Kromek Group plc
Annual report and accounts
for the year ended 30 April 2017
Advancing CZT manufacture to target
significant growth opportunities in SPECT, BMD
and networked nuclear detection applications
$100m+ market
SPECT
SPECT Nuclear Medicine diagnostic imaging
where the patient is injected with a
radiopharmaceutical. The pharmaceutical
then congregates at tumour sites
Contents
1 Financial and Operational
Highlights
2 Chairman’s Statement
4 Chief Executive Officer’s
Review
6 Chief Financial Officer’s
Review
16 Directors’ Biographies
Bone Mineral Densitometry
20 Review of Principal Risks
$20m+ market
18 Directors’ Report
BMD - a low-dose x-ray diagnostic imaging
technique used to identify weakened bones
(osteoporosis) and measure the distribution
of fat and lean tissue in the body
$1bn+ market
Nuclear Safeguard
Nuclear safeguard - D3S: a portable
combined gamma neutron detector which is
networked via mobile phone linked to a
central server. Warning system against threat
of nuclear terrorism
22 Corporate Governance Report
24 Directors’ Remuneration
Report
28 Independent Auditor’s Report
29 Consolidated income
statement
30 Consolidated statement of
comprehensive income
31 Consolidated statement of
financial position
32 Consolidated statement of
changes in equity
33 Consolidated statement of
cash flows
34 Notes to the consolidated
financial statements
61 Company financial statements
Our vision
“
To be the world-leading provider of
multispectral radiation detection products
and technologies enabling our customers
and users to take more timely decisions
based on superior information
”
KromeK Group plc
Annual Report & Accounts 2017
Financial and Operational Highlights
Financial Highlights
n Revenue increased 7.5% to £9.0m (2015/16: £8.3m)
n Product sales accounted for 74% of total revenues (2015/16: 65%), a growth year-on-year of 23%
n Gross margin was 57% (2015/16: 53%)
n Administration costs (including operating expenses) were £8.7m (2015/16: £8.3m)
n EBITDA* was £1.5m loss (2015/16: £2.4m loss), following further investment of £3.5m (2015/16: £3.2m) of
research costs expensed in preparation for the expected demand regarding D3S and SPECT
n Loss before tax for the year was £3.8m (2015/16: £4.1m loss)
n Total proceeds of £21m (£20m net of expenses) were raised as part of a Placing and Open Offer in February 2017,
which saw a further 105,129,536 ordinary shares issued
n Cash and cash equivalents at 30 April 2017 were £20.3m (30 April 2016: £3.9m)
*EBITDA defined as earnings before interest, taxation, depreciation, amortisation and share-based payments.
Revenue
£9.0m
+7.5%
£8.3m
7
1
0
2
6
1
0
2
EBITDA
£(1.5)m
+8%
£(2.4)m
Cash
Product % of sales
£20.3m
£3.9m
74%
+23%
65%
Operational Highlights
Medical imaging
Nuclear detection
Security screening
n Commenced delivery on $12.6m
five-year OEM contract to
develop and supply detectors for
BMD diagnostics systems
n Awarded repeat contracts by
three current BMD customers
worth $1.2m in total
n Won contract worth minimum
of $560,000 for the supply of
radiation detectors with an
existing customer
n Continued to make progress on
the development of CZT-based
SPECT modules for customer in
China
n Delivered 10,000 D3S units
in support of DARPA SIGMA
programme
n D3S detectors field-tested in
Washington DC and currently
deployed by New Jersey Port
Authority
n Awarded $1.6m two-year
agreement from DTRA to
develop a ruggedised high
performance isotope radiation
detector for military use
n Won and delivered a $430,000
contract to supply nuclear
radiation detection products to
the UK Ministry of Defence
R&D
Six new patents were filed and 11 granted during the period.
n Secured five-year agreement,
worth a minimum of $3.1m, from
an existing US-based customer
n Awarded 12-month contract,
valued at $990,000, together
with a ten-year exclusivity
agreement, by an existing US-
based customer to develop and
supply upgraded detectors
n Awarded and delivered a
contract for the Group’s bottle
scanners from an Asian airport
group
1
KromeK Group plc
Annual Report & Accounts 2017
Chairman’s Statement
“Our goals for this year were to
focus on the sectors where we
enjoy strong and growing market
share, especially in nuclear
detection and SPECT”
Sir Peter Williams CBE
Chairman
27 June 2017
“We anticipate that the coming
year will see material growth
in revenues, given that 74%
of projected sales are already
covered by firm bookings”
2
I am pleased to present our Annual Report for the year ended 30
April 2017, my first complete financial year as your chairman. I
joined in 2015 at an exciting juncture and the past twelve months
have, indeed, seen Kromek beginning to fulfil its potential. We
are at the leading-edge in developing commercially viable
radiation detection solutions and this has, in turn, enabled our
customers to successfully launch their new generation of clearly
differentiated products in a wide range of markets.
Our goals for this year were to focus on the sectors where we
enjoy strong and growing market share, especially in nuclear
detection and SPECT, and I’m proud to say we achieved this.
This success has been built on Kromek’s technological leadership
derived from our long-term development programmes and
mastery of CZT materials production. On page 4, Arnab Basu,
our Chief Executive Officer, provides details of these operational
achievements for the year.
Securing the Financial Future
In a further development of central importance, Kromek raised
£19.8m (net) through a Placing and Open Offer in February 2017.
The funds raised strengthened our balance sheet, underpinning
our plans for the sustained growth of the business and supporting
increasing commercial activity through the deployment of our
proprietary technology. This placing enhances Kromek’s ability
to secure significant future orders from major companies and
government agencies who seek a level of assurance that the
Group has the financial strength and stability to supply their
needs over the longer term. We were delighted with the support
shown by our current shareholders and it was also pleasing to
add new blue-chip institutions to our register.
KromeK Group plc
Annual Report & Accounts 2017
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 ongoing support. Kromek now has the
market opportunities, the products and technology, and a sound
commercial position. With the strengthening of Kromek’s financial
foundations and the long-term growth drivers showing no sign
of abating, we look forward to delivering significant shareholder
value in the years to come.
“Our success has been built on
the technological leadership
derived from our long term
development programmes and
the mastery of CZT materials
production”
3
Visibility of revenues
Over the past four years, dealing with government agencies and
major OEMs has inevitably made it difficult to predict the timing
and magnitude of contracts with sufficient precision. However,
in the last 24 months, the award of long-term contracts totalling
$40m has given us both greater visibility going forward and the
confidence that our analysis of our markets is realistic. On this
basis, we anticipate that in the coming year we will see material
growth in revenues.
opportunities remain Significant
The most significant achievement in the year was the completion
of the sole source contract with the US Defense Advanced
Research Projects Agency (“DARPA”) to supply spectroscopic
personal radiation detectors (D3S) in support of their SIGMA
programme. Our detectors have been field-tested in Washington
DC and other major areas in the US and were also used by
European authorities to protect the President of the United
States during his recent visit to Brussels. We believe that the
D3S deployment for the DARPA contract continues to represent
a significant radiation detection opportunity for Kromek and we
expect to expand our work within the US and elsewhere. The
threat of “dirty” nuclear bomb placement remains regrettably real
and government agencies around the world are looking for the
means to guard against it.
Also, within the diagnostic imaging sector in medicine, SPECT
(used primarily for cancer detection) and other modalities remain
important markets to us. We commenced delivery of systems
under a $12.6m contract with a current OEM customer, a
worldwide producer and exporter of bone mineral densitometry
the detection of
(“BMD”) diagnostics systems used
osteoporosis. This is for the development and supply of detectors
to be incorporated into the customer’s new generation systems.
The contract further validates the benefits of our BMD technology
and represents the continued healthy conversion of our enquiry
pipeline into orders. In these key areas, our addressable market
opportunity remains substantial, standing at over $20m and
$100m p.a. in BMD and SPECT respectively.
for
Of perhaps even greater significance, in the area of portable
advanced radiation detectors for nuclear safeguarding, we believe
our market opportunity could be worth more than a billion dollars.
We have achieved significant milestones in commercialising all
these opportunities this year and remain confident of furthering
our strategy of becoming the preferred component supplier to
major OEMs through existing and new relationships.
KromeK Group plc
Annual Report & Accounts 2017
Business Review and Strategic Report
Chief Executive Officer’s Review
“Kromek has a stronger order
book, good revenue visibility and
is better positioned to capture
the opportunities that exist
across all its target markets”
Dr Arnab Basu MBE
Chief Executive Officer
27 June 2017
overview
It has been another year of good progress for Kromek as the
Group won several high value contracts across all its target
markets. This has strengthened the Group’s market position as
a key supplier of CZT detection systems to both commercial
and government customers globally. Kromek has a stronger
order book, good revenue visibility and is better positioned to
capture the opportunities that exist across all its target markets.
Kromek continued to execute on the large-scale contracts
that have been secured over the last 24-months. The size
and scope of these agreements is illustrative of the ramp-
up in Kromek’s commercial activities. The larger contracts,
alongside an increasing number of customers moving from
R&D programmes to full commercialisation, has produced a
continued shift in the Group’s sales mix from R&D to product
sales, which were 74% of total revenue (2015/16: 65%).
medical Imaging
Kromek made good progress in Medical Imaging – securing
new contracts and delivering on current agreements.
In the BMD market, Kromek continued to serve its OEM
customers, including the commencement of delivery of the
$12.6m contract signed in H2 2015/16. In this market, the
Group also received repeat contracts worth $1.2m from existing
customers. It is worth noting that the size of the contracts were
almost double the previous contracts from these customers.
In addition, Kromek entered into an agreement for the supply of
CZT-based gamma radiation detectors with an existing medical
customer with a minimum value of $560,000 over the two-year
agreement.
4
The Group also continued to make significant progress under
its contract signed in 2014 for the development and delivery of
CZT-based SPECT modules for an established manufacturer of
x-ray diagnostics and analysis equipment in China.
Nuclear Detection
It was a milestone year in Nuclear Detection as Kromek
continued to win new contracts, executed large orders and
enhanced its reputation with government agencies and global
OEMs.
In particular, Kromek completed the delivery of an initial 10,000
D3S units in support of DARPA’s SIGMA programme. To date,
Kromek has secured over $11m worth of contracts under the
programme.
In further interaction with the US defence agencies,
Kromek was awarded a $1.6m two-year agreement by the
Defense Threat Reduction Agency (“DTRA”), subject to final
contract. This award is to build on, and further enhance, the
Group’s technology platform to develop a ruggedised, high
performance, isotope radiation detector that is capable for use
in military and other harsh environments.
Other contracts awarded in the period include a $430,000
contract with the UK Ministry of Defence for the supply of
nuclear radiation detection products and an extension to an
existing contract for the development and delivery of nuclear
radiation detection devices for a major civil nuclear partner
amounting to $278,000. Both of these contracts were delivered,
on schedule, during the period.
KromeK Group plc
Annual Report & Accounts 2017
Kromek continued to make good progress in its partnership
with Mirion (formally Canberra) for product distribution and
R&D collaboration. This three-year R&D programme with Mirion
is expected to be worth at least $900,000 over the life of the
contract.
These contracts demonstrate that Kromek continues to gain
commercial traction through the increasing adoption of our
technology in the security screening market. Kromek’s bottle
scanners are installed in 50 airports in 11 countries in Asia,
Europe and Australia.
