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5
Kromek Group plc
Annual report and accounts
for the year ended 30 April 2015
Kromek Group plc
NETPark
Thomas Wright Way
Sedgefield
County Durham
TS21 3FD
Advancing CZT manufacture to target
significant growth opportunities in CT, SPECT
and networked nuclear detection applications
GROWTH AREA
1
CT
$900m+ market
CT – (photon counting) is an x-ray based
diagnostic imaging technique where
slices of images are taken and then
can be rendered into a 3D image – for
detection of cancers, cardiac and other
pathologies
GROWTH AREA
2
SPECT
$100m+ market
SPECT – Nuclear Medicine diagnostic
imaging where the patient is injected
with a radio-pharmaceutical. The
pharmaceutical then congregates at
tumour sites
3
GROWTH AREA
Nuclear
Safeguard
$1bn+ market
Nuclear Safeguard – D3S a portable
combined gamma neutron detector
which is networked via mobile phone
linked to a central server. Prevention
against nuclear terrorism threat
CONTENTS
Directors, Secretary & Advisers
Financial & Operational Highlights
Business Review & Strategic Report
Chairman’s Statement
Chief Executive Officer’s Review
Chief Financial Officer’s Review
Directors’ Biographies
Directors’ Report
Corporate Governance Report
Directors’ Remuneration Report
Independent Auditor’s Report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
4
5
6-13
6
7
9
14
16
18
20
24
25
26
27
28
29
30
KROMEK Annual Report & Accounts 2015
Directors, Secretary & Advisers
Directors, Secretary & Advisers
Directors
Dr. Arnab Basu MBE
Chief Executive Officer
Mr. Derek Bulmer
Chief Financial Officer
Mr. Lawrence Kinet
Chairman
Mr. Peter Bains
Non-Executive Director
Ms. Charlotta Ginman
Non-Executive Director
Prof. Max Robinson
Non-Executive Director
Dr. Graeme Speirs
Non-Executive Director
Prof. Brian Tanner
Non-Executive Director
Mr. Jerel Whittingham
Non-Executive Director
Company Secretary
Mr. Derek Bulmer
Registered Office
NETPark
Thomas Wright Way
Sedgefield
County Durham
TS21 3FD
Nominated Adviser
and Broker
Cenkos Securities plc
6.7.8 Tokenhouse Yard
London
EC2R 7AS
Bankers
HSBC Bank plc
1 Saddler Street
Durham
County Durham
DH1 3NR
Auditors
Deloitte LLP
One Trinity Gardens
Broad Chare
Newcastle upon Tyne
NE1 2HF
Registrar
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Legal Advisers
As to UK law:
Eversheds LLP
Bridgewater Place
Water Lane
Leeds
LS11 5DR
K&L Gates LLP
One New Change
London
EC4M 9AF
As to US law:
Clark Hill plc
150 N. Michigan Ave
Suite 2700
Chicago
IL 60601
USA
Public Relations
Adviser
Luther Pendragon Ltd
Priory Court
Pilgrim Street
London
EC4V 6DE
4
Financial & Operational Highlights
Financial Highlights
■ Revenue increased 36% to £8.1m (2013/14: £6.0m)
■ Gross margin* was 69% (2013/14: 65%)
■ Adjusted EBITDA**-breakeven/positive for the second half of the year, resulting in an adjusted EBITDA improvement
to £1.6m loss (2013/14: £3.0m loss)
■ Loss before tax was reduced to £3.1m (2013/14: £4.3m loss)
■ Loss per share was 2p (2013/14: 5p loss)
■ Cash and cash equivalents at 30 April 2015 were £1.2m (31 October 2014 were £2.9m; 30 April 2014: £6.6m)
■ £3.0m revolving credit facility announced in April 2015
■ The Group entered into an agreement to raise £9m through a Firm Placing and up to a further £2m through an
Open Offer
* * As with prior periods, gross margin is calculated before labour and overhead recovery.
** Adjusted EBITDA eliminates non-recurring other income and share-based payment expenses. See the ‘Chief Financial Officer’s Review’ below
for a reconciliation of adjusted EBITDA.
Operational Highlights
■ Achieved growth through winning significant contracts across all three target segments and in multiple geographies
■ Nuclear Detection segment experienced significant growth and represented the largest segment by revenues
— Key contract won from U.S. Department of Defense agency, the Defense Advanced Research Projects Agency
(“DARPA”)
— Other significant contracts in US and UK with U.S. Defense Threat Reduction Agency (“DTRA”) and Innovate UK
■ Medical Imaging segment represented the second largest contributor to revenues as it strengthened its relationship
with OEMs globally
— Exclusive development programme in medical CT extended to a second year
— Secured multiple orders from leading OEMs, both new and existing customers, for dual energy x-ray bone
mineral densitometry (DEXA BMD) applications
— Post period, launched eVance™, a new generation of SPECT cameras based on CZT
■ Significant progress made in providing products and components for Security Screening at airports
— Increased sales of bottle scanners, including first contract in Asia – now deployed in 46 airports across 10
countries (2013/14: six airports in four countries)
— Commenced supplying OEM components for baggage screening
■ Doubled manufacturing capacity by expanding in the UK. Demonstrated ability to rapidly scale up production by
successfully replicating the manufacturing process which was previously being conducted only in the US
■ 23 new patents were granted and 18 new patent applications were filed during the period
5
KROMEK Annual Report & Accounts 2015
Business Review & Strategic Report
Lawrence Kinet,
Chairman, July 2015
Chairman’s Statement
I am pleased to present our Annual Report
for the year ended 30 April 2015, following
being appointed to the role of Chairman
in April and having been a Non-Executive
Director of the Company since August
2013. Whilst it was a mixed year for
Kromek, it was characterised by good
progress as we achieved our operational
targets, resulting in good revenue growth,
albeit not as strong growth as we had
anticipated at the start of the year.
It is increasingly evident that CZT-based detectors
are set to replace the well-established scintillator-
based detectors (scintillators are based on
a material that fluoresces when struck by a
charged particle or high-energy photon). CZT
is a semiconductor that directly converts x-ray
or gamma-ray photons into electrons, at room
temperature, creating a spectroscopic resolution
that clearly outperforms any commercially-
available scintillator. This unique combination of
spectroscopy and very high-count rate capability
at room temperature renders CZT an ideal
detector solution for medical, industrial and
homeland security applications – the markets
that Kromek focuses on. The key breakthrough
that Kromek has achieved is to produce CZT into a
stable material in economically viable quantities.
Achieved four key
operational targets
At the beginning of the year, we set
ourselves four primary operational targets:
T Replicate the US manufacturing process in
the UK to enable the scale up of our business
T Achieve attractive economic costs
for the manufacture of CZT
T Increase our number of customers
T Penetrate the US market with our cutting-
edge nuclear imaging detectors
I am pleased to say that we succeeded in
meeting all four of these targets. Arnab Basu,
our Chief Executive Officer, provides details
on how we achieved this on pages 7-8.
Progress towards
mass adoption
I am particularly pleased about the replication
of the manufacturing process as this will enable
6
us to scale our business and enhance security
of supply as well as benefit from efficiencies
in production, which supports our efforts
to drive down the price point of CZT-based
detectors. The market is moving towards mass
adoption of CZT-based detectors as customers
are demanding the extra functionality and
economics from CZT products. As such,
whilst CZT will remain more expensive than
scintillators in the short term, the growing
demand for colour and digital detection of x-rays
and gamma rays – for applications such as the
earlier and more accurate detection of cancer
or protection against ‘dirty bombs’ – is driving
the utilisation of CZT. That Kromek is making
significant progress in driving down the cost,
through improving yield levels, increases the
competitiveness of our offering and means that
we are well-positioned to benefit from the trend
towards mass adoption of CZT-based detectors.
Timing of revenues
difficult to predict
Whilst we have seen our order book increasing,
and a strong pipeline provides Kromek with
improved visibility going forward, dealing
with government agencies and OEMs renders
it difficult to predict the exact timing and
magnitude of some of the contracts. Hence
we have received orders but then had
delivery postponed to the next financial year.
Consequently, our growth in revenues in 2014/15
was less than we expected at the beginning of
the financial year. However, there is no doubt
in my mind that we are at the cusp of a new
adoption cycle where CZT-based products will
replace scintillators, presenting Kromek with
material revenue opportunities over the next
two to three years. Because a majority of our
contracts are with government agencies and
OEMs, we have also learned to be cautious
with our revenue forecasting models.
Well positioned in
high-growth markets
During the year, Kromek won a significant contract
with the U.S. Defense Advanced Research Projects
Agency (DARPA) who have already extended
the contract twice since the initial contract was
awarded early in the year. We believe that DARPA
represents a significant radiation detection
opportunity that will gain momentum over the
next 12 to 18 months. DARPA is concerned, as
are other government agencies around the world,
by the threat of a “dirty” bomb placement.
Kromek’s products for the nuclear medical
Single Photon Emission Computed Tomography
(“SPECT”) market are likely to mature over the next
two-year period. A third large growth opportunity
of computerised tomography (“CT”) components,
also in medical imaging equipment, is likely to
see Kromek’s products delivered from 2017/18.
In these areas of CT and SPECT, we believe our
addressable opportunity stands at $900m and
$100m p.a. respectively. In the area of portable
advanced radiation detectors for nuclear
safeguarding, we believe our market opportunity
is more than a billion dollars. We have already
made significant progress within all three of these
markets, particularly within the last six months. As
such, we continue to develop our portfolio of end-
use products whilst advancing our longer-term
strategy of becoming the preferred component
supplier to major OEMs in CT and SPECT and
in the supply of network sensors in nuclear
markets through existing and new relationships.
The other distinct competitive advantage that
Kromek possesses, in all three markets, is the
capability to develop and supply the electronics
to convert the signals, with proprietary
algorithms, into meaningful detection alerts.
Employees and Partners
As we look to the future, I would also like to
express gratitude to those who have enabled
us to reach this point. In particular, on behalf of
the Board, I would like to thank all of our staff
and shareholders for their on-going support.
With the strengthening of Kromek’s foundations
and the long-term growth drivers showing no
sign of abating, we look forward to leveraging
our technical expertise and ability to innovate
to grow our business and deliver shareholder
value. Kromek is, today, a stronger and better
company than the day we went public. We have
the market opportunities, we have the products
and technology, and we have the cost position.
The next two to three years will be exciting
as we deliver on these strong foundations.
Business Review & Strategic Report
Arnab Basu
Chief Executive Officer, July 2015
Chief Executive
Officer’s Review
Kromek is pleased to report another
period of revenue growth. For the full
year 2014/15, revenue increased by 36%
to £8.1m (FY 2013/14: £6.0m) as we
continued to establish our position as a
key supplier of CZT detection systems
both to commercial and government
customers globally. From H1 to H2, the
revenues increased by 56% through
expansion in the number and scope
of customer-funded development
projects as well as direct sales of
both end-user and component-level
products for OEMs. Notably, we won
contracts across all three of our target
segments and in multiple geographies.
Medical Imaging
We made good progress this year with our
mutually exclusive contract with a top four
global OEM in the CT market for developing
and supplying CZT-based multispectral
(colour) detectors for producing high
resolution colour x-ray images by CT scanners.
In September 2014, based on sustained
progress towards meeting the aims of the
development programme, the OEM confirmed
its decision to progress to the second year of
the programme and awarded Kromek a $1m
exclusivity payment for this next stage.
Kromek gained further traction during the year
in our other significant market opportunity
in the medical imaging segment, SPECT
where it has been demonstrated that use
of CZT provides more specificity due to
higher resolution, which enhances detection
capabilities. We commenced initial supply of
our CZT-based modules to an established
SME manufacturer of x-ray diagnostics and
analysis equipment in China, under our long-
term contract that we signed last year, for
application in China and Chinese territories.
Another significant development for Kromek
was the continued growth of sales attributable
to the dual energy x-ray bone mineral
densitometry (DEXA BMD) segment. DEXA
BMD is the most accurate imaging technique
to diagnose the strength and health of bones,
allowing clinicians to accurately detect,
monitor and treat Osteoporosis in patients.
We started a new programme with a leading
global healthcare and diagnostics company
for adopting our detectors in their machines.
In addition, we received further contracts
from two of our existing OEM customers
for CZT-based detector modules for BMD
applications. In the second half, we received
new orders to supply radiation detectors
and integrated electronic components to a
leading global OEM of dual energy x-ray bone
mineral density (“DEXA BMD”) systems.
During the year, we received contracts worth
£150,000 to develop an enhanced detection
system for breast imaging in conjunction
with the UK’s Centre for Process Innovation.
The contracts were awarded by Innovate UK
(formerly the Technology Strategy Board),
an executive non-departmental public body
sponsored by the UK Government’s Department
for Business, Innovation & Skills. Following the
successful collaboration on these, and other
projects, Innovate UK awarded us a further
contract worth approximately £200,000 for
an 18-month programme for the development
of a novel radiation detector for the medical
and nuclear markets. We are pleased with the
progress we are making on these programmes.
Market opportunity in
Medical Imaging
T SPECT – ongoing discussions with
several OEMs following recent
launch of eVanceTM family of
products for Thyroid, Breast, Cardiac
and General Purpose imaging
T CT – we have developed our CT
capability with a major OEM over the
last two years under an exclusive
joint development agreement
T BMD – recurring revenue with good
margin with existing customers and
developing new customer relationships
Nuclear Detection
We continued to grow our sales in the nuclear
segment, being awarded contracts across
multiple partners in the US and worldwide to
supply innovative nuclear detection products
for civil nuclear and safeguarding applications
following the increased threat of ‘dirty bombs’. Of
particular importance, however, was the signing,
during the year, of four new and extension
contracts for a total value of $5.8m with the
U.S. Department of Defense. In August 2014,
we were awarded up to $1.2m for a 12-month
programme with DARPA to develop an advanced
portable detection system for gamma and
neutron radiation that can be combined in large
networks, providing information on radiation
signatures over an extended area. This contract
was extended by a further $1.1m by DARPA
in January 2015 following strong progress on
the first phase, which signifies the customer’s
confidence in Kromek as a strong solution
provider. In April 2015, DARPA further modified
the contract for volume supply of radiation
network detectors, worth another $2.02m,
bringing the total value of the contract to $4.4m.
Kromek’s solution is based on its ‘Discreet Dual
Detector’ – the D3 – a handheld hybrid gamma/
neutron detector that can be networked with
other such devices. Kromek also secured a
two-year $1.5m contract with DTRA for the
design, manufacture and optimisation of high
sensitivity, next generation, solid state detectors
for the homeland security radiation detection
market. The project has progressed well and we
are delivering on all of the target milestones.
