KMK Kromek Group Plc

30 January 2024 

Kromek Group plc 

("Kromek" or the "Group") 

 

Interim Results

 

Kromek Group plc (AIM: KMK), a leading developer of radiation and bio-detection technology solutions for the advanced imaging and CBRN detection segments, announces its unaudited interim results for the six months ended 31 October 2023.

 

Financial Highlights

·    Revenue increased to £7.1m (H1 2023: £6.8m)

·    Gross margin improved to 54.2% (H1 2023: 40.4%)

·    Adjusted EBITDA loss reduced to £0.1m (H1 2023: £2.7m loss)*

·    Loss before tax reduced to £3.5m (H1 2023: £5.7m loss)

·    Cash and cash equivalents at 31 October 2023 were £3.7m (30 April 2023: £1.1m)

·    Net cash used in operating activities substantially reduced to £1.6m (H1 2023: £4.0m)

·    Refinancing of its debt facility with new £5.5m secured term loan in September 2023

·    Equity fundraise of £8m (gross) in May 2023

·    Remain on track to deliver significant revenue growth and positive EBITDA for the year to 30 April 2024

*A reconciliation of adjusted EBITDA can be found in the Financial Review.

 

Operational Highlights

Advanced Imaging

·    Commenced significant collaboration agreements with:

o  A tier 1 OEM to provide CZT-based detectors for use in the customer's advanced medical imaging scanners

o  Analogic Corporation ("Analogic") to develop CZT-based detectors for photon counting computed tomography ("CT") applications in medical imaging and security screening

·    New collaboration agreement entered, post period, with a global blue-chip technology solutions provider to develop CZT-based detectors for photon counting CT applications in medical imaging

·    Received a $1.4m contract from a new Asia-based OEM customer to develop and supply CZT-based detectors for single-photon emission computed tomography ("SPECT") applications

·    Launch by Spectrum Dynamics Medical ("Spectrum Dynamics"), a key customer, of the latest addition to its next generation digital SPECT/CT imaging portfolio, the VERITON-CT 300, using Kromek's detectors

CBRN Detection

·    Kromek's nuclear radiation detection solutions continued to be deployed by global homeland defence and security forces to protect critical infrastructure, events and urban environments from the threat of 'dirty bombs'

·    Received over $1m in new orders for nuclear security products, including from a new customer that is a substantial global defence corporation

·    Awarded a $1.5m contract in Asia for a new product in the civil nuclear market

·    Received a £1.4m contract, post period, for the supply of D3M detectors for use in the rescEU stockpile being developed by the European Commission

Biological-Threat Detection

·    Received a $5.9m contract from the US Department of Homeland Security for the development, under a four-year programme, of technologies focusing on an agent agnostic bio-detection system

·    Progressed development of a biological-threat detection system under previously awarded contract with a UK government department

 

Manufacturing and IP

·    Sustained progress in improving yield and cost efficiency in CZT crystal growth and detector manufacturing

·    One new patent filed and three granted during the period

 

Dr Arnab Basu, CEO of Kromek, said: "I am pleased to report another period of growth for Kromek as we continued to deliver on our long-term agreements and development programmes as well as win new orders. We advanced our strategy by signing a significant collaboration agreement with a global blue-chip technology solutions provider in advanced imaging and through expanding our customer base in CBRN detection, including securing our first order with a substantial global defence corporation. At the same time, we heavily focused on managing our cost base and increasing the efficiency within our business, which remains a key priority. 

 

"Looking ahead, in line with normal seasonality, we will be second half weighted and remain on track to deliver record revenues for full year 2024 and positive EBITDA. We continue to operate in substantial markets and are receiving high demand for our products that are being used every day to save people's lives - from the detection of nuclear threats in Ukraine, to cancer in hospitals around the world. As a result, the Board continues to look to the future with confidence."

 

 

For further information, please contact: 

  

Kromek Group plc
Arnab Basu, CEO  Paul Farquhar, CFO	+44 (0)1740 626 060
Cavendish Capital Markets Limited (Nominated Adviser and Broker)
Geoff Nash/Giles Balleny/Seamus Fricker - Corporate Finance  Tim Redfern - ECM Michael Johnson/Tamar Cranford-Smith - Sales	+44 (0)20 7220 0500
Gracechurch Group (Financial PR)
Harry Chathli/Claire Norbury/Henry Gamble	+44 (0)20 4582 3500

Investor Webinar

 

Dr Arnab Basu, Chief Executive Officer, and Paul Farquhar, Chief Financial Officer, will be hosting a presentation for investors at 6.00pm GMT on Wednesday 31 January 2024 via webinar.

