Tag: KMK

Kromek plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has announced that it has been awarded a new c. $6m contract by the Defense Advanced Research Projects Agency, an agency of the US Department of Defense, for Phase II of its development of a biological threat detection system that senses, analyses and identifies airborne pathogens. Kromek will deliver the contract over the next 28-month period, commencing immediately.

Phases I and II are an extension of the existing SIGMA network for biological threats as part of DARPA’s SIGMA+ initiative. Phase II follows the successful completion of Phase I where key milestones achieved over the past two years included the development of a vehicle-mounted biological-threat identifier as well as a miniaturised mobile wide-area bio-surveillance system. This new contract takes the overall programme value awarded to Kromek to c. $13m.

Phase II will seek to deliver a completely automated wide spectrum airborne pathogen detection system that is fully mobile and runs autonomously. Also, systems will be designed to be networked where data is stored, shared and further analysed and provide real-time information to decision makers. Key milestones under Phase II include the creation of beta units as well as final design and build of systems for extended field trials. In addition to the design process, the bioinformatics methodologies will be refined as data is collected for both enhanced performance and increased speed.

Dr Arnab Basu, CEO of Kromek, said: “In addition to the ever-present danger of bio-terrorism, the outbreak of the pandemic has exposed the world to the severity of biological threats and their potential impact on public health and the global economy, and has demonstrated the need to rapidly evolve bio-security systems and associated technologies. This contract will allow us to continue our work in developing a mobile wide-area bio-surveillance system capable of detecting airborne pathogens in real-time. We look forward to reporting on our progress as we deliver on our milestones.”

Kromek Group plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has provided an update on business and trading ahead of announcing its results for the year ended 30 April 2021, in July 2021.

As noted in the Group’s interim results announcement, orders and shipments across all of the Group’s segments resumed in the final two months of the first half of the year and as such the Board was pleased to enter H2 2020/21 with an extensive commercial pipeline and experiencing increased commercial activity. This momentum continued throughout the second half as the Group delivered on previously awarded contracts and won new orders. As a result, the Group has achieved significant sequential revenue growth in H2 over H1 2020/21 and expects to report revenue and EBITDA for the year ended 30 April 2021 in line with market expectations. The Group continues to maintain tight cost control, improve collections and manage cash flow, and this conscientious management has resulted in the Group’s cash position at 30 April 2021 being slightly ahead of market expectations.

Specifically, in the second half of the year, progress was made in all of the Group’s business units. In the Medical Imaging segment, Kromek’s customers increasingly rolled out their next-generation products, based on the Group’s technology, such as the Group’s OEM customer that previously awarded a medical imaging contract expected to be worth up to $58.1m. The installation of the customer’s medical imaging scanners, which is occurring in multiple countries, saw a ramp up in the second half of the year as planned. 

In the Nuclear Security segment, the Group received new orders from government customers for D3S-related technologies. This includes a contract extension from the Group’s European-government related company customer, working with a European government, to detect and protect against potential nuclear threats. The Group added a new customer, a US government agency, for its D3S-ID product, received repeat orders from a US government customer for its CZT detectors for nuclear security applications, and received orders from the European Commission’s Directorate-General for Migration and Home Affairs for the Group’s D3S Drone radiation detectors. Kromek also received orders in the Security Screening segment, including for CZT modules to be designed into an advanced baggage screening system of a new US-based customer. 

Furthermore, Kromek Group remains excited about the potential for its new market segment of Biological Threat Detection. During the second half of the year, the Group commenced piloting its airborne COVID-19 detection solution at an airport and at another public place, which are progressing according to plan and the Board looks forward to providing an update on the next steps in due course.

Consequently, and combined with the successful fundraising completed in the second half of 2020/21, the Group is well-placed to capitalise on the opportunities across its business and the Board continues to look to the future with increased confidence.

Kromek Group will provide further information at the time of its annual results announcement.

Kromek Group plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has announced that it has been awarded a contract worth a minimum of $960,000 in the Nuclear Detection segment, of which approximately $150,000 will be realised in the current financial year.