We continued to work under, and successfully
completed, the first phase of a contract with a
leading global security company, which provides
innovative systems, products and solutions
to government and commercial customers
worldwide, to design CZT-based detectors and
ASICs for nuclear safeguard markets. This
resulted in Kromek being awarded a $1.0m
contract extension to focus on the delivery of the
new ASICs and detectors as well as the testing
and characterisation of detector modules.
Continued on page 8
7
KROMEK Annual Report & Accounts 2015
Business Review & Strategic Report
Chief Executive Officer’s Review continued
Market opportunity in
Nuclear Detection
T Continuing to penetrate civil nuclear
markets with our own branded products
T Ongoing discussions for partnerships
with two OEMs in civil nuclear market
T Further implementation of second
generation D3 – the small form
factor D3S – in homeland security
applications post heightened
threat of ‘dirty bombs’
T Total value of market opportunity
is expected to be $1bn+
Security Screening
In the security screening market, Kromek was
awarded a significant contract to provide its
advanced bottle scanner technology to a number of
airports in Asia. This initial contract, worth
$620,000, represents entry into a new geographical
market that we believe offers considerable scope for
future growth. Kromek’s bottle scanner is now
installed in 46 airports in 10 countries in Asia, Europe
and Australia.
Kromek has also expanded its customer base
during the year with new contracts from additional
global security technology groups for the supply of
OEM components for baggage screening products,
including a new contract worth approximately
$0.3m for the supply of OEM components for a
baggage screening product for aviation security.
We also received a repeat order from a recognised
OEM in the US to supply our patented detection
modules to enhance the OEM’s radiation detection
capabilities for its security applications.
Market opportunity in
Security Screening
T Discussion with global OEM on
licensing liquid detection technology
and development of OEM module
for baggage screening
T Further sales of bottle scanner product
T Total value of market opportunity
is expected to be $450m+
8
Doubling of
Manufacturing Capacity
and Driving Down Cost
During the period, Kromek reached an
important milestone as it successfully
replicated in the UK the CZT manufacturing
processes that had previously been utilised
in the US, which enabled a doubling of
the Company’s production capacity.
Specifically, 24 new CZT growth systems
were installed and qualified for production
at our Sedgefield, UK manufacturing site.
Additionally, four new CZT systems were
installed and qualified for production
and R&D purposes at our Saxonburg,
US manufacturing site. We also made
significant yield improvements in materials
for SPECT detectors through a new CZT
sensor assembly technique, which has
led to a lowering of the cost of detector
production. Long-term supply agreements
were negotiated with critical suppliers to
secure pricing and supply of raw materials.
In addition to improvements in the
production of CZT material, we were able
to further improve the fabrication process
for detectors resulting in higher fabrication
yields at the Saxonburg plant. At the
Sedgefield plant we qualified production
processes for silicon photomultiplier-
based gamma and neutron detectors.
There were significant efficiencies made in
the assembly and testing for our nuclear
products. Multiple electronic component
subassembly suppliers were qualified in
Eastern Europe and Asia to improve costs.
Advanced automated testing for nuclear
detection instruments were developed, with
multiple resources trained and qualified to
carryout procedures at the Sedgefield plant.
Both manufacturing sites at Sedgefield and
Saxonburg were re-certified for ISO9001:2008
through ISO audits and successfully
passed several key customer audits.
Outlook
The doubling in manufacturing capacity, increased
customer base, and significant progress with
new OEMs and U.S. Department of Defense,
provides a strong base for growing the business
over the medium to long term. We believe that
Kromek has the market-leading technology,
products and personnel that will enable us
to win further contracts across the three
transformational market opportunities of CT,
SPECT and portable advanced radiation detectors.
We have entered the new financial year with
a significantly higher backlog than at the
equivalent period last year with contracts signed
in the previous year providing 60% visibility
on the Directors’ expectations for the year
ahead. We are continuing to make progress and
receive increasing interest across all three of
our segments. In Security Screening, we have
numerous revenue opportunities from the
sale of bottle scanners in Europe and RoW. In
Medical Imaging and Nuclear Detection, we are
especially excited about the increasing traction,
with both new and existing customers, we are
making in the three key growth opportunities
of CT, SPECT and portable advanced radiation
detection. In particular, the Directors expect the
recently-launched eVanceTM family of SPECT
cameras and OEM units to gain traction and be
a significant contributor to revenues over the
next 12-18 months. We are making significant
progress with our projects with the U.S.
Department of Defense, and continue to penetrate
civil nuclear markets with Kromek-branded
products and through white labelling channels.
Kromek’s management team is committed to
maintaining tight cost control whilst continuing to
invest in sales & marketing and targeted product
development. The business has operational
leverage reflected in a rise in revenue year-on-
year of 36% but a rise in the administrative costs
(including operating costs) of only 4% year-on-year.
This is further demonstrated by revenue growing
by £2.1m year-on-year and adjusted EBITDA
improving by £1.4m to a loss of £1.6m from a
loss of £3.0m for the prior year. As a result, the
Board is confident in the prospects of the business
and delivering significant shareholder value.
Business Review & Strategic Report
Derek Bulmer
Chief Financial Officer, July 2015
Chief Financial
Officer’s Review
The financial performance for the year
ended 30 April 2015 was characterised
by growth in revenue whilst tight control
was maintained over the cost base.
Revenue increased by 36% to £8.1m
(2013/14: £6.0m) due to significant
progress on government contracts,
especially in development of products
for homeland security through the D3
product, supplemented by sales to OEMs
in the medical imaging sector and sales
of bottle scanners in Asia.
Gross margin, before labour and overhead
recovery, increased to 69% (2013/14: 65%)
due to the increase in government contracts,
plus yield efficiencies and product mix.
Year-on-year, administration expenses
(including operational expenses) grew by only
4% to £8.5m (2013/14: £8.2m) despite a 36%
increase in revenue. The slight increase was
largely due to a full year of costs associated
with being a listed entity compared with only
six months in the prior period. Additionally,
employee numbers grew to 107 (2013/14:
101), primarily due to the expansion of
the sales & marketing team, increasing
employment costs (excluding Non-Executive
Director costs) by 3%.
Summary of results
As a result of increased revenue, improved
margin and tight cost control, the loss before
interest, tax, depreciation and amortisation
(EBITDA), excluding non-recurring other
income and share-based payment expenses,
fell to £1.6m compared with a loss of £3.0m
for the prior year. Loss before tax was reduced
by 28% to £3.1m (2013/14: £4.3m loss).
The results for the year, including
reconciliation to adjusted EBITDA (which
eliminates non-recurring other income and
share-based payment expenses), are as
follows:
Year
Revenue
Gross margin (%)
LBT
EBITDA Adjustments:-
Net interest
Depreciation
Amortisation
EBITDA
Share-based payments
Other income
Adjusted EBITDA
2014/15
2013/14
£’000
8,101
69%
£’000
5,972
65%
(3,135)
(4,295)
71
673
711
515
737
560
(1,680)
(2,483)
181
(58)
125
(649)
(1,557)
(3,007)
Cash and cash equivalents at 30 April 2015
were £1.2m (31 October 2014: £2.9m; 30
April 2014: £6.6m). During the second half
of the year, the Company secured a £3.0m
revolving credit facility with HSBC Bank plc.
The funds available will be used for working
capital to support the growth of the business,
and facilitate the Company in capitalising
on the large and increasing opportunities
that it continues to develop across its target
markets. As at 30 April 2015, £1.0m had been
drawn down under the credit facility.
Tax
The Company benefits from the UK Research
and Development Tax Credit and recorded a
credit of £1.0m for the year (2013/14: £0.7m).
In addition, the Company saw a movement in
the deferred tax provision of £nil (2013/14:
£0.4m), resulting in an overall tax credit to the
income statement of £1.0m (2013/14: £1.1m).
Earnings per
share (“EPS”)
EPS is recorded in the year on a basic and
diluted basis producing a loss of 2p per
share (2013/14: loss of 5p per share) and
an adjusted basic and diluted loss of 2p per
share (2013/14: loss of 5p per share). Due to
the Company having losses in each of the two
years, the diluted EPS for disclosure purposes
is the same as the basic EPS.
R&D
As noted above, the Company continues to invest
in the development of products and its technology
platform to advance its commercial advantage
and increase margin on sales. Total expenditure
on research and development was £4.4m
(2013/14: £3.1m), comprising £2.6m in the UK
(2013/14: £1.9m) and £1.8m in the US (2013/14:
£1.2m). This consists of £1.8m (2013/14: £1.1m)
attributable to near-term product development
and £2.6m (2013/14: £2.0m) reflecting investment
in Kromek’s core technology, platform and
manufacturing capabilities.
The expenditure on commercial near-term
product development, which has been
capitalised, resulted in new and further
development of existing products. This
provides further short- and medium-term sales
opportunities, and reflects Kromek’s ability to
draw from its technology platform to rapidly
develop bespoke and need-specific products.
The investment in Kromek’s core materials
technology, platform developments and
improved manufacturing and engineering
processes, was expensed through the income
statement. This provides a strong and enhanced
basis for efficiency and profitability in future
years, and strengthens the market position of
Kromek’s technology.
During the period, Kromek was awarded 23 new
patents and filed 18 new patent applications.
Capital expenditure
Capital expenditure for the year amounted
to £2.6m (2013/14: £0.2m), of which £0.8m
(2013/14: £0.1m) was supported by awards
from the Regional Growth Fund. This increase
substantially relates to the expansion of furnace
capacity in UK, which involved an investment of
£2.0m. This investment is an important step for
the business in demonstrating scalability and
transferability of the requisite materials growth
technologies, processes and know-how.
9
KROMEK Annual Report & Accounts 2015
Business Review & Strategic Report
Nuclear Detection
Nuclear Safeguard - D3 a portable combined gamma neutron
detector which is networked via mobile phone linked to a
central server. Prevention against nuclear terrorism threat.
D3S combined wireless
gamma-neutron detector
Stateless terrorists with a dirty bomb now real threat
Portable radiation detection
F 6m
is the total
potential
number of units
that could be
exceeded
F $400
is the price point
objective of
deployment
F $1bn
total opportunity
value even if 50%
of potential users
are equipped
with D3
F NEW
market driven
by ‘bottom-up’
organisations for
building crowd-
sourced radiation
networks
Key needs
Volumes for use in extensive networks – fixed and mobile
10
$1bn+
Kromek opportunity
CUSTOMER FOCUS: DARPA
$400
Initial programme with DARPA to reach
$400 per D3 unit cost target – commenced
August 2014 and extended January 2015
1,000
Awarded second contract in April 2015 to
provide accelerated trial to deliver 1,000
units of small form factor D3 (D3S)
$4.3m
Total value of contracts to date: up to $4.3m
Business Review & Strategic Report
CT – Medical Imaging
CT - (photon counting) is an x-ray based diagnostic imaging technique
where slices of images are taken and then can be rendered into a 3D
image - for detection of cancers, cardiac and other pathologies.
F Improved image quality enables
more accurate diagnosis and
greater efficiency of treatment
– and so lower cost of care
29%
23%
36%
Total Global
Market Shares
for CT Revenue
by Region, 2012
12%
Source: BCC Research
GE
30%
Siemens
25%
Summary
T GE remains the overall leader
T CT systems will continue to be the fastest
growing modality in medical imaging
T Rapid upgrades of technology will drive
further growth
T US, Europe & Japan are the largest market
T Asia will see the strongest growth
Asia
Europe
North
America
Emerging
markets
Others
6%
Toshiba
11%
Agfa-Gevaert
13%
Philips
15%
Source: BCC Research
$900m+
Kromek opportunity over 8 years
from commercial adoption
$5.3m
Currently working under an exclusive
contract, worth up to $5.3m, with a top four
global OEM for developing and supplying
CZT-based multispectral (colour) detectors
Advantages of
using CZT
▪ Dose reduction and higher
patient throughput
▪ High specificity providing
better tissue contrast
▪ Accurate imaging for blood
flow and drug take-up
11
KROMEK Annual Report & Accounts 2015
Business Review & Strategic Report
SPECT – Medical Imaging
SPECT - Nuclear Medicine diagnostic imaging where the patient
is injected with a radio–pharmaceutical. The pharmaceutical then
congregates at tumour sites.
Conventional
vs CZT MBI
Configurable
detector
module
Advantages of
using CZT
T Reduced dose rate
T Reduced scan time
T Higher resolution
and specificity
T Improved image quality
enables more accurate and
earlier detection of cancer,
and faster treatment cycle so
lower cost of care, with lower
overall radiation exposure
Source: Mayo Clinic
F 3 current customers for detectors in the niche SPECT market
F In April 2014, Kromek announced a long-term contract with a Chinese
manufacturer who was given exclusive rights over Chinese territories
F Launched, in June 2015, eVance™ family of CZT-based SPECT cameras: combining
eV-CZT™ detectors with advanced ASICs and microelectronics technology to
produce turnkey solution to simplify market adoption curve for OEMs
$100m+
Kromek opportunity
per year
Geographic Markets
RoW
4.25%
JAPAN
12%
BRIC
11.25%
US
55%
EU
17.5%
12
Source: Health Advances interviews and analysis, Kalorama, 2014
Business Review & Strategic Report
Manufacturing Capabilities
Kromek reached an important milestone as it successfully replicated in
the UK the CZT manufacturing processes that had previously been utilised
in the US, which enabled a doubling of the Company’s production capacity.
F Driving Down Costs
while Doubling our
Manufacturing Capacity
Saxonburg, US
Sedgefield HQ
CZT: Direct Conversion Detector
New CZT sensor assembly
technique, has led to a
lowering of the cost of
detector production
COST
OF DETECTOR
PRODUCTION
IMPROVED
FABRICATION YIELDS
Improvements material
production and fabrication
procressing for detectors has
resulted in higher yields at the
Saxonburg plant.
High energy
radiation
CZT directly
converts
radiation to
electrical
signals
ASIC signal
readout
High
resolution
spectra and
images
T Long-term agreements negotiated with
critical suppliers.
T Sedgefield qualified production processes
for silicon photomultiplier-based gamma
and neutron detectors.
T Significant efficiencies made in assembly
and testing for nuclear products. Multiple
electronic component subassembly
suppliers were qualified in Eastern Europe
and Asia to improve costs.
24
New CZT growth systems
were installed and qualified for
production at our Sedgefield,
UK manufacturing site
65+
Kromek now has over 65 CZT
furnaces worldwide
x4 NEW CZT
Additionally, four new CZT systems were
installed and qualified for production
and R&D purposes at our Saxonburg, US
manufacturing site
13
KROMEK Annual Report & Accounts 2015
Directors’ Biographies
1
Lawrence Kinet
Chairman
Mr. Kinet has 40 years’ experience in the
medical device and bio-pharmaceutical
industry in leadership positions, most
recently as Group Chief Executive of LMA
International NV and, President of Smiths
Medical, London. Lawrence has raised
more than $100m in funding for early stage
companies, taking one through an IPO,
and made over $1bn worth of acquisitions.
