Kromek Group plc
Annual report and accounts
for the year ended 30 April 2018
Targeting significant growth opportunities in medical imaging and
nuclear detection applications
Medical
Imaging
Nuclear
Detection
Contents
1 Financial and Operational
Highlights
2 Chairman’s Statement
4 Strategic Report: Chief
Executive Officer’s Review
8 Strategic Report: Chief
Financial Officer’s Review
10 Strategic Report: Review of
Principal Risks
$1bn+ opportunity in each sector
over the next 10 years
18 Directors’ Biographies
20 Directors’ Report
Kromek’s CZT-based
detectors significantly
advance the early
identification of disease,
such as cancer,
Alzheimer’s, Parkinson’s
and osteoporosis.
Kromek’s D3S is used to
identify nuclear threats,
such as dirty bombs, to
protect civilians and key
infrastructure in cities,
including ports, borders
and transport hubs.
22 Corporate Governance Report
24 Directors’ Remuneration
Report
28 Independent Auditor’s Report
31 Consolidated income
statement
32 Consolidated statement of
comprehensive income
33 Consolidated statement of
financial position
34 Consolidated statement of
changes in equity
35 Consolidated statement of
cash flows
36 Notes to the consolidated
financial statements
63 Company financial statements
KromeK Group plc
Annual Report & Accounts 2018
Financial Highlights
Revenue
£11.8m
32%
EBITDA*
£0.5m
133%
Cash &
Equivalents
£9.5m
Product
% of Sales
81%
44%
value
Gross
Margin
56.4%
2016/17: £9.0m
2016/17: £(1.5m)
31 Oct 2017: £15m
2016/17: 74%
2016/17: 57.1%
*EBITDA defined as earnings before interest, taxation, depreciation, amortisation, other income and share-based payments.
For a reconciliation, see the Chief Financial Officer’s Review on page 8.
“Secured new purpose-built premises for
Kromek’s US operations in Pittsburgh,
which will enable the facility to become
a world-leading manufacturer of SPECT
cameras”
“Milestone year as revenue growth
from ramp-up in commercial
activities enabled Kromek to achieve
EBITDA positive for the first time”
Operational Highlights
Financial &
Operational
Highlights
01
$5.38m
Secured five-year contract for CZT-based
detector modules in a new osteoporosis
product offering for existing BMD customer
$1.6m Extension to DARPA contract to add further
technical innovation capability to the Kromek
D3S family of equipment
£1.4m
Awarded three-year Innovate UK programme
to deliver Low Dose Molecular Breast
Imaging Device
D3S continued to be deployed and field-tested
in major areas in the US by DARPA and other
public administrations worldwide
£1.2m
Five-year repeat order, post-period end,
from an existing customer for the supply of
gamma detector modules
Advanced towards achieving first clinical
validation of Kromek’s CZT-based SPECT
detector system
$3.1m
Commenced work on five-year contract
with US-based OEM customer to provide
components for baggage screening
Used by European authorities during visit of
US President to Brussels in May 2017
Designated qualified contractor under US Dept
of Defense IDIQ Procurement contract award
vehicle
Expanded distribution channels in civil nuclear
markets. Completed deployment of Quant for
GR1 in all UK EDF nuclear plants
$2.0m
Won five-year contract from new OEM
customer for baggage security screening
systems technology
7
29
Seven new patents were filed and
29 granted during the period
1
KromeK Group plc
Annual Report & Accounts 2018
Sir Peter Williams CBE
Chairman
29 June 2018
02
Chairman’s
Statement
“The Nuclear Detection and
Medical Imaging businesses
continue to offer enormous
growth opportunities for us in
equal measure”
I am very pleased to report that Kromek had another good year
of delivering revenue growth and developing our customer base
who continue to launch next generation products incorporating
our advanced radiation detectors.
Last year I wrote about the visibility of revenues from the
long-term contracts we had signed during the previous 24
months, so a major focus for 2017/18 has been on the delivery
of these contracts. I am delighted to report that, as a result,
Kromek has achieved EBITDA* profitability for the first time in
its history and narrowed its loss before tax. This is an important
milestone towards cash flow breakeven and pre-tax profits
and significantly, it was achieved against the backdrop of
considerable currency volatility during the year.