The Group will receive $260,000 to customise its CZT detector platform for integration into a new radiation detection product that will be available in Asia. This development work will commence immediately and be completed by the end of this calendar year. The Group will then supply the customised platform under a three-year contract, which is worth a minimum of $700,000.     

Dr Arnab Basu, CEO of Kromek Group, said: “We are delighted to have been designed into another product in the nuclear detection market. By incorporating the company’s CZT technology, our customers are able to differentiate their radiation detection products by offering a superior performance while maintaining a small footprint. We are also pleased that this long-term contract will contribute to our revenues for the current period as well as support our visibility over the next three years. We look forward to developing this customised solution and expanding our relationship with this product manufacturer.”  

Kromek Group plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has announced that it has received two new orders worth a total of $750,000, with half of this value due to be recognised during the current financial year. The orders are from existing customers in the Group’s medical imaging and nuclear security markets.

The first order, from an existing OEM customer, is worth $600,000 and is for the supply of detectors to be used in niche SPECT applications. The Group is commencing delivery immediately and this will complete by the end of this calendar year.

The second order is a repeat order from an existing US-based customer, worth $150,000, for the supply of specialised CZT detectors for a nuclear security application. This order is expected to be delivered during the current financial year.

Dr Arnab Basu, CEO of Kromek Group, said: “These latest orders reflect the beginning of the return to normal business activities as our customers increasingly resume commercial activity. These repeat orders, in our core commercial markets of medical imaging and nuclear security, reflect the value of our technology to our customers in these areas. In addition, with $375,000 due to be delivered this financial year, they provide us with greater visibility over our full year forecasts. We look forward to delivering these orders and to continuing to expand our pipeline.”

Kromek Group plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has announced that it has commenced a £1.25m programme funded by Innovate UK to customise its biological threat-detection solution for the automated detection of all airborne viruses, including COVID-19, to support end-use cases.

The Group’s solution is designed to be deployed in high footfall locations, such as airports, hospitals, retail outlets and entertainment venues. The base technology, which is fully developed, samples the air in-situ to detect and analyse airborne pathogens using DNA sequencing. In response to the pandemic, the initial focus is on productising the technology to develop a system that will rapidly test for the presence of SARS-CoV-2, the virus that causes COVID-19. It will run automatically and the results will not require analysis by trained individuals or specialist laboratories.

By detecting the virus in the air in real time, rather than solely relying on the testing of individuals or development of symptoms in individuals, the system will enable earlier identification of potential infection exposure to help reduce transmission. It will also support facilities management such as by enabling site operators to know what level of ventilation is required from the HVAC system or when decontamination is necessary.

In addition, the system will have the capability to test for a wide spectrum of viruses, including mutations of SARS-CoV-2. This will support the development of a bio-resilience solution against the spread of new strains of COVID-19 or other novel viruses that could result in future pandemics.

Kromek is engaging with potential customers for the COVID-19 detection system to develop deployment models and identify how it can best fit their needs. The Group will provide any necessary customisation of the system ahead of piloting by those user groups. The Group expects the first pilots with potential users to commence by the end of this financial year and anticipates commercial deployment in 2021/22.

The funding has been awarded under an 18-month programme of UK Research and Innovation (“UKRI”), which is a non-departmental public body sponsored by the UK government’s Department for Business, Energy and Industrial Strategy that brings together the UK’s seven research councils, Innovate UK and Research England. The programme seeks to support the development of solutions to address and mitigate the health, social, economic, cultural and environmental impacts of the COVID-19 outbreak.

Dr Arnab Basu, CEO of Kromek Group, said: “We are very pleased to have received backing from UKRI and Innovate UK to progress the deployment of our solution for the detection of airborne COVID-19. Our system can augment the government’s Test and Trace system by enabling early identification of potential exposure to the virus while supporting the safe return of visitors to public spaces like mass transport, retail outlets and entertainment venues. We also believe that the continuous monitoring with our system, which can test for a wide spectrum of viruses as well as mutations of COVID-19, has significant potential for protecting against the outbreak of pandemics in the future.” 

The company went on to announce its interim results for the six months ended 31 October 2020.