His career began at Baxter International,
running a number of overseas operations
eventually becoming President of Baxter’s
International Division. He holds a BSc from
the University of Birmingham (UK) and an
MBA from the University of Chicago.
2
Arnab Basu
Chief Executive Officer
Dr. Basu has a PhD in physics from Durham
University, specialising in semiconducting
sensor materials. Arnab held senior
management positions in his family
business, which manufactured materials
for the electronics industry serving over
250 major telecommunications and
consumer electronics manufacturers,
including Siemens and GEC. He worked
in commercial product development
for Elmwood Sensors Ltd, (Honeywell
Group, UK). A prominent figure within the
business community, he was awarded
Ernst and Young ‘Entrepreneur of the
Year’ (2009) and received an MBE
for services to regional development
and international trade (2014).
3
Derek Bulmer
Chief Financial Officer
and In-House Counsel
5
Charlotta Ginman
Non-Executive Director &
Audit Committee Chair
A qualified Chartered Accountant and
Barrister, Mr. Bulmer has worked with
KPMG and undertaken a number of senior
management roles with blue chip plc’s
including Bass plc, AWG plc and Ibstock
plc. Additionally, and more recently, a
number of roles as Finance Director of
privately owned groups in both the IT
and oil and gas industries have provided
a wealth of experience in executing and
managing business acquisitions plus
significant aspects of the commercial and
legal disciplines of corporate management.
4
Peter Bains
Non-Executive Director
During a 23-year career at GlaxoSmithKline,
Mr. Bains held senior strategic and
operational roles including General Manager
of China, Head of Global Marketing and
Senior VP of International Commercial
Operations. A consultant since 2009, he
specialises in supporting strategic growth
opportunities in small/medium-sized
innovation-based life science companies
serving as Non-Executive Director for
Tokyo listed biotech company, Sosei;
Biocon subsidiary, Syngene, and as Non-
Executive Chairman of Fermenta Biotech
Ltd. Peter holds a BSc Combined Honours in
Physiology/Zoology from Sheffield University.
Ms. Ginman brings substantial experience
in financial and operational management
gained during her career in investment
banking and global telecommunications.
Joining Ernst & Young, she was later
appointed to senior roles with JP Morgan,
Deutsche Bank, UBS and Nokia Corporation.
Charlotta is a Non-Executive Director
of Consort Medical plc, Polar Capital
Technology Trust plc, Pacific Assets Trust
plc and Motif Bio plc. Additionally, she
is Audit Committee Chair for the latter
two companies. A chartered accountant,
Charlotta also holds an MSc in Economics
from the Swedish School of Economics
and Business Administration in Helsinki.
6
Max Robinson
Founder & Non-Executive Director
Prof. Robinson provided business angel
finance in order to establish Kromek.
He is a highly respected academic and
a pioneer, inventor and visionary in the
field of 3-D x-ray imaging. He has been
involved in the management of the
interface between academic research and
the commercialisation of its findings for
35 years. Professor Robinson has been
named as one of the top 100 academic
entrepreneurs by the Times Higher
Education Supplement and currently
holds the position of Entrepreneur in
Residence at Newcastle University.
14
Directors’ Biographies
7
Graeme Speirs
Non-Executive Director
8
Brian Tanner
Non-Executive Director
Dr. Speirs is an experienced entrepreneur
and owner of the Polymer Holdings Group
and Polymer N2, an investment company
focused on UK start-ups in the technology,
life sciences and energy sectors. Graeme
graduated with first class honours in
chemistry and a PhD in molecular physics
from Aberdeen University, and holds
a masters degree in Technology and
Economics from Birmingham University.
Involved in the oil and gas industry, Graeme
is an expert in the design and manufacture
of polymer composite products.
Prof. Tanner is Dean for University
Enterprise and Professor of Physics at
Durham University. With an international
reputation in x-ray characterisation
of materials, and in particular
semiconductors, he has published over
375 papers in international peer-reviewed
journals and is the author or co-author of
4 books. He received the Queen’s Award
for Enterprise Promotion (2012) and the
Barrett Award of the International Center
for Diffraction Data (2005). Brian holds, or
has held, several directorships in addition
to Kromek. He was a member of the
governing council of Durham University for
15 years.
9
Jerel Whittingham
Non-Executive Director &
Remuneration Committee Chair
Mr. Whittingham has extensive experience
in investor, operational and strategy roles
with technology rich companies including
Incuvest LLC, Generics Group plc, Durlacher
plc, Amphion Innovations plc, INMARSAT
and a number of start-ups. He was
appointed to the Board of Kromek Group plc
in September 2013 and also served on the
Board of DSC Ltd, a predecessor company
of the group. Currently he combines NED
and operational roles in technology growth
companies. He also served as CEO and later
Executive chairman of Myconostica Ltd, a
medical technology company spun out from
a leading UK university.
8
7
6
3
1
2
5
4
9
15
KROMEK Annual Report & Accounts 2015
Directors’ Report
The Directors present their annual report on
the affairs of the Group, together with the
financial statements and auditor’s report, for
the year ended 30 April 2015.
Principal activities
Kromek Group plc is the leading developer
of radiation detectors based on cadmium
zinc telluride, providing improved detection
and characterisation capabilities within the
medical imaging, nuclear detection and
security screening markets.
Business and strategic
review
The information that fulfils the requirements
of the business review, including details
of the results for the year ended 30 April
2015, principal risks and uncertainties and
the outlook for future years, are set out in
the Chairman’s and Chief Executive Officer’s
Statements and the Business and Financial
Review, on pages 5-8.
The Directors do not recommend the
payment of a dividend for the year ended 30
April 2015.
During the year ended 30 April 2015, the
Group made political donations of £nil
(2014: £nil) and charitable donations of £nil
(2014: £nil).
Directors
The Directors of the Group are shown on
pages 14-15. All of the Directors were
Directors for the whole of the year, with the
exception of the following: Richard Morgan,
who was Chairman, resigned from the Board
on 27 March 2015.
The emoluments and interests of the
Directors’ in the shares of the Group are set
out in the Remuneration report.
Details of significant events since the
balance sheet date are contained in note 36
to the financial statements.
Future development
Our development objectives for 2015–16 are
disclosed in the Overview on pages 10-13.
Information about the use of financial
instruments by the Group and its
subsidiaries is given in note 35 to the
financial statements.
Capital structure
The capital structure is intended to ensure
and maintain strong credit ratings and
healthy capital ratios in order to support the
Group’s business and maximise shareholder
value. It includes the monitoring of cash
balances, available bank facilities and cash
flows.
No changes were made to these objectives,
policies or processes during the year ended
30 April 2015.
The Directors, who served throughout the
year except as noted, were as follows:
Dr A Basu MBE
Mr D Bulmer
Mr R C E Morgan (resigned 27 March 2015)
Mr P Bains
Ms C Ginman
Mr L Kinet
Professor M Robinson
Dr G K Speirs
Professor B K Tanner
Mr J H Whittingham
Results and dividends
The consolidated income statement is set
out on page 25.
The Group’s loss after taxation amounted to
£2.1m (2014: £3.2m).
Directors’ indemnities
The Group has made qualifying third party
indemnity provisions for the benefit of its
Directors, which were made during the year
and remain in force at the date of this report.
Statement of Directors’ responsibilities
in respect of the Directors’ report and
the financial statements
The Directors are responsible for preparing
the annual report and the financial
statements in accordance with applicable
law and regulations. Group law requires the
Directors to prepare financial statements
for each financial year. Under that law the
Directors have elected to prepare Group
and parent company financial statements
in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by
the European Union.
Under Group law the Directors must not
approve the financial statements unless
they are satisfied that they give a true and
fair view of the state of affairs of the Group
and the parent company and of the profit or
loss of the Group and the parent company
for the period. The Directors are also
required to prepare financial statements
in accordance with the rules of the London
Stock Exchange for companies trading
securities on the AIM. In preparing these
financial statements, the Directors are
required to:
T present fairly the financial position,
financial performance and cashflows of
the Group;
T select suitable accounting policies
in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates
and Errors and then apply them
consistently;
T make judgements and estimates that are
reasonable and prudent;
T state whether applicable IFRSs have
been followed, subject to any material
departures disclosed and explained in the
financial statements; and
T prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the Group
will continue in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Group’s
16
be interpreted in accordance with the
provisions of Section 418 of the Companies
Act 2006.
Deloitte LLP have expressed their
willingness to continue in office as auditors
and a resolution to reappoint them will be
proposed at the forthcoming Annual General
Meeting.
By order of the Board
Dr Arnab Basu MBE
Chief Executive Officer
29 July 2015
transactions and disclose with reasonable
accuracy at any time the financial position
of the Group and enable them to ensure that
the financial statements comply with the
Companies Act 2006.
They are also responsible for safeguarding
the assets of the Group and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors confirm that:
T so far as each Director is aware, there is
no relevant audit information of which the
Group’s auditors are not aware; and
T the Directors have taken all steps
that they ought to have taken to make
themselves aware of any relevant audit
information and to establish that the
auditors are aware of that information.
The Directors are responsible for ensuring
the annual report and the financial
statements are made available on the
corporate website. Financial statements
are published on the Group’s website in
accordance with legislation in the United
Kingdom governing the preparation and
dissemination of financial statements,
which may vary from legislation in other
jurisdictions. The Directors are responsible
for the maintenance and integrity of the
corporate and financial information included
on the Group’s website.
Auditors
Each of the persons who is a Director at
the date of approval of this annual report
confirms that:
T so far as the Director is aware, there is no
relevant audit information of which the
Group’s auditors are unaware; and
T the Director has taken all the steps that
he/she ought to have taken as a Director
in order to make himself/herself aware
of any relevant audit information and to
establish that the Group’s auditors are
aware of that information.
This confirmation is given and should
17
KROMEK Annual Report & Accounts 2015
Corporate Governance
Corporate Governance Report
As an AIM listed company, Kromek Group
plc is not obliged to comply with the UK
Corporate Governance Code published in
September 2012 (the “Code”). However, the
Board follows, as far as practicable, the
recommendations on corporate governance
of the Quoted Companies Alliance for
companies with shares traded on AIM.
and results of the audit with the auditors. The
audit committee reviews the extent of the
non-audit services provided by the auditors
and reviews with them their independence
and objectivity. The Chairman of the audit
committee reports the outcome of audit
committee meetings to the Board and the
Board receives minutes of the meetings.
with private and institutional investors and
welcomes their participation.
The Chairman aims to ensure that the
Chairs of the audit and remuneration
committees are available at the Annual
General Meeting to answer questions.
The Board
The Board normally meets at least four
times per year in person and four times per
year telephonically. Its direct responsibilities
include setting annual budgets, reviewing
trading performance, approving significant
capital expenditure, ensuring adequate
funding, setting and monitoring strategy and
reporting to shareholders. The Non-Executive
Directors have a particular responsibility to
ensure that the strategies proposed by the
Executive Directors are fully considered.
Audit committee
The audit committee is chaired by Charlotta
Ginman, an Independent Non-Executive
Director. The other members are Peter
Bains, an Independent Non-Executive
Director, and Graeme Speirs, a large
shareholder and Director of the Board. The
committee meets at least four times a year.
The audit committee is responsible
for reviewing the half-year and annual
financial statements, interim management
statements, preliminary results
announcements and any other formal
announcement or presentation relating
to the Group’s financial performance. The
audit committee also reviews significant
financial returns to regulators and any
financial information covered in certain other
documents such as announcements of a
price sensitive nature.
The audit committee advises the Board on
the appointment of external auditors and on
their remuneration (both for audit and non-
audit work) and discusses the nature, scope
18
Remuneration
committee
The remuneration committee is chaired
by Jerel Whittingham, an Independent
Non-Executive Director. The other members
are Brian Tanner and Lawrence Kinet,
Independent Non-Executive Directors.
The committee is responsible for making
recommendations to the Board, within
agreed terms of reference, on the Group’s
framework of executive remuneration and
its cost. The committee determines the
contract terms, remuneration and other
benefits for each of the Executive Directors,
including performance related bonus
schemes and pension rights. Further details
of the Group’s policies on remuneration and
service contracts are given in the Directors’
remuneration report on pages 20-22.
Relations with
shareholders
Communication with shareholders is given
high priority. There is regular dialogue
with major and institutional shareholders
including presentations after the Group’s
announcements of the half-year and full-
year results. Presentations are also made
to analysts at those times to present the
Group’s results and report on developments.
This assists with the promotion of
knowledge of the Group in the investment
marketplace and with shareholders.
Internal control
The Board is responsible for establishing and
maintaining the Group’s system of internal
control and for reviewing its effectiveness.
The system is designed to manage rather
than eliminate the risk of failure to achieve
the Group’s strategic objectives and can
only provide reasonable and not absolute
assurance against material misstatement
or loss. As an AIM listed company, the
Group does not need to comply with Code
provision C2.1 regarding the Directors giving a
summary of the process applied by the Board
in reviewing the effectiveness of the system
of internal control. Instead, the Directors have
set out below some of the key aspects of the
Group’s internal control procedures.
An ongoing process has been established
for identifying, evaluating and managing
the significant risks faced by the Group.
The process has been in place for the full
year under review and up to the date of
approval of the annual report and financial
statements. The Board regularly reviews this
process as part of its review of such risks
within its meetings. Where any weaknesses
are identified, an action plan is prepared to
address the issues and is then implemented.
Each year the Board approves the annual
budget. Key risk areas are identified,
reviewed and monitored. Performance is
monitored against budget, relevant action
is taken throughout the year and updated
forecasts are prepared as appropriate.
The Board uses both the annual report
and financial statements and the Annual
General Meeting to communicate directly
Capital and development expenditure is
regulated by a budgetary process and
authorisation levels. For expenditure beyond
specified levels, detailed written proposals
have to be submitted to the Board for
approval. Reviews are carried out after the
purchase is complete. The Board requires
management to explain any major deviations
from authorised capital proposals and to seek
further sanction from the Board.
The Board has reviewed the need for an
internal audit function and concluded that
this is not currently necessary in view of
the small size of the Group and the close
supervision by the senior leadership team
of its day-to-day operations. The Board will
continue to keep this under review.
The Group has a whistle-blowing policy and
procedures to encourage staff to contact the
audit committee if they need to raise matters
of concerns other than via the Executive
Directors and senior leadership team.
Going concern
As at 30 April 2015, the Group had net
assets of £16.2m (2014: £17.7m) as set out
in the consolidated statement of financial
position. The Directors have prepared
detailed forecasts of the Group’s financial
performance over the next 5 years, which
includes the £9.0m firm placing and open
offer of up to £2.0m which was raised
subsequent to the financial statements
being approved and disclosed in note 36. As
a result of this review, which incorporated
sensitivities and risk analysis, the Directors
believe that the Group has sufficient
resources and working capital to meet
their present obligations. Accordingly, they
continue to adopt the going concern basis in
preparing the Group financial statements.