Security Screening
Kromek secured a milestone five-year agreement, valued at a
minimum of $3.1m, with an existing US-based customer that
is an emerging leader and global company in the homeland
security marketplace. It is Kromek’s first long-term contract
in the security screening market and, significantly, is another
OEM customer that has moved from being an R&D customer to
entering the commercial phase.
In addition, Kromek was awarded a contract, valued at
$990,000, by an existing US-based customer, that is a global
leader in aerospace and defence technologies. The contract
is for the upgrade of the Group’s advanced security screening
detectors that the customer has deployed since 2009. The
upgraded CZT detectors are critical to the customer’s security
screening application.
Kromek was also awarded two contracts, totalling $265,000,
which were both delivered during the period. One for the
Group’s bottle scanners, from an Asian airport group that is
a new customer, and the other for components for screening
systems, from an existing customer.
r&D
The Group continued to work on both externally and internally
funded R&D activities to develop products and platform
technologies that can form important elements of our future
product roadmap. During the period, six new patents were filed
and 11 patents were granted.
The research pipeline has delivered several fundamental new
technologies as we:
n invested in developing a new low-power Bluetooth-
connected readout system designed for seamless integration
of large volume vehicle-mounted detectors (complementing
the handheld D3S detectors) in the SIGMA detector network;
n successfully developed and supplied prototype radiation
detectors to DTRA that resulted in a new award for the
development of detectors for military applications;
n developed a high-performance ASIC for use in advanced
radiation detectors, further enhancing the product offerings in
the nuclear detection market while lowering electronic design
costs; and
n developed and introduced a new series of x-ray imaging
modules in the BMD market, further enhancing Kromek’s
position in this market.
“Kromek is experiencing a step change in the
growth across all its business segments and
expects to report revenue growth for 2017/18
of approximately 40%”
outlook
Kromek is experiencing a step change in the growth
across all its business segments and expects to report
revenue growth for 2017/18 of approximately 40%
in line with market expectations. This expectation is
underpinned by the good visibility of revenues as the
Group continues delivery on over $40m of contracts
signed over the last 24 months.
The Group also continues to benefit from its customers
launching next-generation CZT-based products into the
market. In 2017/18, Kromek expects OEM customers
to launch further products incorporating the Group’s
technology, prompting additional orders to be placed as
sales of these products accelerate.
Overall, the Group’s products continue to gain traction
in all its business segments with Kromek winning new
customers as well as strengthening its relationships with
existing customers. With a strengthened order book in
place and improved revenue visibility, the Board looks to
the future with confidence.
5
KromeK Group plc
Annual Report & Accounts 2017
Business Review and Strategic Report
Chief Financial Officer’s Review
“Key areas of development
were to expand the D3S suite
of products and the SPECT
and BMD platforms linked to
existing contract deliverables
and significant future revenue
opportunities”
Mr Derek Bulmer
Chief Financial Officer
27 June 2017
“Year-on-year growth in product
sales of 23% reflects further
traction with the D3S, SPECT
and BMD products delivering on
the supply contracts that have
been announced over the last 24
months”
6
This was a successful year for Kromek as the Group achieved
another year of revenue growth, with the continued increase in
product sales, and improved gross margin resulting in reduced
EBITDA loss. We also significantly strengthened our balance
sheet with a placing and open offer in February 2017 of £19.8m
(net).
revenue
The Group achieved revenue growth of 7.5% year-on-year driven
by higher product sales at £6.7m (2015/16: £5.4m), which
accounted for 74% of total revenue (2015/16: 65%) as detailed
in the table below.
revenue mix
2016/17
2015/16
£’000
% share
£’000
% share
product
r&D
Total
6,671
2,297
8,968
74%
26%
5,432
2,910
8,342
65%
35%
The year-on-year growth in product sales of 23% reflects further
traction with the D3S, SPECT and BMD products as they
delivered on the supply contracts that have been announced
over the last 24 months.
Gross margin
Gross margin (calculated before labour and overhead recovery)
increased to 57% (2015/16: 53%). This improvement is the result
of product mix and production efficiencies as well as the impact
of the allocation of product development amortisation.
On the latter point, amortisation of product development is
now expensed on a straight-line estimate rather than linked to
specific sales of unit product. The Group amended its accounting
estimate of development cost amortisation to reflect the changes
KromeK Group plc
Annual Report & Accounts 2017
in the accounting standards, IAS 38: Intangible Assets and IAS
16: Property, Plant and Equipment, which were effective for
accounting periods beginning on or after 1 January 2016.
On a like-for-like basis, if the gross margin in 2015/16 is re-
calculated on the same basis as it has been for 2016/17 relating
to the change in allocation of amortisation costs, gross margin
for 2015/16 would be 55%. Thus, like-for-like, gross margin
improved by 2% year-on-year, driven by product mix and
production efficiencies.
(including operating
Administration costs
expenses)
Administration costs and operating expenses increased by 5% to
£8.7m (2015/16: £8.3m). The key movement in the year relates
to the higher amortisation charge of £1.4m (2015/16: £0.8m)
resulting from the change in the method of estimate and allocation
of amortisation as noted above. This additional charge was partly
offset by some net cost savings of approximately £0.2m.
eBITDA and profit/(loss) from operations
Due to increased product sales and movement in gross margin,
EBITDA for 2016/17 was a loss of £1.5m compared with a loss
of £2.4m for the prior year, as set out in the table below:
Revenue
Gross margin (%)
Loss Before Tax
eBITDA Adjustments:
Net interest
Depreciation
Amortisation
Share-based payments
Other income
eBITDA
2016/17
£’000
8,968
57%
(3,794)
40
762
1,417
99
15
2015/16
£’000
8,342
53%
(4,143)
83
709
828
166
(19)
(1,461)
(2,376)
The £0.9m improvement in EBITDA in 2016/17 compared with
2015/16 is substantially a result of £0.7m of additional gross
profit generated from higher revenues and improvements in
gross margin. This has been further supported by net reductions
in administrative costs as noted above.
Loss before tax for the year was £3.8m (2015/16: £4.1m loss).
Tax
The Group continues to benefit from the UK Research and
Development Tax Credit resulting from the investment in
developments of technology and recorded a credit of £0.7m for
the year (2015/16: £0.9m). The Group deferred tax provision saw
a movement of a credit of nil (2015/16: £1.2m) as a result of the
distribution of losses between the UK and US operations. These
two elements led to an overall tax credit to the income statement
for the Group of £0.7m (2015/16: £2.0m).
earnings per Share (“epS”)
EPS is recorded in the year on a basic and diluted basis producing
a loss of 1.8p per share (2015/16: 1.5p loss per share) for basic
and a loss of 1.7p per share (2015/16: 1.5p loss per share) for
diluted.
r&D
The Group invested £4.2m in the year (2015/16: £2.8m) in near-
term product developments that were capitalised on the balance
sheet, reflecting the continued commitment to invest for the future
growth of the business with new and enhanced products, and to
meet the demands of customer programmes. A further £3.5m
(2015/16: £3.2m) was incurred in the research and development
of the core technology platform and manufacturing capabilities
and expensed through the income statement in the period.
Key areas of development were to expand the D3S suite of
products and the SPECT and BMD platforms linked to existing
contract deliverables and significant future revenue opportunities.
The main driver in the increase in year-on-year near-term product
development of £1.4m was the investment in a new ASIC platform
that can be utilised to broaden the product portfolio by enabling
higher detection sensitivity and smaller product form factors.
The Group continues to undertake this investment in order to
advance its commercial advantage. This was manifest in the
period in D3S, BMD and SPECT product sales. This investment
is considered critical and ongoing as the Group commercialises
the opportunities that the technology provides and expands
capabilities in a number of different applications, which will be
further augmented by the recent ASIC development.
During the period, the Group undertook expenditure on patents
and trademarks of £0.3m (2015/16: £0.3m) with six new patents
filed and 11 patents granted.
capital expenditure
Capital expenditure in the year amounted to £0.3m (2015/16:
£0.4m), which primarily relates to upgrading the IT network along
with some modest manufacturing projects.
cash Balance
Cash and cash equivalents was £20.3m at 30 April 2017 (31
October 2016: £3.8m; 30 April 2016: £3.6m). This follows the
successful placing and open offer in February 2017 of £19.8m
(net), offset by the adjusted EBITDA loss for the period, further
investment in product development in the year of £4.2m, net
working capital expansion in debtors, inventory and payables
of £0.9m and a £3m drawn down on the newly renewed RCF
facility.
7
KromeK Group plc
Annual Report & Accounts 2017
We constantly evaluate new
opportunities for our existing and
complementary technologies
Vertically
integrated offering
from advanced
sensor materials
to detection
solutions
Materials &
Detectors
Detector
Fabrication
Bonding &
Hybridisation
Research &
Development
ASICs &
Electronics
Application
Development
Systems
Engineering
Algorithms
& Software
ERNST & YOUNG
ENTREPRENEUR
OF THE YEAR
A W A R D S
I N N OVAT I O N
W I N N E R 2 0 16
8
KromeK Group plc
Annual Report & Accounts 2017
Kromek designs, develops and produces
x-ray and gamma-ray imaging and
radiation detection products
Where we operate:
eV Products, Inc.
Pennsylvania
Group Headquarters
County Durham
NOVA R&D, Inc.
California
Kromek has three major
operational facilities in California,
Pennsylvania and County
Durham. We have established
sales and distribution
relationships covering Europe,
North America and Asia Pacific
9
KromeK Group plc
Annual Report & Accounts 2017
Kromek’s high-resolution
CZT camera for SPECT
enables superior diagnostics
“Using CZT for medical imaging is like jumping straight
from VHS to HD DVD in terms of image quality”
GE Healthcare website ‘The Pulse’
10
10
KromeK Group plc
Annual Report & Accounts 2017
Medical Imaging
SPECT: Nuclear Medicine diagnostic imaging where the patient is
injected with a radio-pharmaceutical which concentrates at sites
indicating diseases like cancer, Alzheimer’s or Parkinson’s
Kromek offering
Kromek provides simple turn-key product
solutions and a robust supply chain for OEMs to
integrate CZT cameras into their new systems
and/or retrofit installed base
Advantages of using cZT
Higher resolution with superior specificity
Reduced dose
Reduced scan time
Enables images of several tracers at once, further
reducing scan time
Improved image quality enables personalized
medicine with more accurate and earlier detection
of diseases such as cardiac ischemia and cancer,
leading to earlier, more effective diagnosis, enabling
a faster treatment cycle for lower cost of care
Thyroid camera
$100m+
Annual market
opportunity for Kromek
General purpose
camera
11
KromeK Group plc
Annual Report & Accounts 2017
D3S - Creating Intelligent
Radiation Detection Networks
Safeguarding cities
from the threat of
nuclear ‘dirty bombs’
12
12
KromeK Group plc
Annual Report & Accounts 2017
Nuclear Detection
D3S - a portable combined gamma neutron detector
which is networked via mobile phone linked to a
central server. Warning system against the threat of
nuclear terrorism
The DARPA SigmA System
D3S/Android
Vehicle-mounted sensors
Neutron Panels
ID
Web-based Situation Awareness & Analysis UI
External System Integration
The story so far...