 

The webinar is open to all existing and potential shareholders. Interested parties can register to attend, and submit questions in advance, using the following link: https://forms.gle/eRXGNiuCnmH3yGov9.

 

Participants are requested to submit questions by 12.00pm on 31 January 2024.

 

Kromek Group plc 

 

Kromek Group plc is a leading developer of radiation detection and bio-detection technology solutions for the advanced imaging and CBRN detection segments. Headquartered in County Durham, UK, Kromek has manufacturing operations in the UK and US, delivering on the vision of enhancing the quality of life through innovative detection technology solutions.  

 

The advanced imaging segment comprises the medical (including CT and SPECT), security and industrial markets. Kromek provides its OEM customers with detector components, based on its core cadmium zinc telluride ("CZT") platform, to enable better detection of diseases such as cancer and Alzheimer's, contamination in industrial manufacture and explosives in aviation settings.  

 

In CBRN detection, the Group provides nuclear radiation detection solutions to the global homeland defence and security market. Kromek's compact, handheld, high-performance radiation detectors, based on advanced scintillation and solid-state readout technology, are primarily used to protect critical infrastructure, events, personnel and urban environments from the threat of 'dirty bombs'.  

 

The Group is also developing bio-security solutions in the CBRN detection segment. These consist of fully automated and autonomous systems to detect a wide range of airborne pathogens.  

 

Kromek is listed on AIM, a market of the London Stock Exchange, under the trading symbol 'KMK'.  

 

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

 

 

Operational Review

 

During the six months to 31 October 2023, Kromek commenced the significant collaboration agreements that were entered into at the end of the prior year in advanced imaging with a tier 1 OEM and Analogic, whilst continued customer engagement resulted in the signing of a further agreement shortly after period end with a major blue-chip technology solutions provider. These agreements represent Kromek executing on its advanced imaging strategy and are great endorsements of the Group's technology, capabilities and solutions.

 

In CBRN detection, demand for the Group's nuclear security products remained strong as global insecurity and raised concern over potential nuclear threats continue to underscore the requirement for such products. Kromek also made excellent progress on its biological-threat detection development programmes, with a number of key milestones being achieved under the Group's programme with the UK government. 

 

Advanced Imaging

 

In advanced imaging, Kromek primarily operates in the medical imaging market with some opportunities in the security screening and industrial screening sectors. Kromek provides OEM customers with detector components, based on its core cadmium zinc telluride ("CZT") platform, to enhance imaging quality and enable better detection of diseases such as cancer and Alzheimer's, contamination in industrial manufacture and explosives in aviation settings. As the only independent commercial producer of CZT at scale, Kromek is well-positioned in this segment.

 

Medical Imaging

 

During the period, Kromek continued to receive orders in its regular repeat business, delivered under its supply agreements and progressed its development programmes. It also secured new customers and expanded its engagement with leading OEMs, which resulted, shortly after period end, in the Group entering a collaboration agreement with a new blue-chip technology solutions provider that has over 100,000 customers globally for a range of applications, including healthcare. Under the agreement, Kromek will develop CZT-based detectors for photon counting CT applications in the medical imaging sector and will ensure production capability is available to support commercial demand ramp-up.

 

The Group commenced work under the collaboration agreements that were signed at the end of the 2023 financial year with a recognised tier 1 OEM and with Analogic to develop CZT-based detectors for use in their advanced imaging scanners. The agreement with the tier 1 OEM, which is a leading health-technology company, comprises a short development phase to integrate Kromek's CZT-based detectors into the customer's medical imaging scanners, with the agreement then transitioning to a longer commercial supply phase. With Analogic, who have been global leaders in CT detector technology for over 50 years, Kromek is developing CZT-based detector solutions for photon counting CT applications in both the medical imaging and security screening sectors.

 

Kromek received an order worth $1.4m from a new OEM customer that is an established player in the medical imaging sector in Asia. The order is for CZT-based detector-modules for use in the customer's next generation SPECT systems. Delivery and revenue recognition are expected in the current financial year.

 

Also during the period, Spectrum Dynamics, a key customer, introduced the latest addition to its next generation digital SPECT/CT imaging portfolio, the VERITON-CT 300, for higher energy imaging, using Kromek's digital detectors. This integration enables enhanced image quality and breakthrough clinical capabilities in digital SPECT/CT.

 

Security & Industrial Screening

 

In security and industrial screening, Kromek continued to deliver under its existing component supply agreements and development programmes. This includes the detector solutions being developed under its collaboration agreement with Analogic, noted above, which will be for security applications as well as medical.

 

CBRN Detection

 

In CBRN detection, the Group provides nuclear radiation detection solutions to the global homeland defence and security market, which are primarily used to protect critical infrastructure, events and urban environments from the threat of 'dirty bombs'. Kromek's portfolio also includes a range of high-resolution detectors and measurement systems used for civil nuclear applications, primarily in nuclear power plants and research establishments.