Corporate Governance
19
KROMEK Annual Report & Accounts 2015
Directors’ Remuneration Report
As the Group is AIM listed, the Directors
are not required, under Section 420(1) of
the Companies Act 2006, to prepare a
Directors’ remuneration report for each
financial year of the Group and so Kromek
Group plc makes the following disclosures
voluntarily, which are not intended to,
and indeed do not, comply with the
requirements of the Companies Act 2006.
The remuneration committee is responsible
for recommending the remuneration
and other terms of employment for the
Executive Directors of Kromek Group plc.
In determining remuneration for
the year, the committee has given
consideration to the requirements of
the UK Corporate Governance Code.
Remuneration policy
The remuneration of Executive Directors
is determined by the committee and
the remuneration of Non-Executive
Directors is approved by the full Board
of Directors. The remuneration of
the Chairman is determined by the
Independent Non-Executive Directors.
The remuneration packages of Executive
Directors comprise the following elements:
Basic salary and benefits
Basic salaries for Executive Directors
are reviewed annually having regard
to individual performance and market
practice. In most cases benefits provided to
Executive Directors comprise the provision
of a Group car, or appropriate allowance,
health insurance and contributions to
a Group personal pension scheme.
Annual bonus
A bonus may be awarded at the end of each
financial year, at the discretion of the Board,
having considered the recommendations
of the remuneration committee, currently
ranging from a maximum of 25–75% of
basic salary to reward for Executives’
contribution to the growth in revenue, and
specific targeted or strategic objectives.
Long-Term Incentive Plan (“LTIP”)
The Group believes that share ownership
by Executive Directors and employees
strengthens the link between their
personal interests and those of the
Group and the shareholders.
The Group has executive share option and
incentive schemes, which are designed
to promote long-term improvement
in the performance of the Group,
sustained increase in shareholder value
and clear linkage between executive
reward and the Group’s performance.
The LTIP is based on total shareholder
return (“TSR”) relative to an AIM
peer group. Any awards made
vest only after three years.
Service contracts
Arnab Basu and Derek Bulmer each
have a service contract with a notice
period (to the Company) of nine
and six months respectively.
The committee considers the Directors’
notice periods to be appropriate as they are
in line with the market and take account of
the Directors’ knowledge and experience.
Non-Executive Directors
The fees of the Non-Executive Directors
are determined by the full Board within
the limits set out in the Memorandum and
Articles of Association. The Non-Executive
Directors are not eligible for bonuses,
pension benefits or share options.
Directors’ emoluments
Emoluments of the Directors for the year
ended 30 April 2015 are shown below.
Pension contributions
During the year, the Group made
annual pension contributions for
Arnab Basu and Derek Bulmer to a
personal pension scheme (i.e. a defined
contribution scheme). Neither benefits
in kind nor bonuses are pensionable.
Details of contributions payable
by the Group are:
Director
Arnab Basu
Derek Bulmer
30 April
2015
£’000
30 April
2014
£’000
16
10
30
4
20
Directors’ shareholdings
Beneficial interests of the Directors in the shares of the Group are shown below:
30 April 2015
30 April 2014
Arnab Basu
Charlotta Ginman
Lawrence Kinet
Richard Morgan*
Number
2,000,000
37,527
30,000
332,310
Max Robinson
9,500,000
Graeme Speirs**
14,792,730
Brian Tanner
Jerel Whittingham
750,000
110,450
%
1.8
–
–
0.3
8.8
13.7
0.7
0.1
Number
2,000,000
–
30,000
12,782,730
9,500,000
14,792,730
750,000
110,450
%
1.9
–
–
11.8
8.8
13.8
0.7
0.1
*Richard Morgan resigned from the Board on 27 March 2015.** Graeme Speirs is interested in Kromek Group plc
through Polymer Holdings Ltd which owns 11,377,790 ordinary shares amounting to 10.5% of the issued share capital.
Directors’ emoluments for the year ended 30 April 2015
Salary
£’000
Fees
£’000
Benefits
£’000
Bonus
£’000
Pension
contributions
£’000
Total
emoluments 2015
£’000
Total
emoluments 2014
£’000
Former non-executive
Chairman
Richard Morgan*
–
64
Executive
Arnab Basu
Derek Bulmer
Non-executive
Peter Bains
Charlotta Ginman
Lawrence Kinet
Max Robinson
Graeme Speirs
Brian Tanner
Jerel Whittingham
165
117
–
–
–
–
–
–
–
–
–
33
36
35
30
33
33
36
*Richard Morgan resigned from the Board on 27 March 2015.
–
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16
10
–
–
–
–
–
–
–
64
188
127
33
36
35
30
33
33
36
39
211
52
28
8
28
20
22
22
24
Payments for loss of office
Richard Morgan left the company on 27 March 2015. On the cessation of his employment, he was entitled to receive the value of his fees
which would have accrued to him during his three months’ notice period. These amounts totalled £13k.
21
KROMEK Annual Report & Accounts 2015
Directors’ Remuneration Report continued
Executive Directors’
share incentive scheme
Share incentive scheme for Arnab
Basu, Chief Executive Officer, and
Derek Bulmer, Chief Financial Officer
The remuneration committee agreed, in
June 2014, an incentive award scheme
for Arnab Basu and Derek Bulmer, to offer
them shares up to 425,859 and 181,182
respectively, at a price of 1p per share to
vest based on specified performance criteria.
In October 2013, an incentive scheme was
made to Arnab Basu and Derek Bulmer, to
offer them shares up to 372,057 and 158,292
respectively, at a price of 1p per share to vest
based on specified performance criteria.
These share incentives noted above are
measured by a TSR condition, calculated as
the average total return in comparison to a
peer group. The Board receives specialist
advice from the Group’s accountants.
As at 30 April 2015 and 30 April 2014, no
shares had vested under these incentive
schemes.
Share price during the year
During the year to 30 April 2015, the highest
share price was 55.5p (2014: 81.0p) and the
lowest share price was 32.5p (2014: 36.0p).
The market price of the shares at 30 April
2015 was 37.0p (2014: 41.5p).
Directors’ interests in material
contracts
No Director was materially interested either
at the yearend or during the year in any
contract of significance to the Group other
than their employment or service contract.
Executive Directors’ share options
Director
Date of grant
Arnab Basu
22 September 2006
Arnab Basu
15 May 2007
Arnab Basu
20 November 2011
Derek Bulmer
13 September 2010
Derek Bulmer
15 October 2012
Derek Bulmer
31 May 2013
Exercise
price p
2014
number
Awarded
during the
year
Exercised
during the
year
At 30 April
2015 number
Expiry date
1.5
1.5
20.5
20.0
20.0
20.0
720,000
160,000
1,000,000
500,000
125,000
250,000
–
–
–
–
–
–
–
–
–
–
–
–
720,000
22 September 2016
160,000
15 May 2017
1,000,000
22 September 2016
500,000
13 September 2020
125,000
15 SOctober 2022
250,000
31 May 2023
22
Kromek Group plc
Consolidated Financial Statements
for the year ended 30 April 2015
KROMEK Annual Report & Accounts 2015
Independent Auditor’s Report
been prepared in accordance
with the requirements of the
Companies Act 2006.
Opinion on other matter prescribed
by the Companies Act 2006
In our opinion the information given
in the Business Review & Strategic
Report and the Directors’ Report for the
financial year for which the financial
statements are prepared is consistent
with the financial statements.
Matters on which we are required
to report by exception
We have nothing to report in respect
of the following matters where the
Companies Act 2006 requires us to
report to you if, in our opinion:
T adequate accounting records
have not been kept by the parent
company, or returns adequate for
our audit have not been received
from branches not visited by us; or
T the parent company financial
statements are not in agreement with
the accounting records and returns; or
T certain disclosures of directors’
remuneration specified by
law are not made; or
T we have not received all the
information and explanations
we require for our audit.
Matthew Hughes BSc (Hons) ACA
(Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Chartered Accountants and
Statutory Auditor
Newcastle upon Tyne, United Kingdom
We have audited the financial statements
of Kromek Group plc for the year ended
30 April 2015 which comprise the Group
Income Statement, the Group Statement
of Comprehensive Income, the Group
and Parent Company Statements of
Financial Position, the Group and Parent
Company Statements of Cash Flow, the
Group and Parent Statement of Changes
in Equity and the related notes 1 to 53.
The financial reporting framework that
has been applied in their preparation is
applicable law and International Financial
Reporting Standards (IFRSs) as adopted
by the European Union and, as regards
the parent company financial statements,
as applied in accordance with the
provisions of the Companies Act 2006.
This report is made solely to the company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the company’s
members those matters we are required
to state to them in an auditor’s report and
for no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the company and the company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities
of directors and auditor
As explained more fully in the Directors’
Responsibilities Statement, the directors
are responsible for the preparation of
the financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express
an opinion on the financial statements
in accordance with applicable law and
International Standards on Auditing (UK
and Ireland). Those standards require
us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
Scope of the audit of the
financial statements
An audit involves obtaining evidence
about the amounts and disclosures in the
financial statements sufficient to give
reasonable assurance that the financial
statements are free from material
misstatement, whether caused by fraud
or error. This includes an assessment
of: whether the accounting policies
are appropriate to the group’s and the
parent company’s circumstances and
have been consistently applied and
adequately disclosed; the reasonableness
of significant accounting estimates
made by the directors; and the overall
presentation of the financial statements.
In addition, we read all the financial and
non-financial information in the annual
report to identify material inconsistencies
with the audited financial statements
and to identify any information that is
apparently materially incorrect based
on, or materially inconsistent with,
the knowledge acquired by us in the
course of performing the audit. If we
become aware of any apparent material
misstatements or inconsistencies we
consider the implications for our report.
Opinion on financial statements
In our opinion:
T the financial statements give a true
and fair view of the state of the
group’s and of the parent company’s
affairs as at 30 April 2015 and of the
group’s loss for the year then ended;
T the group financial statements
have been properly prepared in
accordance with IFRSs as adopted
by the European Union;
T the parent company financial
statements have been properly prepared
in accordance with IFRSs as adopted
by the European Union and as applied
in accordance with the provisions
of the Companies Act 2006; and
T the financial statements have
24
Kromex_v10_Layout 1 17/08/2015 11:02 Page 25
Consolidated Financial Statements
Consolidated income statement
For the year ended 30 April 2015
2015 2014
Note £’000 £’000
Continuing operations
Revenue 5 8,101 5,972
Cost of sales (2,475) (2,101)
Gross profit 5,626 3,871
Other operating income 60 719
Distribution costs (226) (144)
Administrative expenses (including
operating expenses) (8,524) (8,226)
Operating loss (3,064) (3,780)
Finance income 10 31 15
Finance costs 11 (102) (530)
Loss before tax (3,135) (4,295)
Tax 12 989 1,106
Loss for the year from continuing operations (2,146) (3,189)
Loss per share 14
– basic and diluted (£) (0.02) (0.05)
25
Kromex_v10_Layout 1 17/08/2015 11:02 Page 26
KROMEK Annual Report & Accounts 2015
Consolidated statement of comprehensive income
For the year ended 30 April 2015
2015 2014
£’000 £’000
Loss for the year (2,146) (3,189)
Exchange differences on translation of foreign operations 398 (641)
Total comprehensive losses for the year (1,748) (3,830)
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Consolidated Financial Statements
Consolidated statement of financial position
As at the year ended 30 April 2015
2015 2014
Note £’000 £’000
Non-current assets
Goodwill 15 1,275 1,275
Other intangible assets 16 8,725 6,965
Property, plant and equipment 17 4,147 2,285
14,147 10,525
Current assets
Inventories 19 2,103 2,389
Trade and other receivables 21 4,089 1,907
Current tax assets 21 1,002 696
Cash and bank balances 1,183 6,563
8,377 11,555
Total assets 22,524 22,080
Current liabilities
Trade and other payables 24 (4,143) (3,210)
Finance lease liabilities (19) –
Borrowings 25 (1,003) –
(5,165) (3,210)
Net current assets 3,212 8,345
Non-current liabilities
Finance lease liabilities (10) –
Deferred tax liabilities 23 (1,147) (1,134)
Total liabilities (6,322) (4,344)
Net assets 16,202 17,736
Equity
Share capital 27 1,082 1,080
Share premium account 28 34,643 34,612
Capital redemption reserve 1,175 1,175
Translation reserve 29 (84) (482)
Accumulated losses 30 (20,614) (18,649)
Total equity 16,202 17,736
The financial statements of Kromek Group plc (registered number 8661469) were approved by the board of directors and authorised for issue on
29 July 2015. They were signed on its behalf by:
Dr Arnab Basu MBE
Chief Executive Officer
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KROMEK Annual Report & Accounts 2015
Consolidated statement of changes in equity
For the year ended 30 April 2015
Share Capital
Share premium redemption Translation Accumulated Total
capital account reserve reserve losses equity
£’000 £’000 £’000 £’000 £’000 £’000
Balance at 1 May 2013 1,175 22,278 – 159 (15,585) 8,027
Loss for the year – – – – (3,189) (3,189)
Other comprehensive income
for the year – – – (641) – (641)
Total comprehensive losses
for the year – – – (641) (3,189) (3,830)
Issue of share capital
net of expenses 301 13,113 – – – 13,414
Share reorganisation 779 (779) – – – –
Share buyback (1,175) – 1,175 – – –
Credit to equity for equity-settled
share based payments – – – – 125 125
Balance at 30 April 2014 1,080 34,612 1,175 (482) (18,649) 17,736
Loss for the year – – – – (2,146) ( 2,146)
Other comprehensive income
for the year – – – 398 – 398
Total comprehensive losses
for the year – – – 398 ( 2,146) (1,748)
Issue of share capital
net of expenses 2 31 – – – 33
Credit to equity for equity-settled
share based payments – – – – 181 181
Balance at 30 April 2015 1,082 34,643 1,175 (84) (20,614) 16,202
28
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Consolidated Financial Statements
Consolidated statement of cash flows
For the year ended 30 April 2015
2015 2014
Note £’000 £’000
Net cash used in operating activities 31 (2,361) (2,218)
Investing activities
Interest received 31 15
Purchases of property, plant and equipment (2,558) (187)
Purchases of patents and trademarks (368) (567)
Capitalisation of research and development costs (1,886) (1,061)
Net cash used in investing activities (4,781) (1,800)
Financing activities
Loans paid – (2,449)
Revolving credit facility 1,000 –
Government grants 857 69
Proceeds on issue of shares 33 13,414
Payment of finance lease liabilities (12) –
Interest paid (102) (530)
Net cash from financing activities 1,776 10,504
Net (decrease)/increase in cash and cash equivalents (5,366) 6,486
Cash and cash equivalents at beginning of year 6,563 309
Effect of foreign exchange rate changes (14) (232)
Cash and cash equivalents at end of year 1,183 6,563
29
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements
For the year ended 30 April 2015
1. GENERAL INFORMATION
Kromek Group plc is a company incorporated and domiciled in the United Kingdom under the Companies Act. The address of the registered office
is given on page 4. The nature of the Group’s operations and its principal activities are set out in the business review on pages 5–9.