10,000 detectors
shipped
10000
,
2.5bn recorded data
points acquired
2.5bn
10+ number of
significant events in USA
10+
Port Authority of New York
and New Jersey trial
Source: DARPA.mil website
100
100-fold increase in the
ability to locate & identify
sources of radiation
1__
10
One tenth of the cost of
conventional sensors
10x
10 times faster at
detecting gamma and
neutron radiation
13
13
D3S - Creating Intelligent
Radiation Detection Networks
Safeguarding cities
from the threat of
nuclear ‘dirty bombs’
KromeK Group plc
Annual Report & Accounts 2017
Working with partners to provide new technology to
safeguard people and the environment
Working in collaboration and partnership with
customers has long been a cornerstone of how
Kromek does business. Working in a safe and secure
environment is an integral part of business culture at
nuclear power giant, EDF Energy.
Kromek and EDF Energy formed a partnership to solve
one of the nuclear industry’s intractable problems: how
to quickly and accurately determine whether an area
or material had become contaminated and, if so, with
what.
Any time saved in determining the nature and extent
of an incident is crucial to the rapid implementation
of vital response teams and recovery times. Analysis
techniques within the industry, historically, could
be time consuming and involved taking samples to
laboratories for analysis that could delay response
times and further sampling.
EDF Energy required a system that offered high-
performance radiation detection capabilities that
provided fast and accurate measurement of potentially
mixed sources of radiation in real-time while being
small and robust enough to be easily transported and
used in-field.
Utilising the GR1 detector at its core, Kromek and
EDF Energy designed a fast and accurate analytical
tool that could easily be installed into a vehicle. A fit
for purpose software package was also designed in
collaboration with EDF Energy.
“As a business, EDF Energy is
continuously investing in improving
safety standards at all its sites and
the development of the Q4GR1 has
helped increase this capability”
14
14
EDF Energy Hunterston ‘B’ Power Station
The high-resolution GR1 can accurately
measure, separate and identify the
presence of individual sources of
radiation within mixed samples, and,
because the detector is small, lightweight
and portable, and has no requirement
for cooling, it is ideal for in-field
measurement.
In-field testing and certification was
undertaken by Cavendish Nuclear in
conjunction with EDF Energy to verify
the system’s capability in meeting EDF
KromeK Group plc
Annual Report & Accounts 2017
Energy’s Minimum Detectable
Activity specifications, accurately
detecting the low levels of
radiation.
As a business, EDF Energy
is continuously investing in
improving safety standards at all its sites
and the development of the Q4GR1 has
helped increase this capability.
The result is the Q4GR1, which provides
accurate results within 10 to 20 minutes,
allows large numbers of samples to
be taken in a reduced period of time.
These provide actionable information for
safeguarding public safety and helping to
secure a safe working environment.
EDF Energy is currently deploying the
Q4gR1 into their environmental survey
vehicles across the UK as part of their
emergency arrangements.
Final product:
Q4GR1 installed inside an EDF Energy
Environmental Survey vehicle
The product development journey:
incorporating the GR1 into the
design process for the Q4GR1
15
KromeK Group plc
Annual Report & Accounts 2017
Directors’ Biographies
Sir Peter Williams
Chairman
Audit Committee Chair
Dr Arnab Basu
Chief Executive Officer
Mr Derek Bulmer
Chief Financial Officer and
In-House Counsel
Sir Peter was awarded an MA and PhD
from the University of Cambridge, then
taught at Imperial College. Moving into
industry, he became Deputy CEO of
VG Instruments Ltd and CEO and later
Chairman of Oxford Instruments, the first
spin-out from Oxford University. He was
Senior Independent Director of GKN plc
and a non-executive director of W.S.
Atkins plc. He was also Chairman of Isis
Innovation Ltd (the technology transfer
arm of Oxford University). He received a
CBE in 1992 and was knighted in 1998.
He is currently Chairman of the Daiwa
Anglo Japanese Foundation and advises
several high technology companies.
Dr Basu has a PhD in physics from
Durham University, specialising in
semiconducting sensor materials. Arnab
held senior management positions
in his family business, 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).
A qualified Chartered Accountant and
Barrister, Mr Bulmer has worked with
KPMG and undertaken a number of
senior management roles with blue chip
public companies 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.
16
KromeK Group plc
Annual Report & Accounts 2017
Mr Lawrence Kinet
Non-Executive Director
Dr Graeme Speirs
Non-Executive Director
Mr Jerel Whittingham
Non-Executive Director
Remuneration Committee Chair
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.
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 the
University of Birmingham. Involved in the
oil and gas industry, Graeme is an expert
in the design and manufacture of polymer
composite products.
Mr Whittingham has extensive experience
in investor, operational and strategy roles
with technology-rich companies including
Incuvest LLC, Amphion Innovations plc
(Board member), INMARSAT and with
several start-ups. He was appointed
to Kromek’s Board in September 2013
having served on the Board of DSC Ltd,
a predecessor company. He also served
as CEO and later Executive chairman of
university spin out, Myconostica Ltd, a
medical technology company. Jerel is a
graduate of London (UCL), Brussels and
Cranfield Universities.
17
KromeK Group plc
Annual Report & Accounts 2017
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 2017.
principal activities
Kromek Group plc is the leading developer of radiation
detectors based on cadmium zinc telluride (CZT), 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 strategic
report and business review, including details of the results for
the year ended 30 April 2017, principal risks and uncertainties,
research and development, financial KPIs and the outlook for
future years, are set out in the Chairman’s Statement, Chief
Executive Officer’s and Chief Financial Officer’s Reviews, on
pages 2-7.
Future developments
The Group’s development objectives for 2017–18 are disclosed
in the Chief Executive Officer and Chief Financial Officer reviews
on pages 4-7.
The Directors continue to monitor the potential impacts of the
UK’s decision to leave the European Union (EU). As the Group’s
turnover is generated globally and the proportion of UK to EU
trade is not a significant portion of this, the Directors believe that
the impact will not be significant in the short term. The Directors
will put in place plans to reduce or mitigate the risks arising
once they have been firmly established.
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 2017.
results and dividends
The consolidated income statement is set out on page 29.
The Group’s loss after taxation amounted to £3.08m (2015/16:
£2.15m).
The Directors do not recommend the payment of a dividend for
the year ended 30 April 2017.
During the year ended 30 April 2017, the Group made political
donations of £nil (2015/16: £nil) and charitable donations of £nil
(2015/16: £nil).
18
Directors
The Directors, who served throughout the year except as noted,
were as follows:
Dr A Basu
Mr D Bulmer
Sir P Williams
Mr L Kinet
Dr G K Speirs
Mr J H Whittingham
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 16 to the parent company financial
statements.
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
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance
with International Financial Reporting Standards (IFRSs) as
adopted by the European Union. Under company 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 Company and of the profit or loss of the Company
for that period. In preparing these financial statements,
International Accounting Standard 1 requires that Directors:
n properly select and apply accounting policies;
n present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
n provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance; and
n make an assessment of the Company’s ability to continue as
a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any
time the financial position of the Company 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 Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included on
the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Auditor
Each of the persons who is a Director at the date of approval of
this annual report confirms that:
n so far as the Director is aware, there is no relevant audit
information of which the Group’s auditor is unaware; and
n the Director has taken all the steps that he ought to have
taken as a Director in order to make himself aware of any
relevant audit information and to establish that the Group’s
auditor is aware of that information.
This confirmation is given and should 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
27 June 2017
KromeK Group plc
Annual Report & Accounts 2017
19
KromeK Group plc
Annual Report & Accounts 2017
Review of Principal Risks
The Board has carried out a robust assessment of the principal risks to achieving its strategic objectives. Risks are reviewed on a regular basis by
the Board to identify any changes in risk profiles and to consider the optimal range of mitigation strategies.
Risk
Description
mitigation
Risks associated
with competition
The Group faces competition from two types
of competitor: specialised companies targeting
discrete markets and divisions of large integrated
device manufacturers.
The Group’s current and future competitors may
develop superior technology or offer superior
products, sell products at a lower price or achieve
greater market acceptance in the Group’s target
markets. Competitors may have longer operating
histories, greater name recognition, access to larger
customer bases and resources. As such, they
could be able to respond more quickly to changing
customer demands or to devote greater resources
to the development, promotion and sale of their
products than the Group could.
To the extent possible, the Group carefully monitors
competing technologies and product offerings. The
Group intends to continue to make commercially-
driven investments in developing new technologies
and products to maintain a strong technology
position, and is investing in further and more
specialised marketing and sales resources. Group
IP gives some additional protection and Kromek
has invested in new IP management systems and
processes in the last financial year.
Risks associated
with management
of the group’s
growth strategy
The ability of the Group to implement its strategy in
rapidly evolving and competitive markets will require
effective management planning and operational
controls. Significant expansion will be required to
respond to market opportunities and the Group’s
future growth and prospects will depend on its
ability to manage this growth and to continue to
expand and improve operational and financial
performance, whilst at the same time maintaining
effective cost controls.
The Group’s experienced management team is well
versed in the current markets available to the Group
and well positioned to adapt to any changes in
those markets. The Group also has detailed control
systems including R&D cost control and extensive
project management criteria.
The Group has demonstrated its ability to identify,
execute and integrate M&A opportunities with its
two successful US acquisitions.
Risks associated
with product
and technology
adoption rates
The rate of market acceptance of the Group’s
products is uncertain as many factors influence
the adoption of new products including changing
needs, regulation, marketing and distribution, users’
habits and business systems and product pricing.
Risks associated
with timing of
customer or third-
party projects
The Group’s strategy includes co-development
with, or licensing its technologies to, large OEM
partners for additional development, manufacturing
or subsequent marketing. Consequently, the Group
will be increasingly reliant on securing and retaining
such partners, and delays in the progress of the
development, manufacturing or marketing of the
end product, as a result of a partner’s action or
inaction, may delay the receipt of product-related
revenues.
20
With a widely applicable technology base, the
Group only chooses opportunities in which it
believes there is a good match between its rare
or unique capabilities and strong adoption drivers
in growing large markets. The use of common
technology platforms across multiple markets
and applications reduces the investment risk in
any given market segment and diversifies overall
adoption risk.
The Group has a diversified customer base and
operates in a carefully selected portfolio of markets
with different adoption risks and cycles. As part
of its business model it also more directly controls
a certain fraction of its revenues via the sale of
complete end-user products in three different
markets.
KromeK Group plc
Annual Report & Accounts 2017
Risk
Description
mitigation
Risks associated
with exchange
rate fluctuations
As a consequence of the international nature of its
business, the Group is exposed to risks associated
with changes in foreign currency exchange rates
on both sales and operations. The Group is based
in the UK and presents its financial statements
in pounds sterling. However, its subsidiaries eV
Products, Inc. and NOVA R&D, Inc., operate in the
US and earn revenues and incur costs in US dollars.
A growing proportion of the Group’s future revenues
are expected to be denominated in currencies
other than pound sterling. Exchange rate variations
between currencies in which the Group operates
could have a significant impact on the Group’s
reported financial results.
The Group is predominantly exposed to currency
risk on sales and purchases made from customers
and suppliers. Sales and purchases from customers
and suppliers are made on a central basis and the
risk is monitored centrally but not hedged utilising
any forward exchange contracts. Apart from these
particular cash flows, the Group aims to fund
expenses and investments in the respective currency
and to manage foreign exchange risk at a local
level by matching the currency in which revenue is
generated and expenses are incurred.