Financial Summary

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

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

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

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

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

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

Operational Summary

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

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

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

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

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

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

·      Significant progress in fast-growing bio-security market

o  Awarded $5.2m contract extension by the Defense Advanced Research Projects Agency (“DARPA”), an agency of the US Department of Defense, to advance the development of a mobile wide-area bio-security system capable of detecting and identifying airborne pathogens

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

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

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

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

Current Trading and Outlook

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

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

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

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

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

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

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

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

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

Kromek Group plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has announced the appointment of Mr Berry Beumer, Chief Operating Officer, as an Executive Director of the Group with immediate effect. Furthermore, Mr Rakesh Sharma OBE, who joined the Group as a Non-executive Director in October 2020, will replace Sir Peter Williams CBE as Non-executive Chairman, who is retiring from the Board on 1 January 2021.  

Mr Albertus Beumer, aged 56, is a technology business executive with extensive experience of delivering revenue growth in the analytical instrument, high-frequency communications equipment and optoelectronic and semiconductor materials industries. Since joining the company as COO in 2015, based in the Group’s Pennsylvania facility, he has played an instrumental role in the growth of the business through the expansion of the US customer base and operations in both medical imaging and nuclear detection. Prior to Kromek, he held a number of senior roles at businesses in Europe and the US, including 14 years as Vice President, Sales and Marketing at XOS, Inc., part off Danaher Inc., a leading manufacturer of application-specific x-ray analysers, where he was responsible for driving the strategic direction of their x-ray elemental technology business.

Rakesh Sharma OBE, Chairman Designate of Kromek Group, said: “It is a great honour to succeed Sir Peter as Chairman. I thank him for his valuable contribution which has enabled the group to truly transform during his tenure, and we wish him all the best in his retirement. I am also pleased to welcome Berry to the Board. He has played a fundamental role in our growth as part of the executive team and we look froward to further benefitting from his expertise in his new role. Kromek is an ambitious company with advanced technology, extensive IP and a foothold in some of the most important markets today. We are excited about the future and delivering on our plans to secure sustainable growth and shareholder value.”

Sir Peter Williams added: “It has been a pleasure to be a part of Kromek’s journey as it has matured and scaled up over recent years into a truly international business with diversified revenue streams. As I retire, I leave the role of Chairman in the very capable hands of Rakesh who brings tremendous experience in overseeing the growth of international hi-tech engineering and manufacturing businesses. I also congratulate Berry Beumer on joining the Board and, following Paul Farquhar’s recent appointment, I leave Kromek with a refreshed and powerful team at the helm under Arnab Basu’s leadership. I will be following the business closely and look forward to watching its continued progress.”

Mr Beumer holds 80,000 ordinary shares in the Group, representing 0.02% of the issued share capital. There are no other matters required to be disclosed pursuant to paragraph (g) of Schedule Two to the AIM Rules for Companies as regards Mr Beumer’s appointment.

Kromek Group plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has announced that it has been awarded two contract extensions by a European government-related company to provide network solutions of its D3S-related technologies to counter nuclear terrorism. The contract extensions are worth a total of £460k and will be delivered in the current financial year.

The contract extensions are a further step towards Kromek providing a full wide-area system roll-out for this customer, a company that works with a European government to detect and protect against potential nuclear threats. Kromek’s solutions will be used for inland security wide-area threat monitoring with the purpose of protecting critical infrastructure and public spaces and includes the provision of enhancing network data security. This brings the total awarded by this customer to just over £2.5m over the last two years.

Dr Arnab Basu, CEO of Kromek Group, said: “These contract extensions are indicative of the rebound in commercial activity we are experiencing across our business and further evidence that normal trading patterns are returning for us as well as our customers.

“The D3S family of products is at the forefront of the innovative solutions being adopted by governments worldwide for countering threat of nuclear terrorism. These products, as part of our radiation detection solutions, have been deployed in over 20 countries to keep critical infrastructure and public spaces safe. We look forward to working with this customer and help with their roll-out programme over the next few years.”

Kromek Group plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has announced that it has entered into a development agreement, worth up to $660k, with a US-based, sector-leading industrial OEM with a global customer base. The majority of the development programme is scheduled to be delivered during the Group’s current financial year and, following final completion, it is expected to transition to a multi-year supply contract. 