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the
Group operates. Foreign operations are included in accordance with the policies set out in note 3.
2. ADOPTION OF NEW AND REVISED STANDARDS
The following new standards and amendments to standards are mandatory for the financial year beginning on 1 May 2014:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
IFRS 13 “Impairment of Assets”
IFRS 10 “Consolidated Financial Statements”
AS 27 “Consolidated and Separate Financial Statements”,
IAS 36 “Impairment of Assets — Recoverable Amount Disclosures for Non-Financial Assets”
IFRS 12 “Disclosure of Interests in Other Entities”.
Amendments to IAS 32 “Financial Instruments: Presentation” Amendments to IAS 36 “Impairment of Assets”
Amendments to IAS 39 “Financial Instruments: Recognition and Measurement”
IFRS 10, IFRS 11, IFRS 12 Transition Guidance
These standards and amendments to standards have not had a material impact on the consolidated financial statements.
Standards not affecting the reported results nor the financial position
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these fi-
nancial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
(cid:129)
(cid:129)
(cid:129)
(cid:129)
IFRS 9 Financial Instruments
IFRS 13 Fair Value Measurement
IFRS 15 Revenue from Contracts with Customers
Annual Improvements to IFRSs 2012-2014 Cycle
The Directors do not expect that the adoption of these Standards and Interpretations in future periods will have a material impact on the financial
statements of the Group, however they are currently considering the future impacts of IFRS 15.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union
(“IFRSs”) and IFRIC interpretations. Therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.
The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration
given in exchange for the assets. The principal accounting policies adopted are set out below.
Basis of consolidation
The consolidated financial statements incorporate the results and net assets of the Group and entities controlled by the Group (its subsidiaries)
made up to 30 April each year. Control is achieved where the Group has the power to govern the financial and operating policies of an investee
entity so as to obtain benefits from its activities.
The results of subsidiaries acquired during the year are included in the consolidated income statement from the effective date of acquisition or
up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to results of subsidiaries to bring the accounting
policies used into line with those used by the group. All intra-group transactions, balances, income and expenses, and profits are eliminated on
consolidation.
Going concern
As at 30 April 2015, the Group had net assets of £16.2m (2014: £17.7m) as set out in the consolidated statement of financial position. The Directors
have prepared detailed forecasts of the Group’s financial performance over the next 5 years, which includes the £9.0m firm placing and open
offer of up to £2.0m which was raised subsequent to the financial statements being approved and disclosed in note 36. As a result of this review,
which incorporated sensitivities and risk analysis, the Directors believe that the Group has sufficient resources and working capital to meet their
present obligations. Accordingly, they continue to adopt the going concern basis in preparing the Group financial statements.
30
Kromex_v10_Layout 1 17/08/2015 11:02 Page 31
Consolidated Financial Statements
For the year ended 30 April 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Business combinations
The Group financial statements consolidate those of the company and its subsidiary undertakings. Subsidiaries are entities controlled by the
Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to
obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.
The financial information of subsidiaries is included from the date that control commences until the date that control ceases. Intra-group balances
and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated fi-
nancial information.
Acquisitions on or after 1 May 2010
For acquisitions on or after 1 May 2010, the Group measures goodwill at the acquisition date as:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, the negative goodwill is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Goodwill
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured
as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the ac-
quirer’s previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the identifiable assets acquired and
the liabilities assumed.
If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration trans-
ferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree
(if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each
of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has
been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable
amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset
in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services pro-
vided in the normal course of business, net of discounts, VAT and other sales-related taxes and comprises:
i)
ii)
iii)
Sale of goods and services
The Group’s income derives from the sale of goods and from the research and development contracts which are typically with govern-
ment agencies. Revenue on product sales is recognised when the risk and reward of ownership pass to the customer. The terms of sale
are agreed with each customer on an individual basis, which are generally under FCA INCOTERMS. Revenue from research and devel-
opment contracts is recognised as revenue in the accounting period in which the milestones are achieved.
Revenue from grants
Revenue from grants is recognised when the costs relating to the project activity have been incurred, the customer is in agreement
with the expenses which are being claimed as grant revenue, and subsequent invoices have been issued to the customers.
Long-term contracts
The Group accounts for long-term contracts under IAS 11, and reflects revenue by reference to the stage of completion of the contract
activity at the statement of financial position date. Revenue and profits are determined by estimating the outcome of the contract and
determining the costs and profit attributable to the stage of completion. Any expected contract loss is recognised immediately.
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition (continued)
iv) Exclusivity contracts
The Group reflects exclusivity payments as revenue at the point that it contractually agrees to become exclusive. Where terms of ex-
clusivity require performance the Group reflects the revenue as performance is delivered.
v)
Interest revenue
Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be
measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest
rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset
to that asset’s net carrying amount on initial recognition.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
The group as lessee
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where another
more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed. Contingent
rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit
of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative
of the time pattern in which economic benefits from the leased asset are consumed.
Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the minimum
lease payments. The corresponding rental obligations, net of finance charges, are included in other payables. Each lease payment is allocated
between the liability and finance charges so as to achieve a constant rate of interest costs charged to the income statement on the outstanding
balance.
Foreign currencies
The individual results of each group company are presented in the currency of the primary economic environment in which it operates (its functional
currency). For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in
pound sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.
In preparing the results of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are
recognised at the rates of exchange prevailing on the dates of the transactions. At each statement of financial position date, monetary assets
and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair
value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-mon-
etary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the group’s foreign operations are translated at ex-
change rates prevailing on the statement of financial position date. Income and expense items are translated at the average exchange rates for
the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used.
Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity.
On consolidation, the results of overseas operations are translated into Sterling at rates approximating to those ruling when the transactions
took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the
rate ruling at the statement of financial position date. Exchange differences arising on translating the opening net assets at opening rate and the
results of overseas operations at actual rate are recognised directly in other comprehensive income and are credited/(debited) to the retranslation
reserve.
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Consolidated Financial Statements
For the year ended 30 April 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Government grants
Government grants are not recognised until there is reasonable assurance that the group will comply with the conditions attaching to them and
that the grants will be received.
Government grants towards job creation and growth (RGF) costs are recognised as income over the periods necessary to match them with the
related costs of creating those jobs.
Government grants towards job creation (GBI) costs are recognised as income over the periods necessary to match them with the related costs
and are deducted in reporting the related expense.
Government grants relating to research and development (GRD) costs are treated as deferred income and released to profit or loss over the ex-
pected useful lives of the assets concerned.
Operating result
Operating loss is stated as loss before tax, finance income and costs and other gains and losses.
Retirement benefit costs
The Group operates a defined contribution pension scheme for employees.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. For these schemes the assets of the
schemes are held separately from those of the Group in independently administered funds. Payments made to state-managed retirement benefit
schemes are dealt with as payments to defined contribution schemes where the group’s obligations under the schemes are equivalent to those
arising in a defined contribution retirement benefit scheme.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. Tax is recognised in the income statement except to the extent
that it relates to items recognised directly in equity, in which case it is recognised in equity
i)
ii)
Current tax
The tax currently payable is based on taxable loss for the year. Taxable loss differs from net loss as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively
enacted by the statement of financial position date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in
the statement of financial position and the corresponding tax bases used in the computation of taxable profit, and is accounted for using
the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial
recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction
that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and in-
terests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised
based on tax laws and rates that have been enacted or substantively enacted at the statement of financial position date. Deferred tax
is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in
which case the deferred tax is also dealt with in other comprehensive income. Deferred tax assets and liabilities are offset when there
is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by
the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment
Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is recognised so as to write off the cost or valuation of assets (other than land and properties under construction) less their residual
values over their useful lives, using the straight-line method, on the following bases:
Plant and machinery 6% to 25%
Fixtures, fittings and equipment 15%
Computer equipment 25%
The gain or loss arising on the disposal or scrappage of an asset is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in income.
Internally-generated intangible assets – research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from the group’s product development is recognised only if all of the following conditions are met:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
its intention to complete the intangible asset and use or sell it;
its ability to use or sell the intangible asset; and
how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence
of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the in-
tangible asset.
Research expenditure is written off as incurred. Development expenditure is also written off, except where the Directors are satisfied as to the
technical, commercial and financial viability of individual projects. In such cases, the identifiable expenditure is deferred and amortised over the
period during which the Group is expected to benefit. This period normally equates to the life of the products the development expenditure relates
to. Provision is made for any impairment.
Amortisation of the intangible assets recognised on the acquisitions of NOVA R&D, Inc. and eV Products, Inc. are recognised in the income state-
ment on a straight-line basis over their estimated useful lives of between five and fifteen years
Patents and trademarks
Patents and trademarks are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives.
Impairment of tangible and intangible assets excluding goodwill
At each statement of financial position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is
estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other
assets, the group estimates the recoverable amount of the CGU to which the asset belongs. When a reasonable and consistent basis of allocation
can be identified, corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest group of CGUs for which
a reasonable and consistent allocation basis can be identified.
An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset may
be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is re-
duced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued
amount, in which case the impairment loss is treated as a revaluation decrease.
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Consolidated Financial Statements
For the year ended 30 April 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of tangible and intangible assets excluding goodwill (continued)
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment
loss been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the
relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs
and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated in the statement
of financial position at standard cost, which approximates to historical cost determined on a first in, first out basis. Net realisable value represents
the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Work in progress
costs are taken as production costs, which include an appropriate proportion of attributable overheads.
Provision is made for obsolete, slow moving or defective items where appropriate. Items which have not shown activity for between 12–18 months
will be provided for at a rate of 50%, and those which have not shown activity in 18 months or longer will be provided for at a rate of 100%. Given
the nature of the products and the gestation period of the technology, commercial rationale necessitates that this provision is reviewed on a case
by case basis.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party to the con-
tractual provisions of the instrument.
i)
ii)
Financial assets
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract
whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured
at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially
measured at fair value.
Financial assets are classified into the following specified category: ‘loans and receivables’. The classification depends on the nature
and purpose of the financial assets and is determined at the time of initial recognition. The Group held no fair value through profit and
loss (“FVTPL”), available for sale (“AFS”) or held-to-maturity “HTM”) financial assets during the period.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are
classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less
any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recog-
nition of interest would be immaterial.
The Group interacts with other technology based companies to obtain market penetration for its products. These arrangements initially
require funding to allow for marketing of our products, with longer lead times for sale. As a consequence, the terms with these customers
are not always on normal payment terms (30 to 60 days), and management confirm that it could take longer before recoverability of
the cash on these sales.
iii)
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each statement of financial position date. Fi-
nancial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recog-
nition of the financial asset, the estimated future cash flows of the investment have been affected.
iv) Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers
the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers
nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises
its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the
risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises
a collateralised borrowing for the proceeds received.
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments (continued)
v)
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual
arrangement.
vi) Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
vii) Financial liabilities
Financial liabilities are classified as ‘other financial liabilities’. The Group held no financial liabilities that would be classified as FVTPL.
viii) Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are
subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the ex-
pected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
ix) Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
Share-based payments
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments
at the grant date and spread over the period during which the employees become unconditionally entitled to the options, which is based on a
period of employment of 3 years from grant date. Details regarding the determination of the fair value of equity-settled share-based transactions
are set out in note 33.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting
period, based on the Group’s estimate of equity instruments that will eventually vest. The vesting date is determined based on the date an em-
ployee is granted options, usually 3 years from date of grant. At each statement of financial position date, the Group revises its estimate of the
number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the
original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding ad-
justment to equity reserves.
Cash
Cash, for the purposes of the statement of cash flows, comprises cash in hand and deposits repayable on demand, less overdrafts repayable
on demand.
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 3, the directors are required to make judgements, estimates and as-
sumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated as-
sumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both
current and future periods.
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Consolidated Financial Statements
For the year ended 30 April 2015
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)
Critical judgements in applying the group’s accounting policies
The following are the critical judgements that the Directors have made in the process of applying the Group’s accounting policies and that have
the most significant effect on the amounts recognised in the financial statements.
Development costs
As described in note 3, the Group expenditure on development activities is capitalised if it meets the criteria as per IAS38.
These capitalised assets are amortised on a straight-line basis over their useful lives. The useful life is determined by the expected future cash
flows anticipated to be derived from these assets, based on management’s revenue forecasts. Where no internally-generated intangible asset
can be recognised, development expenditure is expensed in the period in which it is incurred.
Impairment of non-financial assets
The Group assesses whether there are any indicators of impairment as at the transition date and thereafter for all non-financial assets at
each reporting date. Goodwill is tested for impairment annually and at other times when such indicators exist, such as negative cash flows
and operating losses of subsidiaries. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts
may not be recoverable.
When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash generating
unit and choose a suitable discount rate in order to calculate the present value of those cash flows.
Valuation of acquired intangible assets
Acquisitions may result in identifiable intangible assets such as customer relationships, supplier relationships, licences and technology being
recognised. These are valued by professional valuation firms, using discounted cash flow methods which require the application of certain key
judgments and estimates are required to be made in respect of discount rates and future cash flows.
Recoverability of receivables
As disclosed in note 3, in order to obtain market penetration through technology based customers, the Group recognises that normal payment
terms from these customers may not be adhered to when assessing recoverability of receivables. This is as a result of the necessary marketing
support that customers may require in promoting the products.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the statement of financial position date, that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are dis-
cussed below.
i)
ii)
Development costs
Development costs are capitalised in accordance with the accounting policy noted above. Initial capitalisation of costs is based on man-
agement’s judgement that technological and economic feasibility is confirmed, usually when a product development project has reached
a defined milestone.
Impairment of goodwill
The Group determines whether goodwill is impaired on at least an annual basis or more frequently when there are indications of possible
impairment. The impairment review requires a value in use calculation of the cash-generating units to which the goodwill is allocated.
In estimating the value in use, management is required to make an estimate of the expected future cash flows attributable to the cash-
generating unit and to choose an appropriate discount rate to calculate the present value of those cash flows. The carrying amount of
goodwill at 30 April 2015 was £1,275k (2014: £1,275k). Further details are given in note 15.