21
KromeK Group plc
Annual Report & Accounts 2017
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.
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 Sir Peter Williams, an
Independent Non-Executive Director. The other members are
Lawrence Kinet and Jerel Whittingham, both Independent Non-
Executive Directors, and Graeme Speirs, a large shareholder
and Non-Executive 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 also reviews the effectiveness of the
Group’s internal control over financial reporting and considers
key financial judgements made in the financial statements.
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 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.
remuneration committee
The remuneration committee is chaired by Jerel Whittingham,
an Independent Non-Executive Director. The other members
are Lawrence Kinet, an Independent Non-Executive Director,
and Graeme Speirs, a large shareholder and Non-Executive
Director of the Board. 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 24-26.
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 often
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.
The Board uses both the annual report and financial statements
and the Annual General Meeting to communicate directly
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.
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.
22
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.
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 concern other than via the Executive Directors
and senior leadership team.
Going concern
As at 30 April 2017, the Group had net assets of £42.2m
(2015/16: £24.7m) and cash and cash equivalents of £20.3m
(2015/16: £3.9m) 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
five years. 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 and foreseeable obligations for a period of at least
twelve months from approval of these financial statements.
Accordingly, they continue to adopt the going concern basis in
preparing the Group financial statements.
KromeK Group plc
Annual Report & Accounts 2017
23
KromeK Group plc
Annual Report & Accounts 2017
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 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 have service contracts with notice
periods (to the Company) of nine and six months respectively.
The remuneration committee is responsible for recommending
the remuneration and other terms of employment for the
Executive Directors of Kromek Group plc.
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 2017
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 2017
£’000
30 April 2016
£’000
10
53
16
30
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. The maximum bonus currently
ranges from between 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.
24
KromeK Group plc
Annual Report & Accounts 2017
Directors’ shareholdings
Beneficial interests of the Directors in the shares of the Group are shown below:
Arnab Basu
Derek Bulmer
Peter Williams
Lawrence Kinet
Graeme Speirs*
Jerel Whittingham
30 April 2017
30 April 2016
Number
2,952,000
63,934
80,000
200,000
23,768,415
114,890
%
1.1
0.0
0.0
0.1
9.2
0.0
Number
2,072,000
40,000
30,000
150,000
16,268,415
110,450
%
1.4
0.0
0.0
0.1
10.7
0.1
* Graeme Speirs has a direct interest in 10,994,940 (2016: 3,494,940) ordinary shares and is interested in 12,773,475 ordinary shares
(2016: 12,773,475) held through Polymer Holdings Ltd. In total, Mr Speirs is interested, directly or indirectly, in 23,768,415 (2016:
16,268,415) ordinary shares amounting to 9.2% (2016: 10.7%) of the issued share capital.
Directors’ emoluments for the year ended 30 April 2017
Salary
£’000
Fees
£’000
Benefits
£’000
Bonus
£’000
Pension
contributions
£’000
Total emoluments
2017
£’000
Total emoluments
2016
£’000
Non-executive chairman
Sir Peter Williams
executive
Arnab Basu
Derek Bulmer
Non-executive
Lawrence Kinet
Graeme Speirs
Jerel Whittingham
Peter Bains*
Charlotta Ginman*
Max Robinson*
Brian Tanner*
74
165
137
36
36
39
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7
7
-
-
-
-
-
-
-
-
30
-
-
-
-
-
-
-
-
-
10
64
-
-
-
-
-
-
-
74
235
197
36
36
39
-
-
-
-
42
224
206
47
39
42
29
32
25
27
* Peter Bains, Charlotta Ginman, Professor Max Robinson and Professor Brian Tanner resigned from the Board with effect from 16
December 2015.
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 January 2017, an incentive award scheme for Arnab Basu and Derek Bulmer, to offer them up
to 595,200 and 370,647 shares respectively, at a price of 1p per share to vest based on specified performance criteria.
The remuneration committee agreed, in October 2015, an incentive award scheme for Arnab Basu and Derek Bulmer, to offer them
up to 544,263 and 271,140 shares respectively, at a price of 1p per share to vest based on specified performance criteria.
The remuneration committee agreed, in June 2014, an incentive award scheme for Arnab Basu and Derek Bulmer, to offer them up to
425,859 and 181,182 shares respectively, at a price of 1p per share to vest based on specified performance criteria.
In October 2013, an incentive award scheme was made to Arnab Basu and Derek Bulmer, to offer them up to 372,057 and 158,292
shares 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 auditor.
25
KromeK Group plc
Annual Report & Accounts 2017
Directors’ Remuneration Report (continued)
As at 30 April 2017, only the shares issued in the October 2013 award had vested with the 2014, 2015 and 2016 issues remaining
unvested.
Share price during the year
During the year to 30 April 2017, the highest share price was 33.75p (2016: 49p) and the lowest share price was 19.86p (2016:
25.5p). The market price of the shares at 30 April 2017 was 30.12p (2016: 32.8p).
Directors’ interests in material contracts
No Director was materially interested either at the year-end 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
exercise
price p
2016 number
Awarded
during the
year
Arnab Basu
22 September 2006
Arnab Basu
15 May 2007
1.5
1.5
800,000
80,000
Arnab Basu
20 November 2011
20.0
1,000,000
Derek Bulmer
13 September 2010
Derek Bulmer
15 October 2012
Derek Bulmer
31 May 2013
20.0
20.0
20.0
500,000
125,000
250,000
-
-
-
-
-
-
exercised
during the
year
(800,000)
(80,000)
At 30 April
2017 number
expiry date
-
-
22 September 2016
15 May 2017
-
-
-
-
1,000,000
20 September 2021
500,000
13 September 2020
125,000
15 October 2022
250,000
31 May 2023
26
KromeK Group plc
Annual Report & Accounts 2017
consolidated Financial Statements
for the year ended 30 April 2017
27
KromeK Group plc
Annual Report & Accounts 2017
Independent Auditor’s Report
To The members of Kromek Group plc
We have audited the financial statements of Kromek Group
plc for the year ended 30 April 2017 which comprise the
Consolidated statement of comprehensive income, the
Consolidated and Parent Company statements of financial
position, the Consolidated and Parent Company statement
of changes in equity, the Consolidated and Parent Company
statements of cash flows and related notes 1 to 37 in the
Consolidated Financial Statements and related notes 1 to 17
in the Parent Company Financial Statements. 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.
28
opinion on financial statements
In our opinion:
n 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 2017 and of the group’s and the parent company’s loss
for the year then ended;
n the group financial statements have been properly prepared
in accordance with IFRSs as adopted by the European
Union;
n 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
n the financial statements have 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, based on the work undertaken in the course of
the audit:
n the information given in the Strategic Report and the
Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
n the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company
and its environment obtained in the course of the audit, we have
not identified any material misstatements in the Strategic Report
and the Directors’ Report.
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:
n 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
n the parent company financial statements are not in
agreement with the accounting records and returns; or
n certain disclosures of directors’ remuneration specified by law
are not made; or
n 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
Statutory Auditor
Newcastle upon Tyne, United Kingdom
27 June 2017
continuing operations
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses (including operating
expenses)
operating loss
Finance income
Finance costs
loss before tax
Tax
loss for the year from continuing operations
Loss per share
- basic (p)
- diluted (p)
Note
5
5
10
11
7
12
14
KromeK Group plc
Annual Report & Accounts 2017
Consolidated income statement
For the year ended 30 April 2017
2017
£’000
2016
£’000
8,968
(3,851)
5,117
(15)
(194)
8,342
(3,913)
4,429
19
(181)
(8,662)
(8,327)
(3,754)
(4,060)
5
(45)
1
(84)
(3,794)
(4,143)
710
1,992
(3,084)
(2,151)
(1.8)
(1.7)
(1.5)
(1.5)
29
KromeK Group plc
Annual Report & Accounts 2017
Consolidated statement of comprehensive income
For the year ended 30 April 2017
loss for the year
Items that are or may be subsequently reclassified to profit or loss:
2017
£’000
2016
£’000
(3,084)
(2,151)
Exchange differences on translation of foreign operations
685
156
Total comprehensive loss for the year
(2,399)
(1,995)
30
KromeK Group plc
Annual Report & Accounts 2017
Consolidated statement of financial position
As at the year ended 30 April 2017
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
current assets
Inventories
Trade and other receivables
Current tax assets
Cash and bank balances
Total assets
current liabilities
Trade and other payables
Finance lease liabilities
Borrowings
Provisions for liabilities
Net current assets
Non-current liabilities
Finance lease liabilities
Deferred tax liabilities
Total liabilities
Net assets
equity
Share capital
Share premium account
Capital redemption reserve
Translation reserve
Accumulated losses
Total equity
Note
15
16
17
19
21
21
24
22
26
25
23
28
29
30
31
2017
£’000
1,275
14,824
3,698
19,797
3,204
6,005
596
20,343
30,148
49,945
(4,567)
-
(3,000)
(169)
(7,736)
22,412
-
-
(7,736)
42,209
2,591
63,270
1,175
757
(25,584)
2016
£’000
1,275
11,222
3,974
16,471
2,810
5,159
811
3,857
12,637
29,108
(4,445)
(9)
-
-
(4,454)
8,183
-
-
(4,454)
24,654
1,522
44,484
1,175
72
(22,599)
42,209
24,654
The financial statements of Kromek Group plc (registered number 08661469) were approved by the board of directors and
authorised for issue on 27 June 2017. They were signed on its behalf by
Dr Arnab Basu mBe
Chief Executive Officer
31
KromeK Group plc
Annual Report & Accounts 2017
Consolidated statement of changes in equity
For the year ended 30 April 2017
equity attributable to equity holders of the company
Share capital
£’000
Share premium
account
£’000
Capital
redemption
reserve
£’000
Translation
reserve
£’000
Accumulated
losses
£’000
Total
equity
£’000
Balance at 1 may 2015
1,082
34,643
1,175
Loss for the year
Exchange difference on
translation of foreign
operations
Total comprehensive
losses for the year
Issue of share capital net
of expenses
Credit to equity for equity-
settled share based
payments
-
-
-
-
-
-
440
9,841
-
-
-
-
-
-
-
Balance at 30 April 2016
1,522
44,484
1,175
Loss for the year
Exchange difference on
translation of foreign
operations
Total comprehensive
losses for the year
Issue of share capital
net of expenses
Credit to equity for
equity-settled share based
payments
-
-
-
-
-
-
1,069
18,786
-
-
-
-
-
-
-
(84)
-
156
(20,614)
(2,151)
16,202
(2,151)
-
156
156
(2,151)
(1,995)
-
-
72
-
-
10,281
166
166
(22,599)
24,654
(3,084)
(3,084)
685
-
685
685
(3,084)
(2,399)
-
-
-
99
19,855
99
Balance at 30 April 2017
2,591
63,270
1,175
757
(25,584)
42,209
32
Net cash used in operating activities
Investing activities
Interest received
Purchases of property, plant and equipment
Purchases of patents and trademarks
Capitalisation of development costs
Net cash used in investing activities
Financing activities
Loans paid
Revolving credit facility
Proceeds on issue of shares
Payment of finance lease liabilities
Interest paid
Net cash generated from financing activities
Net increase in cash and cash equivalents
cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
cash and cash equivalents at end of year
KromeK Group plc
Annual Report & Accounts 2017
Consolidated statement of cash flows
For the year ended 30 April 2017
Note
32
2017
£’000
2016
£’000
(1,500)
(2,845)
5
(261)
(320)
(4,187)
(4,763)
-
3,000
19,855
-
(45)
22,810
16,547
3,857
(61)
20,343
1
(444)
(320)
(2,819)
(3,582)
(1,003)
-
10,281
(9)
(84)
9,185
2,758
1,183
(84)
3,857
33
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements
For the year ended 30 April 2017
1. GeNerAl INFormATIoN
Kromek Group plc is a company incorporated and domiciled in the United Kingdom under the Companies Act. These financial
statements are presented in pound 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.