 

Nuclear Security

 

Geopolitical insecurity continued to drive demand for Kromek's products that contribute to ensuring public safety and security, which are selected by governments and their agencies for their best-of-breed features and the Group's ability to deploy rapidly. The Group is also benefiting from its distribution partnership with Smiths Detection, a global leader in threat detection and security screening technologies for aviation, ports and borders, defence and urban security markets, which was established in the previous year.

 

During the period, alongside deployments under previously-awarded contracts, the Group received two new orders in nuclear security, with one being from an existing customer and the other from a new customer that is a substantial global defence corporation, which the Group believes represents a significant opportunity for further sales. Post period, the Group received a £1.4m order to supply its D3M detectors and associated networkable solutions for use in the rescEU stockpile, which is being developed by the European Commission to help safeguard citizens from disasters and manage emerging risks. 

 

Civil Nuclear

 

In the civil nuclear segment, Kromek secured a contract worth $1.5m, to be delivered over 15 months, by one of its distribution partners in Asia. The contract is for a new product, based on the Group's existing technology, with the development of the product having been funded by the distribution partner.

 

Biological-Threat Detection

 

Kromek is developing biosecurity solutions that consist of fully automated and autonomous systems to detect a wide range of airborne pathogens for the purposes of national security and protecting public health. In this sector, the Group may consider forming strategic or financial partnerships to further accelerate the time to market for this technology.

 

During the period, the Group progressed the development of a biological-threat detection system under a contract that had been awarded in the previous financial year by a UK government department. Under the three-year programme, which is worth a total of £4.9m, Kromek will develop and supply the system, with the contract also including an option for extended maintenance services after the initial term.

 

The Group was awarded a $5.9m contract from the US Department of Homeland Security for the development of technologies focusing on an agent agnostic bio-detection system, under a four-year programme. This is the Group's first biosecurity contract from the Department of Homeland Security and underscores management's belief that there are significant market opportunities in this area as its technologies align well with major governments' biosecurity strategies. The Group also received during the period an order for the further development of its biosecurity technology from an existing government customer.

 

Manufacturing and IP

 

Kromek continued to execute on its programmes for the expansion of production capacity and increased process automation, with particular progress being made at its CZT manufacturing facility in the US. These programmes are on track and are resulting in greater manufacturing productivity and cost efficiencies. Kromek is making significant progress in its cost and productivity in CZT crystal growth and detector manufacturing. The Group has dedicated teams that are focussed on targeted improvements for every step in the manufacturing process, which directly contributes to yield and cost improvement.

 

In H1 2024, Kromek applied for one new patent and had three patents granted across three patent families, with the total number of patents held by the Group being in excess of 230. The new applications cover innovations in both of the Group's segments.

 

Financial Review

 

Revenue for the six-month period ended 31 October 2023 increased by 5% to £7.1m (H1 2023: £6.8m). In particular, R&D revenue increased significantly, driven by the Group's biological-threat detection development contracts, and accounted for 17% of total Group revenue for the period. The split between product sales and revenue from R&D contracts is as follows:

 

	H1 2024		H1 2023
	(Unaudited)		(Unaudited)
	£'000		£'000
Product	£5,910	83%	£6,540	96%
R&D	£1,185	17%	£245	4%
Total	£7,095	100%	£6,785	100%

 

Gross margin improved substantially to 54.2% compared with 40.4% for H1 2023. The increase is largely due to  revenue and product mix in the period - namely, the increased contributions to revenue from R&D and to product sales from CBRN detection -  and the easing of global supply constraints resulting in cost savings on component parts compared with the first half of the prior year. The gross margin is also benefitting from increasing efficiencies in advanced imaging as the Group continues to implement its manufacturing productivity programmes. As a result of the improved margin and higher revenue, gross profit increased to £3.8m (H1 2023: £2.7m).

 

Administrative expenses and distribution costs reduced to £6.4m (H1 2023: £8.0m), which reflects the Group's focus on tight cost control. In addition, the Group generated £0.2m from the change in the fair value of the embedded derivative liability associated with the convertible loan notes in issue (H1 2023: £nil). Accordingly, total operating costs were reduced to £6.2m (H1 2023: £8.0m).

 

As a result of the lower operating costs and increased gross profit, operating loss was significantly reduced to £2.3m (H1 2023: £5.2m loss). After net finance costs of £0.9m (H1 2023: £0.5m) and exceptional costs of £0.2m related to the Group's debt refinancing, loss before tax was £3.5m (H1 2023: £5.7m loss).