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
5. REVENUE
An analysis of the group’s revenue is as follows:
2015 2014
£’000 £’000
Continuing operations
Sales of goods and other services 5,879 4,351
Revenue from grants 913 978
Revenue from contract customers 1,309 643
Total revenue 8,101 5,972
Grant income 4 229
Other income 56 490
Total income 8,161 6,691
6. OPERATING SEGMENTS
Products and services from which reportable segments derive their revenues
For management purposes, the Group is organised into two business units (USA and UK) and it is on these operating segments that the Group is
providing disclosure.
The chief operating decision maker is the Board of Directors who assess performance of the segments using the following key performances in-
dicators; revenues, gross profit and operating profit. The amounts provided to the Board with respect to assets and liabilities are measured in a
way consistent with the Financial Statements.
The turnover, profit on ordinary activities and net assets of the Group are attributable to one business segment, i.e. the development of digital colour
x-ray imaging enabling direct materials identification, as well as developing a number of detection products in the industrial and consumer markets.
Analysis by geographical area
A geographical analysis of the Group’s revenue by destination is as follows:
2015 2014
£’000 £’000
United Kingdom 387 385
North America 5,681 3,416
South America 11 –
Middle East 18 –
Asia 1,899 1,089
Europe 66 1,054
Australasia 39 28
Total revenue 8,101 5,972
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Consolidated Financial Statements
For the year ended 30 April 2015
6. OPERATING SEGMENTS (CONTINUED)
A geographical analysis of the Group’s revenue by origin is as follows:
Year ended 30 April 2015
UK Operations US Operations Total for Group
£’000 £’000 £’000
Revenue from sales
Revenue by segment:
– Sales of goods and services 2,584 4,795 7,379
– Revenue from grants 218 695 913
– Revenue from contract customers 480 829 1,309
– Other revenue – 638 638
Total sales by segment 3,282 6,957 10,239
Removal of inter-segment sales (376) (1,762) (2,138)
Total external sales 2,906 5,195 8,101
Segment result – operating loss (2,972) (92) (3,064)
Interest received 31 – 31
Interest expense (95) (7) (102)
Loss before tax (3,036) (99) (3,135)
Tax credit 989 – 989
Loss for the year (2,047) (99) (2,146)
Reconciliation to adjusted EBITDA:
Net interest 64 7 71
Tax (989) – (989)
Depreciation 300 373 673
Amortisation 333 378 711
Non-recurring other income – (58) (58)
Share-based payment charge 181 – 181
Adjusted EBITDA (2,158) 601 (1,557)
Other segment information
Property, plant and equipment additions 2,021 338 2,359
Depreciation of PPE 300 373 673
Intangible asset additions 1,244 1,013 2,257
Amortisation of intangible assets 333 378 711
Statement of financial position
Total assets 11,500 11,024 22,524
Total liabilities (2,829) (3,493) (6,322)
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
6. OPERATING SEGMENTS (CONTINUED)
Year ended 30 April 2014
UK Operations US Operations Total for Group
£’000 £’000 £’000
Revenue from sales
Revenue by segment:
-Sale of goods and services 1,597 3,021 4,618
-Revenue from grants 235 743 978
-Other revenue – 643 643
Total sales by segment 1,832 4,407 6,239
Removal of inter-segment sales (10) (257) (267)
Total external sales 1,822 4,150 5,972
Segment result – operating loss (3,143) (637) (3,780)
Interest received 15 – 15
Interest expense (530) – (530)
Loss before tax (3,658) (637) (4,295)
Tax credit 1,106 – 1,106
Loss for the year (2,552) (637) (3,189)
Reconciliation to adjusted EBITDA:
Net interest 515 – 515
Tax (1,106) – (1,106)
Depreciation 364 373 737
Amortisation 253 307 560
Non-recurring other income (649) (649)
Share-based payment charge 125 – 125
Adjusted EBITDA (3,050) 43 (3,007)
Other segment information
Property, plant and equipment additions 98 89 187
Depreciation of PPE 364 373 737
Intangible asset additions 1,230 398 1,628
Amortisation of intangible assets 253 307 560
Statement of financial position
Total assets 15,290 6,790 22,080
Total liabilities (3,649) (695) (4,344)
Inter-segment sales are charged on an arm’s-length basis.
No other additions of non-current assets have been recognised during the year other than property, plant and equipment, and intangible assets.
No impairment losses were recognised in respect of property, plant and equipment and goodwill.
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 3. Segment loss represents
the loss incurred by each segment. This is the measure reported to the Group’s Chief Executive for the purpose of resource allocation and
assessment of segment performance.
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Consolidated Financial Statements
For the year ended 30 April 2015
6. OPERATING SEGMENTS (CONTINUED)
Revenues from major products and services
The Group’s revenues from its major products and services were as follows:
2015 2014
£’000 £’000
Product revenue 3,841 4,746
Research and development revenue 4,260 1,226
Consolidated revenue 8,101 5,972
Information about major customers
Included in revenues arising from USA operations are revenues of approximately £1,224k (2014: £1,249k) which arose from sales to the Group’s
largest customer. Included in revenues arising from UK operations are revenues of approximately £1,203k (2014: £nil) which arose from a
major customer.
LOSS FOR THE YEAR
7.
Loss for the year has been arrived at after (crediting)/charging:
2015 2014
£’000 £’000
Net foreign exchange losses/(gains) 226 (84)
Research and development costs recognised as an expense 2,669 2,020
Depreciation of property, plant and equipment 673 737
Amortisation of internally-generated intangible assets 711 560
Cost of inventories recognised as expense 1,266 1,911
Staff costs (see note 9) 5,620 5,104
8. AUDITOR’S REMUNERATION
The analysis of the auditor’s remuneration is as follows:
2015 2014
£’000 £’000
Fees payable to the company’s auditor and their associates for
other services to the group
– The audit of the company’s subsidiaries 25 25
Total audit fees 25 25
– Audit-related assurance services 10 10
– Taxation compliance services 11 6
– Other taxation advisory services – 107
– Corporate finance transaction services – 139
Total non-audit fees 21 262
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
9. STAFF COSTS
The average monthly number of employees (including executive directors) was:
2015 2014
Number Number
Directors 2 2
Research and development, production 83 81
Sales and marketing 8 4
Administration 14 14
107 101
Their aggregate remuneration comprised:
Year ended Year ended
2015 2014
£’000 £’000
Wages and salaries 4,667 4,177
Social security costs 423 439
Pension scheme contributions 349 363
Share based payments 181 125
5,620 5,104
The total Directors’ emoluments (including non-executive directors) was £615k (2014: £454k). The aggregate value of contributions paid to money
purchase pension schemes was £26k (2014: £34k) in respect of two directors (2014: two directors).
The highest paid director received emoluments of £172k (2014: £257k) and amounts paid to money purchase pension schemes was £16k
(2014: £30k).
Key management compensation:
2015 2014
£’000 £’000
Wages and salaries and other short-term benefits 834 790
Social security costs 81 99
Pension scheme contributions 64 76
Share based payment expense 110 45
1,089 1,010
Key management comprise the Executive Directors and senior operational staff.
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Consolidated Financial Statements
For the year ended 30 April 2015
10. FINANCE INCOME
2015 2014
£’000 £’000
Interest revenue – 15
Bank deposits 31 –
Total finance income 31 15
Investment revenue earned on financial assets analysed by category of asset, is as follows:
2015 2014
£’000 £’000
Loans and receivables (including cash and bank balances) 31 15
Total interest income for financial assets not designated FVTPL 31 15
11. FINANCE COSTS
2015 2014
£’000 £’000
Interest on bank overdrafts, loans and borrowings 100 17
Interest expense on financial liabilities measured at amortised cost 2 –
Interest on loans due to related parties – 513
Total interest expense 102 530
12. TAX
Recognised in the income statement
2015 2014
£’000 £’000
Current tax credit:
UK corporation tax on losses in the year 1,002 696
Foreign taxes paid – (1)
Total current tax 1,002 695
Deferred tax:
Origination and reversal of timing differences (13) 411
Total deferred tax (13) 411
Total tax credit in income statement 989 1,106
Corporation tax is calculated at 20.92% (2014: 22.83%) of estimated taxable loss for the year. Taxation for other jurisdictions is calculated at the
rates prevailing in the respective jurisdictions.
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
12. TAX (CONTINUED)
Reconciliation of tax credit
The charge for the year can be reconciled to the profit in the income statement as follows:
2015 2014
£’000 £’000
Loss before tax 3,135 4,295
Tax at the UK corporation tax rate of 20.92%
(2014: 22.83%) 656 981
Expenses not deductible for tax purposes (97) (57)
Effect of R&D 804 791
Rate differences effect of R&D (444) (727)
Income not taxable 146 155
Unrecognised movement on deferred tax 80 (360)
Effects of overseas tax rates (156) 323
Total tax credit for the year 989 1,106
Details of deferred tax are given in note 23. There are no tax items charged to other comprehensive income.
The Finance Act 2013 enacted a rate reduction in the main rate of corporation tax to 21% from 1 April 2014 and to 20% from 1 April 2015. The
Government has subsequently announced in the Summer Budget, on 8 June 2015, that the rates of corporation tax will be further reduced to
19% with effect from 1 April 2017 and 18% with effect from 1 April 2020. As the enabling legislation has not been substantively enacted these
rates do not apply to the deferred tax position at 30 April 2015. As there is no UK deferred tax recognised there is no impact of the above on the
tax provisions reported in these accounts.
There is a potential deferred tax asset on excess tax deductions arising from share based payments on exercise of share options of £1,366k (2014:
£1,147k). The asset has not been recognised as it is not considered probable that there will be future profits available.
13. DIVIDENDS
The directors do not recommend the payment of a dividend (2014: £nil).
14. LOSSES PER SHARE
The calculation of the basic and diluted earnings per share is based on the following data:
Losses 2015 2014
£’000 £’000
Losses for the purposes of basic and diluted losses per share being net
losses attributable to owners of the Group (2,146) (3,189)
2015 2014
Number of shares Number Number
Weighted average number of ordinary shares for the purposes of
basic losses per share 107,818,329 61,870,643
Effect of dilutive potential ordinary shares:
Share options 6,223,395 5,080,789
Weighted average number of ordinary shares for the purposes of diluted
losses per share 114,041,724 66,951,432
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Consolidated Financial Statements
For the year ended 30 April 2015
14. LOSSES PER SHARE (CONTINUED)
2015 2014
£ £
Basic and diluted (0.02) (0.05)
Due to the Group having losses in each of the years, the fully diluted loss per share for disclosure purposes, as shown in the income statement,
is the same as for the basic loss per share.
15. GOODWILL
£’000
Cost
At 1 May 2014 1,275
At 30 April 2015 1,275
Accumulated impairment losses
At 1 May 2014 –
At 30 April 2015 –
Carrying amount
At 30 April 2015 1,275
At 30 April 2014 1,275
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from
that business combination. Before recognition of impairment losses, the carrying amount of goodwill had been allocated as follows:
2015 2014
£’000 £’000
US operations 1,275 1,275
The goodwill arose on the acquisition of NOVA R&D, Inc in 2010, and represents the excess of the fair value of the consideration given over the
fair value of the identifiable assets and liabilities acquired.
Goodwill has been allocated to NOVA R&D, Inc as a cash generating unit (CGU) and is reported in note 6 within the segmental analysis of the US
operations. Negative goodwill arose on the acquisition of eV Products, Inc which was released to the income statement in 2013.
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired, by comparing the
net book value of the goodwill and non-current assets for the CGU to its value in use on a discounted cash flow basis.
The recoverable amount has been determined on a value in use basis on each cash-generating unit using the management approved 5 year fore-
casts for each cash-generating unit. The base 5 year projection is year on year growth over the next 5 years, with overheads remaining relatively
stable. The growth rate of the CGU is expected to remain flat in Year 2 as a result of the CGU continuing to develop its technical capabilities in
the forthcoming year. Growth is then expected to increase to 7% in Year 3, 14% in Year 4 and remain flat thereafter in Year 5. These cash flows
are then discounted at the Company’s weighted average cost of capital of 15% (2014: 16%).
Based on the results of the current year impairment review, no impairment charges have been recognised by the Group in the year ended 30
April 2015 (2014: £nil). Management have considered various sensitivity analyses in order to appropriately evaluate the carrying value of goodwill.
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
15. GOODWILL (CONTINUED)
Having assessed the anticipated future cash flows the directors do not consider there to be any reasonably possible changes in assumptions that
would lead to such an impairment charge in the year ended 30 April 2015. For illustrative purposes, a compound reduction in revenue of 10% in
each of years 1–5 whilst holding overheads constant would not affect the conclusion of the review.
The Directors have reviewed the recoverable amount of the CGU and do not consider there to be any indication of impairment in 2015 or 2014.
16. OTHER INTANGIBLE ASSETS
Patents,
Trademarks
Development costs & other intangibles Total
£’000 £’000 £’000
Cost
At 1 May 2014 3,538 4,585 8,123
Additions 1,886 371 2,257
Exchange differences 33 237 270
At 30 April 2015 5,457 5,193 10,650
Amortisation
At 1 May 2014 56 1,102 1,158
Charge for the year 177 534 711
Exchange differences 7 49 56
At 30 April 2015 240 1,685 1,925
Carrying amount
At 30 April 2015 5,217 3,508 8,725
At 30 April 2014 3,482 3,483 6,965
The amortisation period for development costs incurred on the group’s product development is over the period during which the company is ex-
pected to benefit and the amortisation will be based on the number of units sold over the expected product lifetime.
Patents and trademarks are amortised over their estimated useful lives, which is on average 10 years.
Other intangible assets with indefinite useful lives arose as part of the acquisitions of NOVA R&D, Inc. in June 2010 and eV Products, Inc. in
February 2013. The recoverable amounts of these assets have been calculated on a value in use basis at both 30 April 2015 and 30 April 2014.
These calculations use cash flow projections based on financial forecasts and appropriate long-term growth rates. To prepare value in use cal-
culations, the cash flow forecasts are discounted back to present value using a pre-tax discount rate of 15% (2014: 16%) and a terminal value
growth rate of 2% from 2021. The Directors have reviewed the recoverable amount of these indefinite useful life assets and do not consider there
to be any indication of impairment.
The carrying amounts of the acquired intangible assets arising on the acquisitions of NOVA R&D, Inc. and eV Products, Inc. as at the 30 April
2015 was £1,858k (2014: £2,134k), with amortisation to be charged over the remaining useful lives of these assets which is between 3 and 13
years.
The amortisation charge on intangible assets is included in administrative expenses in the consolidated income statement.