The Group’s financial information has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as
adopted by the European Union (“EU”) and on a basis consistent with that adopted in the previous year.
ADopTIoN oF New AND reVISeD STANDArDS
2.
The Group has adopted all amendments to standards with an effective date relevant to this year end with no material impact on its
results, assets or liabilities. All other accounting policies have been applied consistently.
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 financial statements were in issue but not yet effective (and in some cases, had not yet been adopted by the EU):
n IFRS 9 “Financial Instruments” will supersede IAS 39 “Financial Instruments – Recognition and Measurement” and is effective
for annual periods beginning on or after 1 January 2018. IFRS 9 covers classification and measurement of financial assets and
financial liabilities, impairment of financial assets and hedge accounting.
n IFRS 15 “Revenue from Contracts with Customers” provides a single model for accounting for revenue arising from contracts
with customers, focusing on the identification and satisfaction of performance obligations, and is effective for annual periods
beginning on or after 1 January 2018. IFRS 15 will supersede IAS 18 “Revenue”.
n IFRS 16 “Leases” provides a new model for lessee accounting in which all leases, other than short-term and small-ticket
item leases, will be accounted for by the recognition on the balance sheet of a right-to-use asset and a lease liability, and the
subsequent amortisation of the right-to-use asset over the lease term. IFRS 16 will be effective for annual periods beginning on
or after 1 January 2019.
The Directors are considering the future impacts of IFRS 9, IFRS 15 and IFRS 16, however it is not practicable to provide a reasonable
assessment of the impacts of the standards until a detailed review has been completed. A detailed review of the impact of IFRS 15
will be completed in the upcoming financial year.
SIGNIFIcANT AccouNTING polIcIeS
3.
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 modified for assets recognised at fair value on acquisition.
Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting
policies adopted are set out below.
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 2017, the Group had net assets of £42.2m (2016: £24.7m) and cash and cash equivalents of £20.3m (2016: £3.9m)
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 five years. 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 and foreseeable obligations for a period of at least
twelve months from approval of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing
the Group financial statements.
Business combinations
The Group financial statements consolidate those of the company and its subsidiary undertakings. Subsidiaries are entities controlled
by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies
of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or
convertible are taken into account. The financial information of subsidiaries is included from the date that control commences until the
date that control ceases. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial information.
34
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
3.
SIGNIFIcANT AccouNTING polIcIeS (coNTINueD)
Acquisitions on or after 1 may 2010
For acquisitions on or after 1 May 2010, the Group measures goodwill at the acquisition date as:
n the fair value of the consideration transferred; plus
n the recognised amount of any non-controlling interests in the acquiree; plus
n the fair value of the existing equity interest in the acquiree; less
n the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, the negative goodwill is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Goodwill
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill
is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and
the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the
identifiable assets acquired and the liabilities assumed.
If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration
transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest
in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated
to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to
which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may
be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on
the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent
period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and
services provided in the normal course of business, net of discounts, VAT and other sales-related taxes and comprises:
Sale of goods and services
i)
The Group’s income derives from the sale of goods and from the research and development contracts which are typically with
government agencies. Revenue on product sales is recognised when the risk and reward of ownership pass to the customer,
the amount can be measured reliably, and it is probable that future economic benefits will flow to the Company. The terms
of sale are agreed with each customer on an individual basis, which are generally under FCA INCOTERMS. Revenue from
research and development contracts is recognised as revenue in the accounting period in which the milestones are achieved.
Revenue from grants
ii)
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
iii)
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.
Exclusivity contracts
iv)
The Group reflects exclusivity payments as revenue at the point that it contractually agrees to become exclusive. Where terms
of exclusivity require performance the Group reflects the revenue as performance is delivered.
Interest revenue
v)
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.
35
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
3.
SIGNIFIcANT AccouNTING polIcIeS (coNTINueD)
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-monetary items that are measured in terms of historical cost in a foreign currency are not
retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are
translated at exchange rates prevailing on the statement of financial position date. Income and expense items are translated at the
average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange
rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and
accumulated in equity.
On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the
transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those
operations, are translated at the rate ruling at the statement of financial position date. Exchange differences arising on translating the
opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in other comprehensive
income and are credited/(debited) to the retranslation reserve.
Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to
them and that the grants will be received.
Government grants towards job creation and growth (RGF) costs are recognised as income over the periods necessary to match them
with the related costs of creating those jobs.
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.
36
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
3.
SIGNIFIcANT AccouNTING polIcIeS (coNTINueD)
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.
Current tax
i)
The tax credit is based on taxable loss for the year. Taxable loss differs from net loss as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that
are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the statement of financial position date.
Deferred tax
ii)
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the Consolidated Statement of Financial Position and the corresponding tax bases used in the computation of
taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are
not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than
in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting
profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates,
and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent
that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted or substantively enacted at the statement of financial position
date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other
comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income. Deferred tax assets
and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and
when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets
and liabilities on a net basis.
property, plant and equipment
Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is recognised so as to write off the cost or valuation of assets (other than land and properties under construction) less
their residual values over their useful lives, using the straight-line method, on the following bases:
Plant and machinery
Fixtures, fittings and equipment
Computer equipment
6% to 25%
15%
25%
The gain or loss arising on the disposal or scrappage of an asset is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in income.
Internally-generated intangible assets – research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from the Group’s product development is recognised only if all of the following
conditions are met:
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
its intention to complete the intangible asset and use or sell it;
its ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate
the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally,
the usefulness of the intangible asset.
the availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset; and
its ability to measure reliably the expenditure attributable to the intangible asset during its development.
Research expenditure is written off as incurred. Development expenditure is also written off, except where the Directors are satisfied
as to the technical, commercial and financial viability of individual projects. In such cases, the identifiable expenditure is deferred and
37
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
3.
SIGNIFIcANT AccouNTING polIcIeS (coNTINueD)
amortised over the period during which the Group is expected to benefit. This period normally equates to the life of the products the
development expenditure relates to. Where expenditure relates to developments for use rather than direct sales of product the cost is
amortised straight-line over a 2-15-year period. Provision is made for any impairment.
Amortisation of the intangible assets recognised on the acquisitions of Nova R&D, Inc. and eV Products, Inc. are recognised in the
income statement on a straight-line basis over their estimated useful lives of between five and fifteen years.
patents and trademarks
Patents and trademarks are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful
lives.
Impairment of tangible and intangible assets excluding goodwill
At each statement of financial position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows
that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit (CGU) to which the
asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual
CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be
identified.
An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the
asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a post-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 reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is
carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is
recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the
impairment loss is treated as a revaluation increase.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct
labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is
calculated in the statement of financial position at standard cost, which approximates to historical cost determined on a first in, first
out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred
in marketing, selling and distribution. Work in progress costs are taken as production costs, which include an appropriate proportion
of attributable overheads.
Provision is made for obsolete, slow moving or defective items where appropriate. Items which have not shown activity for between
12-18 months will be provided for at a rate of 50%, and those which have not shown activity in 18 months or longer will be provided
for at a rate of 100% after consideration is given to the full or residual value where appropriate. Given the nature of the products and
the gestation period of the technology, commercial rationale necessitates that this provision is reviewed on a case by case basis.
provisions for liabilities
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than
not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Such provisions
are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the
balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of
money. Provisions are not recognised for future operating losses.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party
to the contractual provisions of the instrument.
Financial assets
i)
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.
38
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
3.
SIGNIFIcANT AccouNTING polIcIeS (coNTINueD)
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
ii)
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 recognition 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 the Group’s 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.
Impairment of financial assets
iii)
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each statement of financial position
date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after
the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.
Derecognition of financial assets
iv)
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.
Financial liabilities and equity
v)
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
vi)
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.
Financial liabilities
vii)
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 method is the rate that exactly discounts estimated future cash
payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount
on initial recognition.
Derecognition of financial liabilities
ix)
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 three years from grant date. Details regarding the determination of the fair value of equity-
settled share-based transactions are set out in note 34.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of equity instruments that will eventually vest. The vesting date is determined based
on the date an employee is granted options, usually three years from date of grant. At each statement of financial position date, the
Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting
conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment to equity reserves.
39
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
3.
SIGNIFIcANT AccouNTING polIcIeS (coNTINueD)
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.
crITIcAl AccouNTING juDGemeNTS AND Key SourceS oF eSTImATIoN uNcerTAINTy
4.
In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions 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.
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 IAS 38.
These capitalised assets are amortised over the period during which the Group is expected to benefit. This period normally equates to
the life of the products the development expenditure relates to. Where expenditure relates to developments for use rather than direct
sales of product the cost is amortised over a 15-year period. Provision is made for any impairment. Where no internally-generated
intangible asset can be recognised, development expenditure is expensed in the period in which it is incurred.
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. Management have reassessed the recoverability
at the balance sheet date and provided where appropriate.
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 discussed below.
i) Development costs
As disclosed in note 16, development costs are capitalised in accordance with the accounting policy noted above. Initial
capitalisation of costs is based on management’s judgement that technological and economic feasibility is assessed, usually
when a product development project has reached a defined milestone.
ii) 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.
iii) Contract revenue
This policy requires forecasts to be made of the outcomes of long-term contracts, which include assessments and judgements
on changes in expected costs. Ongoing revenue and profit recognition is also dependent on contract debtors being fully
recoverable, which over the course of a multi-year contract requires ongoing monitoring and assessment. A change in the
likelihood of recoverability could have a material impact on the results of the Group.
40
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
reVeNue
5.
An analysis of the Group’s revenue is as follows:
continuing operations
Sales of goods and other services
Revenue from grants
Revenue from contract customers
Total revenue
Grant income
Other income
Total income
2017
£’000
6,676
74
2,218
8,968
(15)
-
8,953
2016
£’000
6,015
227
2,100
8,342
15
4
8,361
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
performance indicators: revenues, gross profit and operating profit. The amounts provided to the Board with respect to assets and
liabilities are measured in a way consistent with the Financial Statements.
The turnover, profit on ordinary activities and net assets of the Group are attributable to one business segment, i.e. the development
of digital colour x-ray imaging enabling direct materials identification, as well as developing a number of detection products in the
industrial and consumer markets.