Under the development agreement, the Group will customise one of its CZT detector platforms for incorporation into the customer’s systems for identifying contaminations during production processes.     

Dr Arnab Basu, CEO of Kromek Group, said: “We are delighted to have secured another leading OEM customer with substantial global operations. This is further validation of the strength of our solutions. It also demonstrates the versatility of our CZT-based detector platforms, which transform the imaging and detection capabilities of our customers’ next-generation products to ensure we can live healthier and safer lives as well as reduce our customers’ cost of operation. We look forward to working with our new customer to successfully complete this development programme and establishing a long-term relationship.”

Kromek Group plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has announced that Mr Derek Bulmer, the current Chief Financial Officer and In-House Counsel, will step down from this role and as a Director of the Group on 31 October 2020. The Board carries out regular and routine succession planning for senior positions, involving both internal and external potential candidates, and Mr Bulmer had indicated his wish to explore possible opportunities outside the Group, after an appropriate handover period with a successor. Whilst disappointed to see Mr Bulmer step down, Kromek is very pleased to announce the appointment of Mr Paul Farquhar as Chief Financial Officer and a Director of the Group with effect from 2 November 2020.

Mr Farquhar, aged 58, is a Chartered Accountant with almost 30 years’ experience as a finance director and chief financial officer, primarily for international businesses. This includes 10 years as Vice President, Treasurer and Chief Financial Officer of Sevcon Inc, which was a NASDAQ-listed designer, manufacturer and supplier of microprocessor controls for electric and hybrid vehicles through wholly-owned subsidiaries in Europe, North America and Asia and via an international dealer network. Alongside his day-to-day responsibilities as the CFO of a public company, Mr Farquhar oversaw the raising of equity and debt finance and M&A activity. This included the acquisition of a private Italian battery charger manufacturer and the formation, and subsequent successful buy-out, of a joint venture in China. He also established a global finance team in five countries with common financial reporting systems to meet the needs of a growing technology business. During this period, Mr Farquhar oversaw an increase in the Sevcon market value from $50m in 2010 to $200m in 2017 when the company was acquired by BorgWarner Inc.

More recently, since leaving Sevcon in 2017, Mr Farquhar has supported a number of SMEs as Finance Director and he is a Non-Executive Director of several community organisations in the North East of England, including City Hospitals Independent Commercial Enterprises Ltd, which is a subsidiary of South Tyneside and Sunderland NHS Foundation Trust that provides services to South Tyneside Hospital and City Hospitals Sunderland. Mr Farquhar began his career as a chartered accountant, spending 10 years as an auditor at Jennings Johnson in Sunderland and at PricewaterhouseCoopers in Newcastle and Lisbon, Portugal.

Sir Peter Williams CBE, Chairman of Kromek Group, said: “It is a measure of our growing reputation as a business that we are able to attract high-quality people to Kromek, and I am delighted to welcome Paul to our Board as CFO. He brings a wealth of experience, having successfully grown a listed business, and is a great addition to our already strong management team. His abilities in establishing global finance teams, equity and debt financing as well as M&A activity, have been well demonstrated throughout his career and we look forward to working with him and to benefitting from his experience.”

“I would also like to take this opportunity to extend my sincere thanks to the outgoing CFO, Derek Bulmer, for his enormous contribution to the business. As a key member of the senior management team, his work has been integral to Kromek’s success to date. He was instrumental in the acquisition of our key US subsidiary and, subsequently, our listing on the London Stock Exchange. Derek has also built robust financial systems and, in addition, he has been heavily involved in the commercial life of the Company, internationally as well as in the UK. His efforts during the challenging times of the ongoing Covid pandemic have been greatly appreciated by the Board and it has been my privilege to work alongside him during my time as Chairman. We wish him every success for the future.”

Paul Farquhar, incoming CFO, said: “I am delighted to have been appointed CFO of Kromek. The Group has a significant presence in a number of high-growth end-markets and a leading position globally in the manufacture and supply of CZT-based products and solutions. It is great to be joining this fantastic business at such a pivotal time in its development and to take over the baton so expertly carried by Derek. I look forward to working alongside Arnab and the rest of the management team to deliver on our strategic objectives and create value for all shareholders.”