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Consolidated Financial Statements
For the year ended 30 April 2015
17. PROPERTY, PLANT AND EQUIPMENT
Computer Plant and Fixtures and
equipment machinery fittings Total
£’000 £’000 £’000 £’000
Cost or valuation
At 1 May 2014 586 4,426 144 5,156
Additions 34 2,306 19 2,359
Exchange differences 10 208 4 222
At 30 April 2015 630 6,940 167 7,737
Accumulated depreciation
and impairment
At 1 May 2014 398 2,389 84 2,871
Charge for the year 58 587 28 673
Exchange differences 19 23 4 46
At 30 April 2015 475 2,999 116 3,590
Carrying amount
At 30 April 2015 155 3,941 51 4,147
At 1 May 2014 188 2,037 60 2,285
Assets held under finance leases with a net book value of £39k (2014: £nil) are included in the above table within plant and machinery.
18. SUBSIDIARIES
A list of the significant investments in subsidiaries, including the name, country of incorporation, and proportion of ownership interest is given in
note 40 to the company’s separate financial statements.
INVENTORIES
19.
2015 2014
£’000 £’000
Raw materials 596 465
Work-in-progress 1,010 1,391
Finished goods 497 533
2,103 2,389
The cost of inventories recognised as an expense during the year in respect of continuing operations was £1,266k (2014: £1,911k).
The write-down of inventories to net realisable value amounted to £43k (2014: £nil). The reversal of write-downs amounted to £30k (2014: £nil).
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
20. AMOUNTS RECOVERABLE ON CONTRACTS
2015 2014
£’000 £’000
Contracts in progress at the balance sheet date:
Amounts due from contract customers included in
trade and other receivables 281 214
281 214
Contract costs incurred plus recognised losses to date 1,915 625
Less: progress billings (1,634) (411)
281 214
21. TRADE AND OTHER RECEIVABLES
2015 2014
£’000 £’000
Amount receivable for the sale of goods 3,458 1,501
Amount recoverable on contracts (see note 20) 281 214
Other receivables 288 90
Prepayments 62 102
4,089 1,907
Current tax assets 1,002 696
5,091 2,603
Trade receivables
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.
The average credit period taken on sales of goods is 60 days. The Group initially recognises an allowance for doubtful debts of 100% against re-
ceivables over 120 days. However, this is subject to management override where there is evidence of recoverability, most notably, where specific
support is being provided to strategic partners in the marketing of new products.
Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer’s credit quality and
defines credit limits by customer.
The Group does not hold any collateral or other credit enhancements over any of its trade receivables.
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Consolidated Financial Statements
For the year ended 30 April 2015
21. TRADE AND OTHER RECEIVABLES (CONTINUED)
At 30 April 2015, trade receivables are shown net of an allowance for bad debts of £252k (2014:£nil) arising from the ordinary course of business,
as follows:
2015 2014
£’000 £’000
Balance at 1 May 2014 – –
Provided during the year 252 –
Balance at 30 April 2015 252 –
The bad debt provision records impairment losses unless the Group is satisfied that no recovery of the amount owing is possible, at which point
the amounts considered irrecoverable are written off against the trade receivables directly.
Ageing of past due but not impaired receivables at the statement of financial position date was:
2015 2014
£’000 £’000
31–60 days 363 70
61–90 days 56 13
91–120 days 159 207
121+ days 593 343
Total 1,171 633
In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date
credit was initially granted up to the reporting date.
The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
Ageing of impaired receivables at the statement of financial position date was:
2015 2014
£’000 £’000
31–60 days – –
61–90 days – –
91–120 days – –
121+ days 466 –
Total 466 –
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
22. FINANCE LEASE LIABILITIES
Finance lease liabilities are payable as follows:
Minimum lease payments
2015 2014
£’000 £’000
Amounts payable under finance leases:
Within one year 21 –
In the second to fifth years inclusive 11 –
32 –
Less: future finance charges (3) –
Present value of lease obligations 29 –
Analysed as:
Amounts due for settlement within 12 months
(shown under current liabilities) 19 –
Amounts due for settlement after 12 months 10 –
29 –
It is the group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is 2 years. For the year ended
30 April 2015, the average effective borrowing rate was 0.82% (2014: nil). Interest rates are fixed at the contract date. All leases are on a fixed
repayment basis and no arrangements have been entered into for contingent rental payments.
All lease obligations are denominated in sterling.
The fair value of the group’s lease obligations is approximately equal to their carrying amount.
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Consolidated Financial Statements
For the year ended 30 April 2015
23. DEFERRED TAX LIABILITIES
The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current and prior re-
porting period.
Revaluation of Accelerated Short term
intangibles capital timing
allowances differences Tax losses Total
£’000 £’000 £’000 £’000 £’000
At 1 May 2014 1,458 627 (17) (934) 1,134
(Credit)/charge to profit or loss (41) (54) 12 96 13
At 30 April 2015 1,417 573 (5) (838) 1,147
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the deferred
tax balances (after offset) for financial reporting purposes:
2015 2014
£’000 £’000
Deferred tax liabilities 1,990 2,085
Deferred tax assets (843) (951)
1,147 1,134
At the statement of financial position date, the group has unused tax losses of £13,418k (2014: £12,075k) available for offset against future
profits. A deferred tax asset has been recognised in respect of £3,368K (2014: £3,845k) of such losses. No deferred tax asset has been recog-
nised in respect of the remaining £10,050K (2014: £8,230k) as it is not considered probable that there will be future taxable profits available.
All losses may be carried forward indefinitely subject to a significant change in the nature of the group’s trade with US losses having a maximum
life of 20 years.
24. TRADE AND OTHER PAYABLES
2015 2014
£’000 £’000
Trade payables and accruals 3,359 3,210
Deferred income 784 –
4,143 3,210
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken
for trade purchases is 35 days. For all suppliers no interest is charged on the trade payables. The Group has financial risk management policies
in place to ensure that all payables are paid within the pre-agreed credit terms.
Deferred income relates to government grants received which have been deferred until the conditions attached to the grants are met.
The directors consider that the carrying amount of trade payables approximates to their fair value.
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
25. BORROWINGS
2015 2014
£’000 £’000
Secured borrowing at amortised cost
Revolving credit facility 1,003 –
Finance lease liabilities (see note 22) 29 –
1,032 –
Total borrowings
Amount due for settlement within 12 months 1,022 –
Amount due for settlement after 12 months 10 –
Sterling US dollars Total
£’000 £’000 £’000
Analysis of borrowings by
currency: 30 April 2015
Revolving credit facility 1,003 – 1,003
Finance lease liabilities – 29 29
1,003 29 1,032
In February 2015 the Group agreed a 24 month facility with its bank for a £3m revolving credit facility. This facility is secured by a debenture and
a composite guarantee across the Group. The terms of the revolving credit facility are a nominal interest rate of LIBOR+2.5% and a repayment
term of 6 months from date of drawdown.
At the year ended 30 April 2015, the total undrawn amounts relating to the facility was £2m from funds available for the future working
capital needs of the Group.
Finance lease liabilities are secured by the assets leased. The borrowings are at a fixed interest rate with repayment periods not exceeding
five years.
The weighted average interest rates paid during the year were as follows:
2015 2014
% %
Revolving credit facility 3.10 –
Finance lease liabilities 0.82 –
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Consolidated Financial Statements
For the year ended 30 April 2015
26. DERIVATIVES FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
At 30 April 2015 and 30 April 2014 the Group had no derivatives in place for cash flow hedging purposes.
27. SHARE CAPITAL
2015 2014
£’000 £’000
Authorised, allotted, called up and fully paid:
108,173,290 Ordinary shares of £0.01 each 1,082 1,080
During the year 1,024,806 shares (2014: 532,000) were allotted under EMI share option schemes.
Unpaid share capital
At the year ended 30 April 2015, unpaid share capital amounted to £nil (2014: £nil).
28. SHARE PREMIUM ACCOUNT
£’000
Balance at 1 May 2014 34,612
Premium arising on issue of equity shares 31
Balance at 30 April 2015 34,643
29. TRANSLATION RESERVE
£’000
Balance at 1 May 2014 (482)
Exchange differences on translating the net assets of foreign operations 398
Balance at 30 April 2015 (84)
Exchange differences relating to the translation of the net assets of the Group’s foreign operations, which relate to subsidiaries only, from their
functional currency into the parent’s functional currency, being Sterling, are recognised directly in the translation reserve.
30. ACCUMULATED LOSSES
£’000
Balance at 1 May 2014 (18,649)
Net loss for the year (2,146)
Effect of share-based payment credit 181
Balance at 30 April 2015 (20,614)
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
31. NOTES TO THE CASH FLOW STATEMENT
2015 2014
£’000 £’000
Loss for the year (2,146) (3,189)
Adjustments for:
Finance income (31) (15)
Finance costs 102 530
Income tax credit (989) (1,106)
Government grants credit (4) –
Depreciation of property, plant and equipment 673 737
Amortisation of intangible assets 711 560
Share-based payment expense 181 125
Operating cash flows before movements in working capital (1,503) (2,358)
Decrease/(increase) in inventories 183 (291)
Increase in receivables (2,099) (455)
Increase in payables 354 120
Cash used in operations (3,065) (2,984)
Income taxes received 704 766
Net cash used in operating activities (2,361) (2,218)
Cash and cash equivalents
2015 2014
£’000 £’000
Cash and bank balances 1,183 6,563
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less, net of outstanding
bank overdrafts. The carrying amount of these assets is approximately equal to their fair value.
32. OPERATING LEASE ARRANGEMENTS
The group as lessee 2015 2014
£’000 £’000
Lease payments under operating leases
recognised as an expense in the year 392 577
At the statement of financial position date, the group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
2015 2014
£’000 £’000
Within one year 561 310
In the second to fifth years inclusive 1,182 68
1,743 378
Operating lease payments represent rentals payable by the group for certain of its office properties. Leases are negotiated for an average term
of 5 years. At 30 April 2015 and 2014, the Group had no capital commitments or contingencies.
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Consolidated Financial Statements
For the year ended 30 April 2015
33. SHARE BASED PAYMENTS
Equity-settled share option scheme
The Company has a share option scheme (EMI scheme) for all employees of the Group. Options are exercisable at a price equal to the average
quoted market price of the Company’s shares on the date of grant. The average vesting period is three years. If the options remain unexercised
after a period of ten years from the date of grant the options expire. Options are forfeited if the employee leaves the Group before the options
vest. Details of the share options outstanding during the year are as follows.
Details of the share options outstanding during the year are as follows.
2015 2014
Weighted average Weighted average
Number of exercise price Number of exercise price
share options (£) share options (£)
Outstanding at beginning of the year 12,065,710 0.16 3,556,656 1.13
Effect of share reorganisation – – 8,499,554 1.13
Granted during the year 1,024,806 0.42 532,000 0.24
Exercised during the year (162,500) 0.20 (522,500) 0.07
Forfeited during the year (140,000) 0.20 – –
Outstanding at the end of the year 12,788,016 0.29 12,065,710 0.16
Exercisable at the end of the year 8,725,990 0.16 7,360,160 0.18
The weighted average share price at the date of exercise for share options exercised during the year was £0.49 (2014: £0.20). The options out-
standing at 30 April 2015 had a weighted average exercise price of £0.29(2014: £0.18) and a weighted average remaining contractual life of seven
years (2014: six years). The range of exercise prices for outstanding share options at 30 April 2015 was 1.5p to 79p (2014: 1.5p to 79p). In 2015,
the aggregate of the estimated fair values of the options granted is £107k (2014: £37k). The inputs into the Black-Scholes model are as follows:
2015 2014
Weighted average share price 42p 39p
Weighted average exercise price 42p 16p
Expected volatility 37.75% 55.33%
Expected life 7 years 6 years
Risk-free rate 0.37 0.37%
Expected dividend yields 0% 0%
Expected volatility was determined by calculating the historical volatility of similar listed businesses over the previous 3 years. The expected life
used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and be-
havioural considerations.
The group recognised total expenses of £181k (2014: £125k) related to equity-settled share-based payment transactions.
The Kromek Group Plc 2013 Long Term Incentive Plan
On 10 October 2013 a new Long Term Incentive Plan was adopted. Under the plan, awards will be made annually to key employees. Subject to
the satisfaction of the required TSR performance criteria, these grants will vest at the end of a 3 year reporting period.
On 24 June 2014 1,022,931 (2014: 735,093) options were granted under the 2013 LTIP to a number of key employees, including two executive
directors of the Group. The fair value of these options granted was £125k (2014: £70k). The amounts recognised as a share-based payment
expense for the year ended 30 April 2015 was £110k (2014: £8k).
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
33. SHARE BASED PAYMENTS (CONTINUED)
The 2013 Long Term Incentive Plan award was valued using the Monte Carlo pricing model. The inputs into the Monte Carlo pricing model are
as follows:
2015 2014
Weighted average share price 47p 20p
Weighted average exercise price 1p 1p
Expected volatility 38.76% 53.13%
Expected life 3 years 3 years
Risk-free rate 0.32% 0.42%
Expected dividend yields 0% 0%
34. RETIREMENT BENEFIT SCHEMES
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for all employees. Where there are employees who leave the schemes prior
to vesting fully in the contributions, the contributions payable by the Group are reduced by the amount of forfeited contributions.
The employees of the Group’s subsidiaries in the United States of America are members of a state-managed retirement benefit scheme operated
by the government of the United States of America. The subsidiaries are required to contribute a specified percentage of payroll costs to the re-
tirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the spec-
ified contributions.
The total cost charged to income of £349k (2014: £363k) represents contributions payable to these schemes by the Group at rates specified in
the rules of the schemes. As at 30 April 2015, contributions of £29k (2014: £27k) due in respect of the current reporting period had not been paid
over to the scheme.
35. FINANCIAL INSTRUMENTS
Financial instruments
The Group’s principal financial instruments are cash and trade receivables.
The Group has exposure to the following risks from its operations:
Capital risk
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to share-
holders through the optimisation of the debt and equity balance. The Group’s overall strategy has remained unchanged between 2014 and 2015.
The capital structure of the Group consists of net debt, which includes the borrowings disclosed in note 25 after deducting cash and cash equiv-
alents, and equity attributable to equity holders of the company, comprising issued capital, reserves and accumulated losses as disclosed in notes
27 to 30.
The Group is not subject to any externally imposed capital requirements.
The Group’s primary source of capital is equity. By pricing products and services commensurately with the level of risk and focusing on the
effective collection of cash from customers, the Group aims to maximise revenues and operating cash flows.
Cash flow is further controlled by ongoing justification, monitoring and reporting of capital investment expenditures and regular monitoring and
reporting of operating costs. Working capital fluctuations are managed through employing the overdraft facility available, which at the year-end
was £nil (2014: £nil).
The Group considers that the current capital structure will provide sufficient flexibility to ensure that appropriate investment can be made, if re-
quired, to implement and achieve the longer term growth strategy of the Group.
Market risk
The Group may be affected by general market trends, which are unrelated to the performance of the Group itself. The Group’s success will depend
on market acceptance of the Group’s products and there can be no guarantee that this acceptance will be forthcoming.
Market opportunities targeted by the Group may change and this could lead to an adverse effect upon its revenue and earnings.