Kromek’s vision is to enable our end users to take optimal
decisions, which increase operational efficiency and reduce
costs, using superior quality of information. Whether in
combatting terrorism or in effectively diagnosing disease, we
made significant advances towards these goals in 2017/18.
Major progress was made in our Medical Imaging business
by completing the integration of our CZT-based single photo
emission computed tomography (“SPECT”) cameras into a
system capable of producing clinical grade images. The detail
in SPECT images means this technology will improve early
stage diagnosis of diseases such as cancer, Alzheimer’s and
Parkinson’s.
Our D3S product was successfully deployed in safeguarding
against nuclear terrorism in many high-profile situations and
gained significant visibility in Europe, Asia and the USA. The
reputation of the D3S has consequently been greatly enhanced
in global markets.
Arnab Basu, our Chief Executive Officer, provides a detailed
review of our operational achievements for the year. He
outlines our success in strengthening our market position
as a key supplier of high-performance detection systems to
both commercial and government customers globally. As a
result of this, Kromek is now better positioned to capture the
opportunities that exist across all our target markets.
opportunities remain Significant
The Nuclear Detection and Medical Imaging businesses
continue to offer enormous growth opportunities for us in equal
measure, although the timing of delivery of long-term contracts
may mean that the prominence of their contribution to growth
may vary from one year to another in the early developmental
phase in these markets.
2
*For a definition of EBITDA, see the Chief Financial Officer’s Review on page 8
KromeK Group plc
Annual Report & Accounts 2018
is more suitable for attracting talent, has better transport
connectivity and is closer to the growing high-tech hub in
Pittsburgh. The new facility will serve as the focus of our
Medical Imaging business, providing world-class manufacturing
of CZT-based SPECT cameras.
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 the senior
management team and all of our staff for their efforts and
commitment and our shareholders for their loyal on-going
support.
Kromek has the market opportunities, the technology and
the products to move forward, so, with the strengthening of
our foundations and with long-term growth drivers remaining
strong, we look forward to delivering significant shareholder
value in the years to come.
“Last year I wrote about the
visibility of revenues from the
long-term contracts we had
signed during the previous 24
months, so a major focus for
2017/18 has been on the delivery
of these contracts. I am delighted
to report that, as a result, Kromek
has achieved EBITDA* profitability
for the first time in its history”
We believe that US government agencies (DoD and DHS)
continue to represent a significant radiation detection
opportunity for Kromek and expect to expand our work with
them. The threat of a “dirty” bomb remains real and government
agencies around the world are gearing up to guard against it. In
further progress with the US Department of Defense, Kromek
was named as a qualified contractor under the department’s
$8.2bn ‘Indefinite Delivery Indefinite Quantity Joint Enterprise
- Research, Development, Acquisition, and Production
Procurement’ contract award vehicle. While the potential of this
market in the US remains substantial, the demand for portable
advanced radiation detectors for nuclear safeguarding is a
significant global market opportunity.
A key driver of revenue growth in our Medical Imaging business
has been the delivery under contracts won over the last two
years of products resulting from our long-term development
programmes. The vast majority of recent new business
has been in this segment, which bodes well for the future.
Specifically, SPECT is proving to be a strategically important
growth opportunity for us with a large addressable market.
We have achieved significant milestones in commercialising
our technology in this sector this year and remain confident of
furthering our strategy of becoming the preferred sub-systems
supplier to major OEMs through existing and new relationships.