Derek Bulmer, outgoing CFO, said: “I have truly enjoyed over a decade of working with the team at Kromek. The Group has a pool of extraordinarily talented people and a vast array of technology and products to meet some of the world’s most critical problems. I would like to take this opportunity to thank the colleagues with whom I have had the pleasure of working and who have provided so much inspiration. I am incredibly proud of what we have achieved together – from raising equity financing for growth and development of the technology to the expansion into the US and internationally. I leave the finances of the business in the very capable and experienced hands of Paul in order to seek opportunities where I can use my experience and expertise to work with other companies who have interesting technologies and ambitious plans.”

Kromek Group plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has announced that it has commenced development of a new system to improve the pathological medical imaging techniques used during cancer surgery to distinguish between healthy and non-healthy tissue – a new application area for company technology. The three-year project, which has received grant funding from Innovate UK, is being conducted in partnership with Adaptix Ltd, the developer of a Flat Panel X-ray Source (FPS), and the University of Manchester.   

When a cancerous tumour is excised, the surgeon also removes some tissue around the edge of the tumour (the ‘margins’) to be sure that all the cancer has been removed and is not able to spread. These margins are checked for cancerous tissue while surgery is ongoing using ‘pathology cabinets’ that provide 2D or 3D images.   

The project is to develop a prototype of a new type of pathology cabinet, based on Kromek’s CZT detectors and Adaptix’s FPS, to produce high-resolution 3D images that provide more accurate differentiation of the boundaries between diseased and healthy tissue. This will enable surgeons to confidently remove the minimum amount of healthy tissue whilst reducing the risk of more than one operation being needed and of cancer spreading from diseased tissue being left after initial surgery. The new system will also be designed to be cost effective and have a small footprint for ease of use in an operating theatre.

Kromek’s CZT detectors are already incorporated into medical devices used for early detection of diseases such as breast cancer, cardiac conditions and osteoporosis.   

Dr Arnab Basu, CEO of Kromek Group, said:

“This is an exciting project for Kromek as it takes our CZT-based detectors into a new application area. Our technology is already being used by leading OEMs to enable the early diagnosis of cancer. With this system, we will contribute to improving the outcome of surgeries through greater image quality. It will reduce the risk of diseased tissue remaining and further surgeries being required while minimising the removal of healthy tissue, which will be of great benefit to both healthcare providers and patients. We look forward to working alongside our partners, Adaptix and the University of Manchester, to complete the development of this new system and take it to the next stage.”   

Kromek Group plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has announced the appointment of Mr Rakesh Sharma OBE as a Non-executive Director of the Group with immediate effect.

Mr Sharma, aged 59, is a former FTSE 250 CEO with 20 years’ experience in running international hi-tech engineering and manufacturing businesses. He was instrumental in the growth of Ultra Electronics Holdings plc, the LSE-listed group that specialises in providing engineering solutions for mission-critical systems in the defence, security, critical detection and control markets. Having joined at its formation in 1993, Mr Sharma presided over significant revenue and profit growth across multiple director-level and divisional roles, including in North America, latterly serving for six years as CEO. He began his career in 1983 in the military radio division of Marconi Communication Systems Ltd. In 1989, he joined Dowty Group as a chief engineer before it was acquired by TI Group in 1992, which a year later became Ultra Electronics Holdings following a management buy-out.

Since 2017, Mr Sharma has sat on the Board of LSE-listed PayPoint plc, a provider of omnichannel payments solutions and EPoS-enabled technologies, where he serves as Senior Independent Director. He also supports a range of small businesses and entrepreneurs in a non-executive capacity. Mr Sharma was elected as a Fellow of the Royal Academy of Engineering in 2016 and was honoured in the 2017 Queen’s Birthday Honours List with an OBE for services to defence capability.