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Consolidated Financial Statements
For the year ended 30 April 2015
35. FINANCIAL INSTRUMENTS (CONTINUED)
Foreign currency risk
The Group’s operations are split between the UK and the US, and as a result the Group incurs costs in currencies other than its presentational
currency of pounds sterling. The Group also holds cash and cash equivalents in non-sterling denominated bank accounts.
The following table shows the denomination of the year-end cash and cash equivalents balance:
2015 2014
£’000 £’000
£ sterling 1,751 7,958
US$ sterling equivalent (903) (1,674)
€ sterling equivalent 335 279
Had the foreign exchange rate between sterling, US$ and € changed by 5%, this would affect the loss for the year and net assets of the Group by
£28k (2014: £34k).
Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has
adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating
the risk of financial loss from defaults. The Group only transacts with entities that are rated the equivalent of investment grade and above. This
information is supplied by independent rating agencies where available, and if not available, the Group uses other publicly available financial in-
formation and its own trading records to rate its major customers. The Group’s exposure and the credit ratings of its counterparties are continu-
ously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by
counterparty limits that are reviewed and approved by the risk management committee annually.
Trade receivables consist of a small number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is
performed on the financial condition of accounts receivable.
The Group’s standard credit terms are 30 to 60 days from date of invoice. Invoices greater than 60 days old are assessed as overdue. The maximum
exposure to credit risk is the carrying value of each financial asset included on the statement of financial position as summarised in note 21.
The Group’s management considers that all the above financial assets that are not impaired or past due for each of the reporting dates under re-
view are of good quality.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk man-
agement framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The
Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring
forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods.
The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be
required to pay. The table includes both interest and principal cash flows. The contractual maturity is based on the earliest date on which the
Group may be required to pay.
Weighted
average
effective Less than 3 months to
interest rate 1 month 1–3 months 1 year 1–5 years 5+ years Total
% £’000 £’000 £’000 £’000 £’000 £’000
1 May 2014 – – – – – – –
Revolving credit facility 3.1 – – 1,003 – – 1,003
30 April 2015 3.1 – – 1,003 – – 1,003
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KROMEK Annual Report & Accounts 2015
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2015
35. FINANCIAL INSTRUMENTS (CONTINUED)
Significant accounting policies
Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the bases
for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are disclosed in note 3.
Categories of financial instruments
2015 2014
£’000 £’000
Financial assets
Cash and bank balances (including cash and bank balances in
a disposal group held for sale) 1,183 6,563
Loans and receivables 4,089 1,907
Financial liabilities
Amortised cost (including trade payables balance in a
disposal group held for sale) (5,165) (3,210)
36. EVENTS AFTER THE BALANCE SHEET DATE
On 29 July 2015, the Group entered into a placing agreement to raise up to £11.0m gross, or up to £10.4m net of expenses, by a conditional non
pre-emptive firm placing of 36,000,000 new ordinary shares of 1p each in the ordinary share capital of the Group (“Ordinary Shares”) and an open
offer of up to 8,012,836 Ordinary Shares at a price of 25p per share. The firm placing and open offer are conditional, inter alia, upon the passing
of certain resolutions by the shareholders of the Group.
On 17 August 2015, a general meeting of the Group will be held where the Directors expect the shareholders of the Company to approve the firm
placing and open offer. On 18 August 2015, subject, inter alia, to shareholder approval the firm placing and open offer shares will be admitted
and dealings will commence. As a result of the firm placing and open offer the Directors expect to raise a minimum of £8.4m cash.
37. RELATED PARTY TRANSACTIONS
Balances and transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are
not disclosed in this note. Transactions between the group and its related parties are disclosed below.
During the year, Amphion Innovations, a shareholder and company under the control of Richard Morgan, the former Chairman, charged the Group
£nil (2014: £154k) in relation to management fees. At the year end the Group owed Amphion Innovations £nil (2014: £nil).
During the year, AIPOLAS Limited, a company under the control of Jerel Whittingham, a non-executive director, charged the Group £15k (2014:
£77k) in relation to consultancy charges. At the year end the Group owed AIPOLAS Limited £nil (2014: £nil).
Directors’ transactions
During the year Professor M Robinson, a director, charged the Group £72k (2014: £72k) for consultancy fees. At the year end the Group owed
Professor M Robinson £7k (2014: £7k). This amount was included within trade payables.
There have been no other transactions with related parties other that what has been disclosed within this note.
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Consolidated Financial Statements
Company statement of financial position
For the year ended 30 April 2015
2015 2014
Note £’000 £’000
Non-current assets
Investment in subsidiaries 40 – –
– –
Current assets
Trade and other receivables 41 14,795 14,765
Cash and cash equivalents 1,028 257
15,823 15,022
Total assets 15,823 15,022
Current liabilities
Trade and other payables 42 (33) (66)
Borrowings 43 (1,003) –
Total liabilities (1,036) (66)
Net assets 14,787 14,956
Equity
Share capital 47 1,082 1,080
Share premium account 48 13,965 13,934
Accumulated losses 49 (260) (58)
14,787 14,956
The financial statements of Kromek Group plc (registered number 8661469) were approved by the Board of Directors and authorised for issue
on 29 July 2015. They were signed on its behalf by:
Dr Arnab Basu MBE
Chief Executive Officer
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KROMEK Annual Report & Accounts 2015
Company statement of changes in equity
For the year ended 30 April 2015
Equity attributable to equity holders of the Company
Share capital Share premium Accumulated Total
£’000 account losses equity
£’000 £’000 £’000
Balance at 1 May 2013 – – – –
Total comprehensive losses
for the year – – (58) (58)
Share reorganisation 779 – – 779
Shares issued on IPO 294 14,706 – 15,000
Issue of ordinary shares 7 34 – 41
IPO costs recognised in equity – (806) – (806)
Balance at 30 April 2014 1,080 13,934 (58) 14,956
Total comprehensive loss
for the year – – (202) (202)
Issue of share capital
net of expenses 2 31 – 33
Balance at 30 April 2015 1,082 13,965 (260) 14,787
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Consolidated Financial Statements
Company statement of cash flows
For the year ended 30 April 2015
2015 2014
Note £’000 £’000
Net cash used in operating activities 46 (259) (14,743)
Financing activities
Proceeds from issue of share capital 33 15,000
Revolving credit facility 1,000 –
Interest paid (3) –
Net cash from financing activities 1,030 15,000
Net increase in cash and cash equivalents 771 257
Cash and cash equivalents at beginning of period 257 –
Cash and cash equivalents at end of period 1,028 257
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KROMEK Annual Report & Accounts 2015
Notes to the company financial statements
For the year ended 30 April 2015
38. SIGNIFICANT ACCOUNTING POLICIES
The separate financial statements of the company are presented as required by the Companies Act 2006. As permitted by that Act, the separate
financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union.
The financial statements have been prepared on the historical cost basis except for the remeasurement of certain financial instruments to fair value.
The principal accounting policies adopted are the same as those set out in note 3 to the consolidated financial statements except as noted below.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. The Company’s financial statements are included
in the consolidated financial statements of Kromek Group plc. Accordingly, the Company has taken advantage of the exemption from publishing an
income statement, and the losses for the Company are shown within the Company Statement Changes of Equity, being equal to the total comprehensive
losses for the year.
39. AUDITORS REMUNERATION
The auditor’s remuneration for audit and other services is disclosed in note 8 to the consolidated financial statements.
40. SUBSIDIARIES
Details of the Company’s direct and indirect subsidiaries as at 30 April 2015 are as follows:
Place of Class of Proportion of Activity
incorporation shares held ownership
(or registration) interest
Name and operation %
Kromek Limited United Kingdom Ordinary 100 Scientific research and development
Kromek Germany Limited United Kingdom Ordinary 100 Sales and marketing
Kromek, Inc United States of America Ordinary 100 Scientific research and development
NOVA R&D, Inc United States of America Ordinary 100 Holding company
eV Products, Inc United States of America Ordinary 100 Scientific research and development
Durham Scientific Crystals Limited United Kingdom Ordinary 100 Dormant company
The investments in subsidiaries are all stated at cost.
41. TRADE AND OTHER RECEIVABLES
2015 2014
£’000 £’000
Amounts due from subsidiary undertakings 14,749 14,749
Prepayments 10 16
Other receivables 36 –
14,795 14,765
Amounts due from subsidiary undertakings are due in more than 1 year.
42. TRADE AND OTHER PAYABLES
2015 2014
£’000 £’000
Trade payables and accruals (33) (66)
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken
for trade purchases is 30 days. For all suppliers no interest is charged on the trade payables. The Group has financial risk management policies
in place to ensure that all payables are paid within the pre-agreed credit terms.
The directors consider that the carrying amount of trade payables approximates to their fair value.
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Consolidated Financial Statements
For the year ended 30 April 2015
43. BORROWINGS
Details regarding the borrowings of the Company are disclosed in note 25.
44. FINANCIAL ASSETS
Intercompany balances
The carrying amount of these assets approximates their fair value. There are no past due or impaired receivable balances.
Cash and cash equivalents
These comprise cash held by the company and short-term bank deposits with an original maturity of three months or less. The carrying amount
of these assets approximates their fair value.
45. FINANCIAL LIABILITIES
Trade and other payables
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade pur-
chases is 30 days.
The carrying amount of trade payables approximates to their fair value.
46. NOTES TO THE STATEMENT OF CASH FLOWS
2015 2014
£’000 £’000
Loss for the year (202) (58)
Adjustments for:
Finance costs 3 –
Operating cash flows before movements in working capital (199) (58)
Decrease/(increase) in receivables 6 (14,751)
(Decrease)/increase in payables (66) 66
Net cash from operating activities (259) (14,743)
47. SHARE CAPITAL
2015 2014
£’000 £’000
Allotted, called up and fully paid:
108,173,290 Ordinary shares of £0.01 each 1,082 1,080
1,082 1,080
48. SHARE PREMIUM ACCOUNT
£’000
Balance at 1 May 2014 13,934
Premium arising on issue of equity shares 31
Balance at 30 April 2015 13,965
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KROMEK Annual Report & Accounts 2015
Notes to the company financial statements (continued)
For the year ended 30 April 2015
49. ACCUMULATED LOSSES
£’000
Balance at 1 May 2014 (58)
Net loss for the year (202)
Balance at 30 April 2015 (260)
50. FINANCIAL INSTRUMENTS
The Company’s principal financial instruments are cash and trade receivables.
The Company has exposure to the following risks from its operations:
Capital risk
The Company manages its capital to ensure that entities in the Company will be able to continue as going concerns while maximising the return
to shareholders through the optimisation of the debt and equity balance.
The capital structure of the Company consists of equity attributable to equity holders of the company, comprising issued capital, reserves and
accumulated losses as disclosed in notes 27 to 30.
The Company is not subject to any externally imposed capital requirements.
Cash flow is controlled by ongoing justification, monitoring and reporting of capital investment expenditures and regular monitoring and reporting
of operating costs.
The Company considers that the current capital structure will provide sufficient flexibility to ensure that appropriate investment can be made, if
required, to implement and achieve the longer term growth strategy of the Company.
Market risk
The Company may be affected by general market trends, which are unrelated to the performance of the Company itself. The Company’s success
will depend on market acceptance of the Company’s products and there can be no guarantee that this acceptance will be forthcoming.
Market opportunities targeted by the Company may change and this could lead to an adverse effect upon its revenue and earnings.
Foreign currency risk
The Company currently does not undertake transactions denominated in foreign currencies.
Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company
has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating
the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent of investment grade and above.
This information is supplied by independent rating agencies where available, and if not available, the Company uses other publicly available fi-
nancial information and its own trading records to rate its major customers. The Company’s exposure and the credit ratings of its counterparties
are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is
controlled by counterparty limits that are reviewed and approved by the risk management committee annually.
The Company’s management considers that all the above financial assets that are not impaired or past due for each of the reporting dates under
review are of good quality.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk man-
agement framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The
Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring
forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods.
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Consolidated Financial Statements
For the year ended 30 April 2015
50. FINANCIAL INSTRUMENTS (CONTINUED)
The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be
required to pay. The table includes both interest and principal cash flows. The contractual maturity is based on the earliest date on which the
Group may be required to pay.
Weighted
average
effective Less than 3 months to
interest rate 1 month 1–3 months 1 year 1–5 years 5+ years Total
% £’000 £’000 £’000 £’000 £’000 £’000
1 May 2014 – – – – – – –
Revolving credit facility 3.1 – – 1,003 – – 1,003
30 April 2015 3.1 – – 1,003 – – 1,003
51. ULTIMATE CONTROLLING PARENT AND PARTY
In the opinion of the directors, there is no ultimate controlling parent or party.
52. EVENTS AFTER THE BALANCE SHEET DATE
On 29 July 2015, the Group entered into a placing agreement to raise up to £11.0m gross, or up to £10.4m net of expenses, by a conditional non
pre-emptive firm placing of 36,000,000 new ordinary shares of 1p each in the ordinary share capital of the Group (“Ordinary Shares”) and an open
offer of up to 8,012,836 Ordinary Shares at a price of 25p per share. The firm placing and open offer are conditional, inter alia, upon the passing
of certain resolutions by the shareholders of the Group.
On 17 August 2015, a general meeting of the Group will be held where the Directors expect the shareholders of the Company to approve the firm
placing and open offer. On 18 August 2015, subject, inter alia, to shareholder approval the firm placing and open offer shares will be admitted
and dealings will commence. As a result of the firm placing and open offer the Directors expect to raise a minimum of £8.4m cash.
53. RELATED PARTY TRANSACTIONS
No transactions have been noted with Directors during the period ended 30 April 2015.
No dividends were paid in the period in respect of ordinary shares held by the Company’s directors.
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KROMEK Annual Report & Accounts 2015
Notes
66
Advancing CZT manufacture to target
significant growth opportunities in CT, SPECT
and networked nuclear detection applications
GROWTH AREA
1
CT
$900m+ market
CT – (photon counting) is an x-ray based
diagnostic imaging technique where
slices of images are taken and then
can be rendered into a 3D image – for
detection of cancers, cardiac and other
pathologies
GROWTH AREA
2
SPECT
$100m+ market
SPECT – Nuclear Medicine diagnostic
imaging where the patient is injected
with a radio-pharmaceutical. The
pharmaceutical then congregates at
tumour sites
3
GROWTH AREA
Nuclear
Safeguard
$1bn+ market
Nuclear Safeguard – D3S a portable
combined gamma neutron detector
which is networked via mobile phone
linked to a central server. Prevention
against nuclear terrorism threat
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Kromek Group plc
Annual report and accounts
for the year ended 30 April 2015
Kromek Group plc
NETPark
Thomas Wright Way
Sedgefield
County Durham
TS21 3FD