New Facilities in uS
Given the strategic importance to us of the US markets, in
2017/18 the Group laid the foundations to support future
growth there and has secured new premises for our US
operations near Pittsburgh, Pennsylvania. The new building,
under a 20-year operating lease, has been purpose-built to
our requirements and provides the Group with a significantly
more efficient and cost-effective office, development and
manufacturing space with expansion capacity. The location
“Major progress was made in
our Medical Imaging business by
completing the integration of our
CZT cameras into a system capable
of producing clinical grade images”
3
KromeK Group plc
Annual Report & Accounts 2018
Strategic Report: Chief Executive Officer’s Review
Dr Arnab Basu MBE
Chief Executive Officer
29 June 2018
04
Chief Executive
Officer’s Review
“The multiyear nature of many
of these contracts demonstrates
the commitment of Kromek’s
customers to our solutions and
the increasing adoption of our
products and technologies in our
target markets”
overview
It has been a milestone year for Kromek as we delivered
EBITDA* positive results for the first time with an EBITDA profit
of £0.5m (2016/17: EBITDA loss £1.5m) for the full year and the
loss before tax narrowing from £3.8m to £2.5m. This EBITDA
profit was achieved by growing our revenues for 2017/18 as
we continued to execute on previously-signed agreements as
well as commencing delivery on new high-value contracts won
during the year. The multiyear nature of many of these contracts
demonstrates the commitment of Kromek’s customers to our
solutions and the increasing adoption of our products and
technologies in our target markets. The shift in the Group’s
sales mix from R&D to product sales was sustained, with
product sales accounting for 81% of total revenue (2016/17:
74%), a year-on-year growth in value of 44%. This transition
reflects the increasing value of our contracts, alongside a
growing number of customers moving from R&D programmes
to full commercialisation. Reported revenue for the Group grew
32% compared with last year, however, on a constant currency
basis, the growth would have been 37% as the exchange rate
fluctuation during the year was significant.
During the year, we strengthened our market position as
a key supplier of CZT-based detection systems to both
commercial and government customers globally. Key products
were deployed in significant product trials and the Group
reached notable performance milestones in both our nuclear
and medical markets. Kromek’s engagement with leading
organisations within our target markets continues to increase
and, in a number of instances, the Group has successfully gone
through customer due diligence as part of a potential order
placement process. These are important steps towards winning
new customers and becoming a long-term supplier to high-
value customers in our target markets.
medical Imaging
Kromek’s medical imaging solutions can produce high resolution
digital images with superior quality to standard detectors
currently available in the market. This provides clinicians with
the necessary equipment to accurately detect and monitor
medical conditions such as cancer, Alzheimer’s, Parkinson’s and
osteoporosis, resulting in better patient outcomes and lowering
the overall cost of care.
Kromek made strong progress in medical imaging markets
during the year: delivering on previously won orders as well as
securing new long-term contracts. The Group now has 11 OEM
customers across its key segments of SPECT, bone mineral
densitometry (“BMD”) and gamma probes.
The Group advanced towards achieving clinical validation of our
CZT-based SPECT detector system, under our contract signed
in 2014 with an established manufacturer of X-ray diagnostics
and analysis equipment. This achievement is the culmination of
several years of intensive product development and internal cost
improvement. We believe that our CZT-based SPECT camera
will significantly enhance the identification and management of
diseases such as cancer and Parkinson’s.
*For a definition of EBITDA, see the Chief Financial Officer’s Review on page 8
4
KromeK Group plc
Annual Report & Accounts 2018
Further progress was made in the SPECT segment with the
award of a three-year £1.4m programme by Innovate UK, to
deliver a Low Dose Molecular Breast Imaging (“LDMBI”) device
based upon our CZT-based SPECT detectors to improve the
detection of breast cancer. The project is in partnership with
Newcastle-upon-Tyne Hospitals NHS Foundation Trust, where
the LDMBI device will be used in a pilot study to demonstrate
the clinical benefits of Kromek’s SPECT detectors. This is an
important step in our engagement with the clinical community to
demonstrate both clinical and health economic benefits of our
technology.
agency of the US Department of Defense, under its SIGMA
programme. This programme has conducted successful trials
in Washington DC, New Jersey and many other strategically
important areas.
During the year, the Group’s D3S continued to be deployed
and field-tested in major areas in the US by DARPA and other
agencies and by a number of customers in Europe and Asia.
This includes being used by European authorities during the
visit of the President of the United States to Brussels in May
2017 and by other public administrations across the globe for
protection of strategically important events and buildings.
In the BMD segment, which is used for the detection of
osteoporosis, Kromek was awarded a five-year contract,
worth a minimum of $5.38m, from an existing customer for
the incorporation of our CZT-based detector modules in a
new product. This contract highlights the continuing trend of
an increasing number of customers transitioning from legacy
diagnostic systems to advanced CZT-based systems.