Analysis by geographical area
A geographical analysis of the Group’s revenue by destination is as follows:
United Kingdom
North America
Asia
Europe
Australasia
Total revenue
2017
£’000
931
4,455
3,276
296
10
8,968
2016
£’000
688
5,468
1,940
246
-
8,342
41
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
6. operATING SeGmeNTS (coNTINueD)
A geographical analysis of the Group’s revenue by origin is as follows:
year ended 30 April 2017
UK Operations
£’000
US Operations
£’000
Total for Group
£’000
revenue from sales
Revenue by segment:
-Sale of goods and services
-Revenue from grants
-Revenue from contract customers
Total sales by segment
Removal of inter-segment sales
Total external sales
Segment result – operating loss
Interest received
Interest expense
loss before tax
Tax credit
loss for the year
Reconciliation to EBITDA:
Net interest
Other operating income
Tax
Depreciation of PPE
Amortisation
Non-recurring other income
Share-based payment charge
eBITDA
other segment information
Property, plant and equipment additions
Depreciation of PPE
Intangible asset additions
Amortisation of intangible assets
Statement of financial position
Total assets
Total liabilities
42
4,515
74
349
4,938
(494)
4,444
(1,727)
5
(45)
(1,767)
710
(1,057)
40
15
(710)
324
923
-
48
(417)
107
324
2,051
923
35,993
(6,428)
3,794
-
1,869
5,663
(1,139)
4,524
(2,027)
-
-
(2,027)
-
(2,027)
-
-
-
438
494
-
51
8,309
74
2,218
10,601
(1,633)
8,968
(3,754)
5
(45)
(3,794)
710
(3,084)
40
15
(710)
762
1,417
-
99
(1,044)
(1,461)
154
437
2,456
494
13,952
(1,308)
261
761
4,507
1,417
49,945
(7,736)
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
6. operATING SeGmeNTS (coNTINueD)
year ended 30 April 2016
UK Operations
£’000
US Operations
£’000
Total for Group
£’000
revenue from sales
Revenue by segment:
-Sale of goods and services
-Revenue from grants
-Revenue from contract customers
Total sales by segment
Removal of inter-segment sales
Total external sales
Segment result – operating loss
Interest received
Interest expense
loss before tax
Tax credit
loss for the year
Reconciliation to EBITDA:
Net interest
Tax
Depreciation of PPE
Amortisation
Non-recurring other income
Share-based payment charge
3,993
227
568
4,788
(393)
4,395
(2,174)
1
(81)
(2,254)
856
(1,398)
80
(856)
314
449
(19)
166
2,974
-
1,532
4,506
(559)
3,947
(1,886)
-
(3)
(1,889)
1,136
(753)
3
(1,136)
395
379
-
-
6,967
227
2,100
9,294
(952)
8,342
(4,060)
1
(84)
(4,143)
1,992
(2,151)
83
(1,992)
709
828
(19)
166
eBITDA
(1,264)
(1,112)
(2,376)
other segment information
Property, plant and equipment additions
Depreciation of PPE
Intangible asset additions
Amortisation of intangible assets
Statement of financial position
Total assets
Total liabilities
314
(314)
1,447
(449)
19,240
(4,163)
130
(395)
1,692
(379)
9,868
(291)
444
(709)
3,139
(828)
29,108
(4,454)
Inter-segment sales are charged on an arms-length basis.
No other additions of non-current assets have been recognised during the year other than property, plant and equipment, and
intangible assets.
No impairment losses were recognised in respect of property, plant and equipment and intangible assets including goodwill.
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 3. Segment
(loss) represents the (loss) earned by each segment. This is the measure reported to the Group’s Chief Executive for the purpose of
resource allocation and assessment of segment performance.
43
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
6. operATING SeGmeNTS (coNTINueD)
revenues from major products and services
The Group’s revenues from its major products and services were as follows:
Product revenue
Research and development revenue
Consolidated revenue
2017
£’000
6,671
2,297
8,968
2016
£’000
5,432
2,910
8,342
Information about major customers
Included in revenues arising from USA operations are revenues of approximately £1,869k (2016: £1,227k) which arose from a major
customer. Included in revenues arising from UK operations are revenues of approximately £2,925k (2016: £3,047k) which arose from
the Group’s largest customer.
7.
loSS BeFore TAx For The yeAr
Loss for the year has been arrived at after (crediting)/charging:
Net foreign exchange (gains)/losses
Research and development costs recognised as an expense
Depreciation of property, plant and equipment
Amortisation of internally-generated intangible assets
Cost of inventories recognised as expense
Staff costs (see note 9)
8.
AuDITor’S remuNerATIoN
The analysis of the auditor’s remuneration is as follows:
Fees payable to the company’s auditor and their associates for
other services to the Group
–The audit of the Company and its subsidiaries
Total audit fees
- Audit-related assurance services
- Taxation services
Total non-audit fees
Total
44
2017
£’000
(792)
3,520
762
1,417
4,534
6,638
2016
£’000
(304)
3,178
709
828
3,780
6,238
2017
£’000
2016
£’000
43
43
13
2
15
58
52
52
10
14
24
76
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
STAFF coSTS
9.
The average monthly number of employees (excluding non-executive directors) was:
2017
Number
2016
Number
Directors (executive)
Research and development, production
Sales and marketing
Administration
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Pension scheme contributions
Share based payments
2
88
7
12
109
2017
£’000
5,592
526
421
99
6,638
2
86
10
13
111
2016
£’000
5,155
451
466
166
6,238
The total Directors’ emoluments (including non-executive directors) was £606k (2016: £713k). The aggregate value of contributions
paid to money purchase pension schemes was £63k (2016: £46k) in respect of two directors (2016: two directors).
The highest paid director received emoluments of £235k (2016: £224k) and amounts paid to money purchase pension schemes
was £10k (2016: £16k).
Key management compensation:
Wages and salaries and other short-term benefits
Social security costs
Pension scheme contributions
Share based payment expense
Key management comprise the Executive Directors and senior operational staff.
10. FINANce INcome
Bank deposits
Total finance income
2017
£’000
1,047
187
134
81
1,449
2017
£’000
5
5
2016
£’000
1,177
205
92
149
1,623
2016
£’000
1
1
45
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
11.
FINANce coSTS
Interest on bank overdrafts, loans and borrowings
Total interest expense
TAx
12.
recognised in the income statement
Current tax credit:
UK corporation tax on losses in the year
Adjustment in respect of previous periods
Foreign taxes paid
Total current tax
Deferred tax:
Origination and reversal of timing differences
Adjustment in respect of previous periods
Total deferred tax
Total tax credit in income statement
2017
£’000
45
45
2017
£’000
596
114
-
710
-
-
-
710
Corporation tax is calculated at 19.9% (2016: 20%) of estimated taxable loss for the year. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions.
reconciliation of tax credit
The charge for the year can be reconciled to the profit in the income statement as follows:
Loss before tax
Tax at the UK corporation tax rate of 19.918% (2016: 20.0%)
Expenses not deductible for tax purposes
Effect of R&D
Rate differences effect of R&D
Income not taxable
Unrecognised movement on deferred tax
Effects of other tax rates/credits
Effects of overseas tax rates
Adjustment in respect of previous periods
Unrelieved tax losses arising in the period
Fixed asset timing differences
Total tax credit for the year
2017
£’000
3,794
755
(29)
833
-
89
(71)
-
-
114
(897)
(84)
710
Further details of deferred tax are given in note 23. There are no tax items charged to other comprehensive income.
46
2016
£’000
84
84
2016
£’000
811
45
(11)
845
1,298
(151)
1,147
1,992
2016
£’000
4,143
829
(40)
1,049
(307)
2
(156)
722
11
(118)
-
-
1,992
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
12.
TAx (coNTINueD)
The rate of corporation tax for the year has remained at 20%. Finance (No.2) Act 2015 reduced the rate from 20% to 19% (with
effect from 1 April 2017) and to 18% (with effect from 1 April 2020). The 2020 rate was further reduced to 17% by Finance Act
2016. Accordingly, deferred tax has been provided in line with the rates at which temporary differences are expected to reverse.
There is a potential deferred tax asset on excess tax deductions arising from share-based payments on exercise of share options
of £1,091k (2016: £1,259k). The asset has not been recognised as it is not considered probable that there will be future profits
available.
DIVIDeNDS
13.
The Directors do not recommend the payment of a dividend (2016: £nil).
loSSeS per ShAre
14.
The calculation of the basic and diluted earnings per share is based on the following data:
losses
Losses for the purposes of basic and diluted losses per share being net
losses attributable to owners of the Group
Number of shares
Weighted average number of ordinary shares for the purposes of basic
losses per share
Effect of dilutive potential ordinary shares:
Share options
Weighted average number of ordinary shares for the purposes of diluted
losses per share
Basic (p)
Diluted (p)
2017
£’000
(3,084)
2017
Number
2016
£’000
(2,151)
2016
Number
174,572,586
141,337,174
3,564,858
6,249,111
178,137,445
147,586,285
2017
(1.8)
(1.7)
2016
(1.5)
(1.5)
47
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
15. GooDwIll
cost
At 1 May 2016
At 30 April 2017
Accumulated impairment losses
At 1 May 2016
At 30 April 2017
carrying amount
At 30 April 2017
At 30 April 2016
£’000
1,275
1,275
-
-
1,275
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:
US operations
2017
£’000
1,275
2016
£’000
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 Kromek USA (a combination of eV Products and NOVA R&D Inc.) as a cash generating unit (CGU). This
is reported in note 6 within the segmental analysis of the US operations.
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 forecasts 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 be 35% in Year 1, 26% in Year 2, 129% in Year 3, 37% in Year
4 and 0% in Year 5. These cash flows are then discounted at the Company’s weighted average cost of capital of 11.5% (2016: 15%).
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 2017 (2016: £nil). Management have considered various sensitivity analyses in order to appropriately evaluate the
carrying value of goodwill.
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 2017. 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 2017
or 2016.
48
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
16. oTher INTANGIBle ASSeTS
cost
At 1 May 2016
Additions
Transfer to property, plant and equipment
Exchange differences
At 30 April 2017
Amortisation
At 1 May 2016
Charge for the year
Exchange differences
At 30 April 2017
carrying amount
At 30 April 2017
At 30 April 2016
Development
costs
£’000
Patents,
trademarks &
other intangibles
£’000
8,377
4,187
(20)
396
12,940
485
748
84
1,317
11,623
7,892
5,660
320
-
305
6,285
2,330
669
85
3,084
3,201
3,330
Total
£’000
14,037
4,507
(20)
701
19,225
2,815
1,417
169
4,401
14,824
11,222
Following the Amended Clarification of Acceptable Methods of Amortisation effective for annual accounting periods beginning on or
after 1 January 2016, the Group now amortise the capitalised development costs on a straight-line basis over a period of 2-15 years
rather than against product sales directly relating to the development expenditure. Provision is made for any impairment.
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 2017
and 30 April 2016. These calculations use cash flow projections based on financial forecasts and appropriate long-term growth rates.
To prepare value in use calculations, the cash flow forecasts are discounted back to present value using a pre-tax discount rate of
11.5% (2016: 15%) and a flat terminal value growth 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 2017 was £1,521k (2016: £1,681k), 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.
49
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
17.
properTy, plANT AND equIpmeNT
Computer
Equipment
£’000
Plant and
machinery
£’000
Fixtures and
fittings
£’000
cost or valuation
At 1 May 2016
Additions
Transfer from development costs
Exchange differences
At 30 April 2017
Accumulated depreciation and
impairment
At 1 May 2016
Charge for the year
Exchange differences
At 30 April 2017
carrying amount
At 30 April 2017
At 30 April 2016
765
63
-
20
848
548
62
7
617
231
217
7,358
161
20
358
7,897
3,660
680
148
4,488
3,409
3,698
198
17
-
7
222
139
20
5
164
58
59
Total
£’000
8,321
241
20
385
8,967
4,347
762
160
5,269
3,698
3,974
Assets held under finance leases with a net book value of £40k (2016: £39k) are included in the above table within plant and
machinery.