Sir Peter Williams CBE, Chairman of Kromek Group, said: “I am delighted to welcome Rakesh to the Board of Kromek. Throughout a distinguished career in global technology and engineering businesses, Rakesh has successfully channelled innovation to deliver growth and create value. In particular, he brings significant experience in the security and defence sector, which is a key market for Kromek. We look forward to benefiting from his considerable expertise as we continue to advance our business.”

Rakesh Sharma OBE said: “I am delighted to be joining Kromek Group, a growing and ambitious company which is developing important products to help safeguard lives and property as well as, through early diagnosis, improve outcomes of people suffering from debilitating illnesses. I will bring my extensive experience in the security and defence sector to help and assist wherever I can. This is an exciting challenge for me personally and I look forward to working with the Board and making a real contribution to the success of this dynamic company.”

Other than as set out below, there are no other matters required to be disclosed pursuant to paragraph (g) of Schedule Two to the AIM Rules for Companies as regards Mr Sharma’s appointment. Mr Sharma does not hold any shares in the Group.

Active Directorships:

ARTEMIS SOLUTIONS GROUP LIMITED (07418955)

BANG CURRY LIMITED (07932659)

HOLMES NOBLE CONSULTING LIMITED (12435536)

HOLMES NOBLE INTERIM LIMITED (10709395)

HOLMES NOBLE LIMITED (05323385)

INKWELL DATE LIMITED (630139)

PAYPOINT PLC (03581541)

SHARMA CAPITAL PARTNERS LTD (11705458)

SIDNEY STRINGER MULTI ACADEMY TRUST (06672920)

Directorships held within the last five years:

AARDVARK ELECTRONIC COMPONENTS LIMITED (SC099277)

AEP NETWORKS LIMITED (04479308)

AUDIOSOFT LIMITED (03009992)

AUDIX BROADCAST LIMITED (06344805)

BLUE SKY GROUP (INTERNATIONAL) LIMITED (04322751)

CORVID HOLDINGS LIMITED (FC034202)

CORVID PROTECT HOLDINGS LIMITED (FC034204)

DF GROUP LIMITED (03574242)

EW SIMULATION TECHNOLOGY LIMITED (03155211)

EXTEC INTEGRATED SYSTEMS LIMITED (02992812)

FERRANTI AIR SYSTEMS LIMITED (03061216)

GIGA COMMUNICATIONS LIMITED (05068503)

PAYGATE SOLUTIONS LIMITED (FC034203)

POWER MAGNETICS AND ELECTRONIC SYSTEMS LIMITED (02984371)

TRANSMAG POWER TRANSFORMERS LIMITED (04010087)

UE DORMANT ONE (01332065)

ULTRA ELECTRONICS (NETHERLANDS) LIMITED (10317509)

ULTRA ELECTRONICS AEP PAYMENTS LIMITED (07517674)

ULTRA ELECTRONICS AEP TECHNOLOGY LIMITED (05206886)

ULTRA ELECTRONICS ENTERPRISES (USA), LLC (FC027728)

ULTRA ELECTRONICS HOLDINGS PLC (02830397)

ULTRA ELECTRONICS JERSEY UNLIMITED (FC028009)

ULTRA ELECTRONICS LIMITED (02830644)

ULTRA ELECTRONICS SWISS HOLDINGS COMPANY LIMITED (10390613)

VADOS SYSTEMS LIMITED (05178688)

VARISYS LIMITED (04083768)

W & D HOLDINGS LIMITED (04645977)

WOOD & DOUGLAS LIMITED (02844692)

Kromek Group plc (LON:KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, has announced its final audited results for the year ended 30th April 2020.

Financial Summary

· Revenue of £13.1m (2018/19: £14.5m)

· Gross margin was 47.3% (2018/19: 57.2%)

· Adjusted EBITDA* of £0.4m loss (2018/19: £2.0m earnings)

· Loss before tax excluding exceptional items was £5.2m (2018/19: £1.3m loss)

· Exceptional loss in respect of trade receivables and amounts recoverable on contract due to the economic and operational impacts of COVID-19 was £13.1m (2018/19: £nil)

· Loss before tax including exceptional items was £18.3m (2018/19: £1.3m loss)

·Cash and cash equivalents at 30 April 2020 were £9.4m (30 April 2019: £20.6m) following planned investment in property, plant and equipment totalling £7.0m

*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 £2.1m 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 Group, 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.”