In the gamma probes segment, which are used for radio guided
surgery, the Group was awarded multiple repeat contracts
by our existing OEM customers to provide customised CZT
detectors for their existing gamma probes. In addition, post-
period end, the Group secured a long-term repeat order from
an existing medical customer for the supply of gamma detector
modules for incorporation in the customer’s products. The
contract, which covers a five-year period, is worth $1.2m.
Nuclear Detection
Kromek’s state-of-the-art D3S gamma neutron spectroscopic
personal radiation detectors form interconnected, mobile
networks enabling wide area monitoring linked to a central
command centre, producing detailed maps of radiation levels
across large urban areas. This enables threats and non-threats
to be clearly differentiated and real-time alarms are triggered
when the system locates and identifies unexpected harmful
radiation. The D3S can be worn by frontline security workers
and it offers an extensive and effective safeguard against the
threat of nuclear terrorism. Kromek has already successfully
delivered over 10,000 D3S units as a sole supplier to the
Defense Advanced Research Projects Agency (“DARPA”), an
Kromek was also awarded a $1.6m extension to its DARPA
contract to add further features to the D3S family of equipment.
The enhancements will provide greater operational capability by
improving user experience and enabling the device to provide
further information to the Homeland Security community and
First Responders for some particularly demanding situations.
In addition, Kromek was named as a qualified contractor under
the US Department of Defense’s Indefinite Delivery Indefinite
Quantity (“IDIQ”) Joint Enterprise – Research, Development,
Acquisition, and Production/Procurement (“JE-RDAP”) contract
framework. The JE-RDAP vehicle has been allocated $8.2bn
to invest over a 10-year period in a number of programmes
covering chemical, biological, radiation and nuclear (CBRN)
detection, which will be conducted jointly with companies
selected from the list of qualified contractors. We believe that
Kromek is well-placed to be selected under the programme
for delivery of products based on the D3S and other existing
platforms.
In the civil nuclear markets, the Group’s portfolio includes
a range of high resolution detectors and measurement
systems used in nuclear power plants, research and for other
applications. During the year, Kromek strengthened and
expanded its distribution channels in the civil nuclear markets.
Kromek also completed the deployment of Quant for GR1
product in all UK EDF nuclear power plants.
“Kromek made strong progress in medical imaging markets during
the year: delivering on previously won orders as well as securing
new long-term contracts”
5
KromeK Group plc
Annual Report & Accounts 2018
Strategic Report: Chief Executive Officer’s Review (Continued)
Security Screening
In the Security Screening market, Kromek’s solutions are
used for baggage screening and for identifying the presence
of hazardous liquids at airport checkpoints. These are aimed
at enhancing national security and improving the safety of
passengers while minimising the inconvenience of the security
process at airports.
Kromek continued to deliver on contracts secured during
previous periods with global security groups for the supply of
OEM components for baggage screening products used in
aviation security. In particular, the Group commenced work
under our first multiyear contract in the Security Screening
market, a five-year agreement that was awarded in 2016/17 by
an existing US-based customer.
During the year, Kromek was awarded another five-year
contract, worth $2.0m, by a new OEM customer that is a
leading company in X-ray imaging systems. This customer is
in the process of incorporating Kromek’s technology into its
baggage security screening systems to enhance detection of an
extensive range of threat materials. Kromek expects to start the
supply of commercial products under this contract during the
current year.
“The Group invested in the
development of new and enhanced
products with a focus on the D3S,
SPECT and BMD platforms”
r&D and manufacturing Facilities
Kromek continued to work on both externally and internally
funded R&D activities to develop products and platform
technologies that form important elements of our future product
roadmap. In particular, the Group invested in the development
of new and enhanced products with a focus on the D3S,
SPECT and BMD platforms. The Group expects investment in
R&D to remain at a steady level over the next few years as we
seek to maintain our commercial advantage. During the period,
seven new patents were filed and 29 patents were granted.
Over the last year, the Group has put substantial efforts into
optimising the manufacturing process for CZT-based cameras
for the SPECT market. The efforts have been focused on
both consistency and reliability of processes but also the cost
structure of the entire manufacturing chain. One of the key
areas of development has been to firm up our supply chain to
increase security and quality to mitigate future risks as we ramp
up.