SuBSIDIArIeS
18.
A list of the subsidiaries, including the name, country of incorporation, and proportion of ownership interest is given in note 3 to the
Company’s separate financial statements.
19.
INVeNTorIeS
Raw materials
Work-in-progress
Finished goods
2017
£’000
1,846
1,132
226
3,204
2016
£’000
1,208
1,142
460
2,810
The cost of inventories recognised as an expense during the year in respect of continuing operations was £4,534k (2016: £3,780k).
The write-down of inventories to net realisable value amounted to £nil (2016: £17k). The reversal of write-downs amounted to £2k
(2016: £138k). The partial release of the write-downs was because of a revised estimate of the net realisable value of certain inventory
lines based upon actual sales made of the inventory during the period.
50
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
20.
AmouNTS recoVerABle oN coNTrAcTS
contracts in progress at the balance sheet date:
Amounts due from contract customers included in trade and other receivables
Contract costs incurred plus recognised profits less recognised losses to date
Less: progress billings
21.
TrADe AND oTher receIVABleS
Amount receivable for the sale of goods
Amounts recoverable on contracts (see note 20)
Other receivables
Prepayments
Current tax assets
2017
£’000
3,139
3,139
3,139
-
3,139
2017
£’000
2,304
3,139
183
379
596
6,601
2016
£’000
1,240
1,240
1,907
(667)
1,240
2016
£’000
3,386
1,240
275
258
811
5,970
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 41 days. The Group initially recognises an allowance for doubtful debts of 100%
against receivables 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, with the exception of stock
recovered from customers in respect of the doubtful debts disclosed below.
Ageing of past due but not impaired receivables at the statement of financial position date was:
31-60 days
61-90 days
91-120 days
121+ days
Total
2017
£’000
50
12
15
48
125
2016
£’000
75
102
33
737
947
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.
51
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
21.
TrADe AND oTher receIVABleS (coNTINueD)
Ageing of impaired receivables at the statement of financial position date was:
31-60 days
61-90 days
91-120 days
121+ days
Total
2017
£’000
-
-
-
667
667
2016
£’000
-
-
-
793
793
Of the £667k of debtors at 121+ days a cumulative provision totalling £435k for doubtful debts has been made at 30 April 2017 as
noted below.
At 30 April 2017, trade receivables are shown net of an allowance for doubtful debts of £435k (2016: £408k) arising from the ordinary
course of business, as follows:
Balance at 1 May 2016
Provided during the year
Impact of foreign exchange
Balance at 30 April 2017
Doubtful debt exposure
2017
£’000
408
-
28
435
2017
£’000
232
2016
£’000
252
156
408
2016
£’000
385
The doubtful 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. During the year the Group
received £180k in respect of the trade debtors that are shown net of an allowance for doubtful debts. In effect, the net exposure of
doubtful debts has fallen by £153k (net of foreign exchange) with the vast majority of the doubtful debts covered by stock held at the
Group’s premises until the full amount is settled. The stock was initially delivered to the customers but taken back by the Group after
late payment of the debt. Despite the improved position and positive developments in the year, the Directors have prudently decided
not to release any of the doubtful debt provision in the year. Further to this, Kromek has a commitment of £100k from one of the
doubtful debtors, of which the first £25k tranche was received on 21 June 2017.
52
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
22. FINANce leASe lIABIlITIeS
Finance lease liabilities are payable as follows:
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
Less: future finance charges
Present value of lease obligations
Analysed as:
Amounts due for settlement within 12 months (shown under current liabilities)
Amounts due for settlement after 12 months
minimum lease payments
2017
£’000
2016
£’000
-
-
-
-
-
-
-
-
9
-
9
-
9
9
-
9
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 2017, the average effective borrowing rate was 0.82% (2016: 0.82%). 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.
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 reporting period.
At 1 May 2016
(Credit)/charge to profit or loss
At 30 April 2017
Revaluation of
intangibles
£’000
Accelerated
capital
allowances
£’000
Short term
timing
differences
£’000
1,220
(147)
1,073
680
193
873
(17)
1
(16)
Tax
losses
£’000
(1,883)
(47)
(1,930)
Total
£’000
-
-
-
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:
Deferred tax liabilities
Deferred tax assets
2017
£’000
1,930
(1,930)
-
2016
£’000
1,883
(1,883)
-
At the statement of financial position date, the Group has unused tax losses of £20,991k (2016: £15,722k) available for offset against
future profits. A deferred tax asset has been recognised in respect of £6,763k (2016: £6,717k) of such losses. The asset is considered
recoverable because it can be offset to reduce future tax liabilities arising in the Group. No deferred tax asset has been recognised in
respect of the remaining £14,228k (2016: £9,005k) 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.
53
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
24. TrADe AND oTher pAyABleS
Trade payables and accruals
Deferred income
2017
£’000
3,557
1,010
4,567
2016
£’000
3,582
863
4,445
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 64 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.
25. proVISIoNS For lIABIlITIeS
At 1 May 2016
Charge to profit or loss
At 30 April 2017
2017
£’000
-
169
169
2016
£’000
-
-
-
During the year, the company was given notice on one of its sites. A provision has been made based upon management’s best
estimates and ability to measure the likely costs that may be incurred restoring the building back to its original state. However, due
to uncertainty around timing or precise amount, the transaction satisfies the criteria of IAS 37 Provisions, Contingent Liabilities and
Contingent Assets.
26. BorrowINGS
Secured borrowing at amortised cost
Revolving credit facility
Finance lease liabilities (see note 22)
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
2017
£’000
3,000
-
3,000
3,000
-
2016
£’000
-
9
9
9
-
In February 2017, 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 six months from date of drawdown. The fair value equates to the carrying value.
The borrowings are secured by a floating charge over the Group’s assets.
Finance lease liabilities are secured by the assets leased. The borrowings are at a fixed interest rate with repayment periods not
exceeding five years.
54
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
26. BorrowINGS (coNTINueD)
The weighted average interest rates paid during the year were as follows:
Revolving credit facility
Finance lease liabilities
2017
%
3.10
0.82
27. DerIVATIVeS FINANcIAl INSTrumeNTS AND heDGe AccouNTING
At 30 April 2017 and 30 April 2016 the Group had no derivatives in place for cash flow hedging purposes.
28.
ShAre cApITAl
Authorised, allotted, called up and fully paid:
152,211,082 (2016: 108,173,290) Ordinary shares of £0.01 each
106,884,536 (2016: 44,037,792) Ordinary shares issued at £0.01 each
Total 259,095,618 (2016: 152,211,082) Ordinary shares of £0.01 each
During the year 1,755,000 shares (2016: 567,200) were allotted under EMI share option schemes.
2017
£’000
1,522
1,069
2,591
29.
ShAre premIum AccouNT
Balance at 1 May 2016
Premium arising on issue of equity shares
Expenses on issue of equity shares
Balance at 30 April 2017
30.
TrANSlATIoN reSerVe
Balance at 1 May 2016
Exchange differences on translating the net assets of foreign operations
Balance at 30 April 2017
2016
%
3.10
0.82
2016
£’000
1,082
440
1,522
£’000
44,484
19,983
(1,197)
63,270
£’000
72
685
757
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.
55
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
31. AccumulATeD loSSeS
Balance at 1 May 2016
Net loss for the year
Effect of share-based payment credit
Balance at 30 April 2017
32. NoTeS To The cASh Flow STATemeNT
Loss for the year
Adjustments for:
Finance income
Finance costs
Income tax credit
Government grants credit
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share-based payment expense
Operating cash flows before movements in working capital
Increase in inventories
Increase in receivables
Increase in payables
Increase in provisions
Cash used in operations
Income taxes received
Net cash used in operating activities
cash and cash equivalents
Cash and bank balances
£’000
(22,599)
(3,084)
99
(25,584)
2016
£’000
(2,151)
(1)
84
(1,992)
(15)
709
828
166
(2,372)
(707)
(1,070)
302
-
(3,847)
1,002
(2,845)
2016
£’000
3,857
2017
£’000
(3,084)
(5)
45
(710)
-
762
1,417
99
(1,476)
(394)
(846)
122
169
(2,425)
925
(1,500)
2017
£’000
20,343
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.
56
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
33. operATING leASe ArrANGemeNTS
The Group as lessee
Lease payments under operating leases
recognised as an expense in the year
2017
£’000
532
2016
£’000
516
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:
Within one year
In the second to fifth years inclusive
2017
£’000
528
590
1,118
2016
£’000
509
595
1,104
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 2017 and 2016, the Group had no capital commitments or contingencies.
34.
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.
Number of share
options
2017
weighted average
exercise price (£)
Outstanding at beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at the end of the year
12,505,010
142,400
(1,755,000)
(377,540)
10,514,870
10,231,570
0.16
0.30
0.015
0.24
0.16
0.16
Number of share
options
12,788,016
567,200
(25,000)
(825,206)
12,505,010
11,412,010
2016
Weighted average
exercise price (£)
0.16
0.28
0.015
0.26
0.16
0.16
The weighted average share price at the date of exercise for share options exercised during the year was £0.27 (2016: £0.31). The
options outstanding at 30 April 2017 had a weighted average exercise price of £0.16 (2016: £0.16) and a weighted average remaining
contractual life of five years (2016: six years). The range of exercise prices for outstanding share options at 30 April 2017 was 1.5p to
79p (2016: 1.5p to 79p). In 2017, the aggregate of the estimated fair values of the options granted is £15k (2016: £38k). The inputs
into the Black-Scholes model are as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend yields
2017
31p
30p
36.42%
6 years
0.46
0%
2016
32p
12p
35.56%
6 years
0.44
0%
57
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
34.
ShAre BASeD pAymeNTS (coNTINueD)
Expected volatility was determined by calculating the historical volatility of similar listed businesses over the previous three 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 behavioural considerations.
The Group recognised total expenses of £99k (2016: £166k) 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 evenly over a three-year reporting period,
with the first having ended on 30 April 2014, and the remainder on subsequent year end dates.
On 07 January 2017 1,875,066 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 £79k (2016: £140k). The amounts recognised as a share-based
payment expense for the year ended 30 April 2017 was £71k (2016: £140k).
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:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend yields
2017
22p
1p
35.00%
3 years
0.32
0%
2016
35p
1p
35.12%
3 years
0.32
0%
35.
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 retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement
benefit scheme is to make the specified contributions.
The total cost charged to income of £421k (2016: £466k) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at 30 April 2017, contributions of £23k (2016: £30k) due in respect of the current reporting
period had not been paid over to the scheme.
36.
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 shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy has remained unchanged
between 2016 and 2017.
The capital structure of the Group consists of net debt, which includes the borrowings disclosed in note 26 after deducting cash and
cash equivalents, and equity attributable to equity holders of the Company, comprising issued capital, reserves and accumulated
losses as disclosed in notes 27 to 31.
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.
58
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
36.
FINANcIAl INSTrumeNTS (coNTINueD)
capital risk (continued)
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 revolving credit facility
available, which at the year-end was £3.0m (2016: £nil). Details of the revolving credit facility have been included in note 26.