 

The adjusted EBITDA loss for the period was reduced to £0.1m (H1 2023: £2.7m loss). Adjusted EBITDA is calculated as follows:

 

	H1 2024	H1 2023	FY 2023
	(Unaudited)	(Unaudited)	(Audited)
	£'000	£'000	£'000
Loss before tax	(3,492)	(5,671)	(7,292)
EBITDA adjustments:-
Net interest	913	458	1,243
Depreciation	883	962	1,903
Amortisation	1,357	1,465	2,891
Share-based payments	180	120	354
Change in fair value of derivative	(202)	-	(77)
Exceptional items	246	-	-
Adjusted EBITDA*	(115)	(2,666)	(978)

*Adjusted EBITDA is defined as earnings before interest, taxation, depreciation, amortisation, exceptional items, change in fair value of derivatives and share-based payments. 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. The exceptional item relates to costs associated with the refinancing of the debt facility.

 

The Group invested £2.6m in product development in the six-month period (H1 2023: £2.6m) that was capitalised on the balance sheet, which largely reflects:

 

·    the continuing investment in cost reduction and productivity improvements in CZT crystal growth and detector manufacturing in advanced imaging; and

·    the development of automated and autonomous biological-threat detection technology to detect airborne pathogens for the purposes of national security and protecting public health.

 

This expenditure was capitalised in accordance with IAS38 to the extent that it related to projects in the later stage (development phase) of the project life cycle.   

 

During the period, the Group completed a placing, subscription and open offer to raise £8m before expenses, of which £7m was raised through the share placing and subscription, and a further £1m through the open offer.

 

Cash and cash equivalents at 31 October 2023 were £3.7m (30 April 2023: £1.1m). The £2.6m increase in cash over the six-month period was substantially due to the combination of the following cash inflows and outflows:

 

·    Adjusted  EBITDA  loss for the period of £0.1m.

·    R&D tax receipts of £1.1m.

·    Investment of £2.8m in tangible and intangible assets, with capitalised development costs of £2.6m, IP additions of £0.1m and capital expenditure of £0.1m.

·    Net cash generated from financing activities of £6.9m, representing new debt and equity funds raised less debt repayments.

·    A net cash outflow of £2.3m due to working capital movements.

·    An increase in cash of £0.1m arising from the impact of foreign exchange.

The amount owing by the Group in respect of convertible loan notes reduced during the period from £2.8m to £2.6m following the partial conversion to equity of certain of the holdings (see note 13).

 

During the period, the Group completed a refinancing of its principal borrowing facility with the signing of a new £5.5m secured term loan. The new facility was provided by Polymer N2 Limited, an existing and significant shareholder in the Company. For further details on the Group's borrowings, see note 12.

 

Outlook

 

Kromek remains on track to deliver record revenues for the full year 2024 and positive EBITDA.

 

The Group has good visibility of full year revenue forecasts, comprising 72% contracted or already shipped, 10% awarded and going through contract negotiation, 2% being provided by the Group's regular repeat order business and the remaining 16% anticipated to be generated from the known pipeline of opportunities. In particular, in the second half of the year the Group expects significant growth in product sales as it delivers under its long-term contracts and continues to receive new orders.

 

Kromek remains heavily focussed on controlling costs across the Group and in increasing efficiency, particularly within the advanced imaging manufacturing process. In addition, the inflationary pressures on the price of materials and labour are continuing to reduce.

 

As a result, the Board expects to report results for full year 2024 in line with market expectations and, looking further ahead, remains confident of delivering sustained EBITDA growth.

 

 

 

Consolidated condensed income statement

For the six months ended 31 October 2023

 

 

 

 

			Six months ended 31 October 2023 £'000		Six months ended 31 October 2022 £'000		Year ended 30 April 2023 £'000
			(Unaudited)		(Unaudited)		(Audited)
	Note
Continuing operations
Revenue	4		7,095		6,785		17,309
Cost of sales			(3,246)		(4,046)		(8,374)
Gross profit			3,849		2,739		8,935
Other operating income	5		-		-		121
Distribution costs			(216)		(319)		(612)
Administrative expenses (including operating expenses)			(6,168)		(7,633)		(14,570)
Change in fair value of derivative			202		-		77
Operating loss			(2,333)		(5,213)		(6,049)
Exceptional items	6		(246)		-		-
Operating results (post exceptional items)			(2,579)		(5,213)		(6,049)
Finance income			32		-		2
Finance costs			(945)		(458)		(1,245)
Loss before tax			(3,492)		(5,671)		(7,292)
Tax	7		425		601		1,192
Loss from continuing operations			(3,067)		(5,070)		(6,100)
Loss per share
-basic (p)	9		(0.5)		(1.2)		(1.4)