prior year, the Group secured a GBP2.3m loan with the
landlord of the new Zelienople premises in relation to additional
leasehold improvements. A proportion of this loan was repaid early
during the year and the balance was rescheduled over a shorter time
period. This loan is repaid in equal instalments on a monthly basis
and attracts interest at 7.50% per annum. Following partial
repayment in the year, this facility no longer requires a standby
letter of credit.
As seen on the face of the Statement of Financial Position, the
investment of GBP1.25m into a money market account at 30 April 2019
is zero at 30 April 2020.
At 30 April 2020, the total loan with the landlord was GBP0.7m
(2019: GBP2.4m). Of this, GBP0.1m is due within 12 months (2019:
GBP0.1m) and GBP0.6m (2019: GBP2.3m) is due after 12 months.
The RCF borrowing is secured by a floating charge over the
Group's assets.
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:
2020 2019
% %
Revolving credit facility 3.30 3.10
Other borrowing facilities 5.20 5.30
11. Notes to the cash flow statement
Restated*
2020 2019
GBP'000 GBP'000
Loss for the year (16,540) (633)
Adjustments for:
Finance income (60) (155)
Finance costs 604 519
Income tax credit (1,805) (637)
Depreciation of property, plant and equipment
and ROU 1,185 879
Amortisation of intangible assets 2,142 1,806
Share-based payment expense 225 195
-------- ---------
Operating cash flows before movements in
working capital (14,249) 1,974
(Increase) in inventories (3,189) (213)
Decrease/(increase) in receivables 11,787 (8,663)
Increase in payables 4,932 1,384
Increase/(decrease) in provisions - (424)
-------- ---------
Cash used in operations (719) (5,942)
Income taxes received 898 1,165
-------- ---------
Net cash used in operating activities 179 (4,777)
-------- ---------
*see note 2
Cash and cash equivalents
2020 2019
GBP'000 GBP'000
Cash and bank balances 9,444 20,616
-------- --------
Cash and cash equivalents comprise cash and short-term bank
deposits with an original maturity of three months or less, net of
outstanding bank overdrafts. The carrying amount of these assets is
approximately equal to their fair value.
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