The Group 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 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.
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 pound 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:
£ sterling
US$ sterling equivalent
€ sterling equivalent
2017
£’000
22,783
(2,832)
393
2016
£’000
4,180
(657)
333
Had the foreign exchange rate between sterling, US$ and € changed by 11% (2016: 5%), this would affect the loss for the year and
net assets of the Group by £208k (2016: £16k). 11% is considered a reasonable assessment of foreign exchange movement as this
has been the movement noted between 2016 and 2017.
credit risk
Credit risk refers to the risk that a 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 information and its own trading records to rate its major customers. The Group’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.
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 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 management 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.
59
KromeK Group plc
Annual Report & Accounts 2017
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2017
36.
FINANcIAl INSTrumeNTS (coNTINueD)
Weighted
average
effective
interest rate
%
-
3.1
3.1
Less than 1
month
£’000
1-3 months
£’000
3 months to
1 year
£’000
1-5 years
£’000
5+ years
£’000
-
-
-
-
-
-
-
-
3,000
3,000
-
-
-
-
-
-
Total
£’000
-
3,000
3,000
1 may 2016
Revolving credit facility
30 April 2017
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
Financial assets
Cash and bank balances
Loans and receivables
Financial liabilities
Amortised cost
2017
£’000
20,343
5,626
2016
£’000
3,587
4,901
(4,736)
(4,455)
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, the Group were charged a fee of £100k (2016: nil) from Polymer N2 Limited, as an equitable resolution relating to
commitments at the time of the IPO in 2013. Polymer N2 Limited is a company under the control of the one of the Group’s non-
executive Directors and shareholder, Graeme Speirs. At 30 April 2017 the balance outstanding in respect of this fee was £100k (2016:
nil) and was subsequently paid on 24 May 2017.
Director’s transactions
Other than those disclosed within this note and the shareholding transaction with directors noted in the Directors Report, there have
been no other transactions with related parties.
60
KromeK Group plc
Annual Report & Accounts 2017
Company statement of financial position
As at the year ended 30 April 2017
Non-current assets
Investment in subsidiaries
current assets
Trade and other receivables
Cash and cash equivalents
Total assets
current liabilities
Trade and other payables
Borrowings
Total liabilities
Net assets
equity
Share capital
Share premium account
Accumulated losses
Total equity
3
5
6
7
11
12
13
2017
£’000
-
-
39,607
7,778
47,385
47,385
(352)
(3,000)
(3,352)
44,033
2,591
42,592
(1,150)
44,033
2016
£’000
-
-
16,747
8,036
24,783
24,783
(129)
-
(129)
24,654
1,522
23,806
(674)
24,654
The loss for the year was £476k (2016: loss £414k).
The financial statements of Kromek Group plc (registered number 08661469) were approved by the Board of Directors and authorised
for issue on 27 June 2017. They were signed on its behalf by:
Dr Arnab Basu mBe
Chief Executive Officer
61
KromeK Group plc
Annual Report & Accounts 2017
Company statement of changes in equity
For the year ended 30 April 2017
equity attributable to equity holders of the company
Share capital
£’000
Share premium
account
£’000
Accumulated
losses
£’000
Total
equity
£’000
Balance at 1 may 2015
Loss for the year and total comprehensive losses
for the year
Issue of share capital net of expenses
Balance at 30 April 2016
Loss for the year and total comprehensive loss
for the year
Issue of share capital net of expenses
Balance at 30 April 2017
1,082
-
440
1,522
-
1,069
2,591
13,965
-
9,841
23,806
-
18,786
42,592
(260)
(414)
-
(674)
(476)
-
(1,150)
14,787
(414)
10,281
24,654
(476)
19,855
44,033
62
KromeK Group plc
Annual Report & Accounts 2017
Company statement of cash flows
For the year ended 30 April 2017
Net cash used in operating activities
10
Financing activities
Net proceeds from issue of share capital
Loans made to Group companies
Loans paid
Revolving credit facility
Net interest paid
Net cash from financing activities
Net (Decrease)/increase in cash and cash equivalents
cash and cash equivalents at beginning of year
cash and cash equivalents at end of year
2017
£’000
(181)
19,855
(22,874)
-
3,000
(58)
(77)
(258)
8,036
7,778
2016
£’000
(586)
10,281
(1,649)
(1,003)
-
(35)
7,594
7,008
1,028
8,036
63
KromeK Group plc
Annual Report & Accounts 2017
Notes to the company financial statements
For the year ended 30 April 2017
1. 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 of Financial Position.
2. AuDITor’S remuNerATIoN
The auditor’s remuneration for audit and other services is disclosed in note 8 to the consolidated financial statements.
3. SuBSIDIArIeS
Details of the Company’s direct and indirect subsidiaries as at 30 April 2017 are as follows:
Name
Kromek Limited (Direct)
Place of incorporation
(or registration) and operation
NETPark, Sedgefield,
TS21 3FD, United Kingdom
Kromek Germany Limited
(Indirect through Kromek Limited)
NETPark, Sedgefield,
TS21 3FD, United Kingdom
Kromek, Inc.
(Indirect through Kromek Limited)
NOVA R&D, Inc.
(Indirect through Kromek Limited)
eV Products, Inc.
(Indirect through Kromek Limited)
373 Saxonburg Blvd,
Saxonburg, PA 16056,
United States of America
833 Marlborough Avenue,
Riverside CA 92507,
United States of America
373 Saxonburg Blvd,
Saxonburg, PA 16056,
United States of America
Durham Scientific Crystals Limited
(Indirect through Kromek Limited)
NETPark, Sedgefield,
TS21 3FD, United Kingdom
Class of
shares
held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Proportion
of ownership
interest %
100
100
100
100
100
100
Activity
%
Scientific research and
development
Sales and marketing
Holding company
Scientific research and
development
Scientific research and
development
Dormant company
The Company owns 100% of the share capital in Kromek Limited. Kromek Limited owns 100% of the share capital in Kromek Inc.
and 100% of the share capital in Kromek (Germany) Limited. Kromek Inc. owns 100% of the share capital in eV Products Inc. and
NOVA R&D Inc.
The investments in subsidiaries are all stated at cost.
4.
STAFF coSTS
The average monthly number of employees (excluding non-executive directors) was:
2017
£’000
2016
£’000
Research and development, production
Sales and marketing
Administration
64
2
1
2
5
2
2
2
6
KromeK Group plc
Annual Report & Accounts 2017
Notes to the company financial statements (continued)
For the year ended 30 April 2017
4.
STAFF coSTS (coNTINueD)
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Pension scheme contributions
5.
TrADe AND oTher receIVABleS
Amounts due from subsidiary undertakings
Prepayments
Other receivables
Amounts due from subsidiary undertakings are unsecured, interest free and repayable on demand.
6. TrADe AND oTher pAyABleS
Trade payables and accruals
Social security and other taxation
2017
£’000
385
49
79
513
2017
£’000
2016
£’000
275
34
60
369
2016
£’000
39,603
16,729
4
-
12
6
39,607
16,747
2017
£’000
315
37
352
2016
£’000
113
16
129
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.
7. BorrowINGS
Details regarding the borrowings of the Company are disclosed in note 26 to the consolidated financial statements.
FINANcIAl ASSeTS
8.
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.
65
KromeK Group plc
Annual Report & Accounts 2017
Notes to the company financial statements (continued)
For the year ended 30 April 2017
FINANcIAl lIABIlITIeS
9.
Trade and other payables
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken
for trade purchases is 30 days.
The carrying amount of trade payables approximates to their fair value.
10. NoTeS To The STATemeNT oF cASh FlowS
Loss for the year
Adjustments for:
Finance costs
Operating cash flows before movements in working capital
Decrease/(increase) in receivables
Increase in payables
Net cash from operating activities
11. ShAre cApITAl
Allotted, called up and fully paid:
152,211,082 (2016: 108,173,290) Ordinary shares of £0.01 each
106,884,536 (2016: 44,037,792) Ordinary shares issued at £0.01
Total 259,095,618 (2016: 152,211,082) Ordinary shares of £0.01 each
12. ShAre premIum AccouNT
Balance at 1 May 2016
Premium arising on issue of equity shares
Expenses arising on issue of equity shares
Balance at 30 April 2017
13. AccumulATeD loSSeS
Balance at 1 May 2016
Net loss for the year
Balance at 30 April 2017
66
2017
£’000
(476)
58
(418)
14
223
(181)
2017
£’000
1,522
1,069
2,591
2016
£’000
(414)
36
(378)
(304)
96
(586)
2016
£’000
1,082
440
1,522
2017
£’000
23,806
19,983
(1,197)
42,592
£’000
(674)
(476)
(1,150)
KromeK Group plc
Annual Report & Accounts 2017
Notes to the company financial statements (continued)
For the year ended 30 April 2017
14. 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 to the consolidated financial statements.
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 a 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 financial 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 management 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. 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
interest rate
%
-
3.1
3.1
Less than 1
month
£’000
1-3 months
£’000
3 months to
1 year
£’000
1-5 years
£’000
5+ years
£’000
-
-
-
-
-
-
-
3,000
3,000
-
-
-
---
-
-
1 may 2016
Revolving credit facility
30 April 2017
Total
£’000
-
3,000
3,000
67
KromeK Group plc
Annual Report & Accounts 2017
Notes to the company financial statements (continued)
For the year ended 30 April 2017
ulTImATe coNTrollING pAreNT AND pArTy
15.
In the opinion of the Directors, there is no ultimate controlling parent or party.
16. eVeNTS AFTer The BAlANce SheeT DATe
There have been no events after the reporting date that require disclosure in line with IAS10 events after the reporting period.
17. relATeD pArTy TrANSAcTIoNS
During the year, the Group was charged a fee of £100k (2016: nil) from Polymer N2 Limited, as an equitable resolution relating to
commitments at the time of the IPO in 2013. Polymer N2 Limited is a company under the control of the one of the Group’s non-
executive Directors and shareholder, Graeme Speirs. At 30 April 2017 the balance outstanding in respect of this fee was £100k (2016:
nil) and was subsequently paid on 24 May 2017.
No dividends were paid in the period in respect of ordinary shares held by the Company’s Directors.
68
Directors, Secretary and Advisers
DIRECTORS
Dr A Basu
Mr D Bulmer
Sir Peter Williams
Mr L H N Kinet
Dr G K Speirs
Mr J H Whittingham
COMPANY SECRETARY
Mr D Bulmer
REGISTERED OFFICE
NETPark
Thomas Wright Way
Sedgefield
TS21 3FD
NOMINATED ADVISER AND BROKER
BANKERS
Cenkos Securities plc
6.7.8. Tokenhouse Yard
London
EC2R 7AS
HSBC Bank Plc
1 Saddler Street
Durham
DH1 3NR
REGISTRAR
AUDITOR
Capita Asset Services
34 Beckenham Road
Beckenham
BR3 4TU
Deloitte LLP
Statutory Auditor
Newcastle upon Tyne
NE1 2HF
PUBLIC RELATIONS ADVISER
LEGAL ADVISER
Luther Pendragon Ltd
48 Gracechurch Street
London
EC3V 0EJ
Eversheds Sutherland
Bridgewater Place
Water Lane
Leeds
LS11 5DR
Kromek Group plc
NETPark, Thomas Wright Way,
Sedgefield, County Durham, TS21 3FD