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 £1.4m 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 £1.1m, by a European-government related company, a new customer, for the provision of D3S-related technologies, which was subsequently extended by £1.0m 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 0.2m 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 €0.2m. 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 £5.3m (H1 2018/19: £3.7m), 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 £13.1m (2018/19: £14.5m) and gross margin to £6.2m (2018/19: £8.3m). Due to higher administration costs of £10.6m (2018/19: £9.0m), the adjusted EBITDA decreased to a loss of £0.4m compared with earnings of £2.0m for the prior year.

Revenue

The Group generated total revenue of £13.1m (2018/19: £14.5m).

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 £0.7m; 2018/19: £nil) have been netted off against revenue. Without this discount, revenue would have been £13.8m and gross profit would have been £6.9m 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 £6.2m (2018/19: £8.3m). 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 £1.6m to £10.6m (2018/19: £9.0m). This increase is substantially the net result of:

·£1.2m additional staff costs due to the planned expansion of the sales and production teams, plus technology personnel to support the biological detection project.

·£0.3m additional costs of depreciation largely relating to the capital expenditure on the furnace and fabrication expansion of £6.1m.

·£0.3m additional costs of amortisation due to continued investment in the technology platform and product applications.

· £(0.7)m foreign exchange credit largely due to a surplus realised on the Group’s US$ overdraft facility settled during the year.

·£0.5m 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 £13.1m 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 £0.4m compared with earnings of £2.0m for the prior year as set out in the table below:

	2019/20	2018/19
	£’000	£’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-19Related 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-19Related 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 £13.1m relating to receivables and AROC and a specific airport security customer early settlement discount of £0.7m as neither are in the normal course of events and are significant in their size, practice and nature. Share-based payments are added back when calculating the Group’s adjusted EBITDA as this is currently an expense with a zero direct cash impact on financial performance. Adjusted EBITDA is considered a key metric to the users of the financial statements as it represents a useful milestone that is reflective of the performance of the business resulting from movements in revenue, gross margin and the costs of the business. 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 £2.4m decrease in adjusted EBITDA in 2019/20 compared with 2018/19 is substantially a result of a loss in gross profit of £2.1m due to the lower revenue and reduction in gross profit margin noted above.

Loss before tax for the year increased to £18.3m (2018/19: £1.3m loss), largely due to the loss in gross profit of £2.1m, additional administration costs of £1.6m and the exceptional item of £13.1m.

During 2019/20, the Group recognised other comprehensive income of £1.0m (2018/19: £1.2m 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 £0.7m 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 £0.9m for the year (2018/19: £1.0m).

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 £0.9m 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 £1.8m (2018/19: £0.6m credit).

Earnings per Share (“EPS”)

Due to a £3.5m 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 £16.5m 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 £5.3m in the year (2018/19: £2.7m) 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 £0.2m (2018/19: £0.2m) with five new patents filed and 20 patents granted across 10 patent families.

Capital Expenditure

Capital expenditure in the year amounted to £7.0m (2018/19: £3.6m). 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 £9.4m as of 30 April 2020 (30 April 2019: £20.6m). The decrease in cash during 2019/20 was a combination of the following:

· An adjusted EBITDA loss for the year of £0.4m.

· Net cash used in financing activities of £0.9m.

· £0.4m reduction in working capital, excluding the exceptional write off of the AROC balance of £13.1m.

· R&D Tax Credit receipts of £0.9m.

· Investment in product development and other intangibles, with capitalised development costs of £5.3m and IP additions of £0.2m.

· Capital expenditure of £7.0m, as noted above.

· £1.3m 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 £3.2m increase in inventories held on 30 April 2020 to £6.4m (30 April 2019: £3.2m).  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 £1.3m 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 £3.9m increase in trade and other payables to £8.8m (2018/19: £4.9m). 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 £0.7m 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 £5.0m from £3.0m 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, £3.1m of the facility was drawn (30 April 2019: £3.0m) to support the working capital expansion.  A further £1.8m 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.