As noted by Sir Peter Williams, during the year the Group
secured new premises for our US operations in Pittsburgh,
which has been custom-designed to enable the facility to
become a world-leading manufacturer of the next generation
CZT-based SPECT camera and other medical products.
The bespoke premises were built for the Group during the
financial year and we have since gained access to the site
following the signing of the lease with the landlord. I am pleased
to report that the move of our entire operation was completed
during June 2018. The planning and execution of such a move
was critical to ensure that our customers were not significantly
affected due to the inevitable disruption to production wind
down and subsequent ramp up in this new facility.
outlook
The momentum of the 2017/18 financial year has been
sustained into the current financial year as Kromek’s
products continue to gain traction in all its business
segments from the increasing adoption of CZT-based
technology and other products. In particular, the Group
is well-positioned to capture the significant opportunities
in its key target areas of SPECT and D3S portable
advanced radiation detectors.
As a result, as the Group continues to win new customers
and, together with executing on previously-won
contracts, Kromek expects to deliver growth across its
business segments and to report total revenue growth for
2018/19 in line with market expectations.
In particular, Kromek’s market-ready offering of CZT
general purpose SPECT cameras, at a commercially
attractive price, is receiving increasing interest and
we are engaged in discussions with a wide range of
companies in this segment regarding its adoption. The
D3S is being well-received by public administrations and
other potential customers across the globe, and Kromek
expects some of this activity to materialise into product
purchase orders in due course.
Looking further ahead, the Group expects its OEM
customers to launch products incorporating Kromek’s
technology during the 2018/19 financial year and
anticipates that this will prompt additional orders to be
placed as sales of these products accelerate. Kromek
continues to strengthen its relationships with existing
customers and enhance our reputation among potential
customers who are increasingly recognising the functional
and operational benefits that our products can deliver.
Accordingly, the Board looks to the future with
confidence.
6
KromeK Group plc
Annual Report & Accounts 2018
Kromek moves to new
purpose-built facility
Kromek’s main operation in the US has moved to a new
purpose-built facility in Zelienople, near Pittsburgh.
The premises were built specifically for Kromek, serving as
the focus of its medical imaging business and designed to
enable it to become a world-leading manufacturer of CZT-
based SPECT cameras and other medical products.
The move, in response to the continued growth of our
medical imaging equipment business, gives our US
operations a significantly more efficient and cost-effective
office, development and manufacturing space with
expansion capacity.
The new location is also more suitable for attracting talent,
has better connectivity and is closer to the growing high-
tech hub in Pittsburgh.
The timing and execution of the move was critical
to ensure the least amount of disruption to both our
production and delivery of contracts with our customers.
The completion of the move also provided the opportunity
to consolidate the Group’s branding by replacing the ‘eV’
name with Kromek.
7
7
KromeK Group plc
Annual Report & Accounts 2018
Strategic Report: Chief Financial Officer’s Review
This was a seminal year for Kromek as the Group continued its
year-on-year revenue growth and for the first time in the Group’s
history moved to a full year of EBITDA profitability (see below
for calculation). The continued increase in product sales and
expansion of gross profit resulted in EBITDA of £0.5m for the
period (2016/17: loss of £1.5m) and the narrowing of the loss
before tax to £2.5m (2016/17: loss £3.8m).
revenue
The Group achieved revenue growth of 32.0% driven by higher
product sales at £9.6m (2016/17: £6.7m), which accounted for
81% of total revenue (2016/17: 74%) as detailed in the table
below.
revenue mix
2017/18
2016/17
£’000
% share
£’000
% share
product
r&D
Total
9,611
2,234
11,845
81%
19%
6,671
2,297
8,968
74%
26%
The year-on-year growth in product sales of 44% reflects
further traction with the D3S, SPECT and BMD products as we
delivered on the supply contracts that have been announced
over the last 12 – 36 months.
On a consistent US dollar conversion basis with 2016/17, the
Group revenues in 2017/18 would have been £12.3m.
Gross margin
Gross profit at £6.7m (2016/17: £5.1m) resulted in a margin
of 56.4% (2016/17: 57.1%). The stable gross margin, despite
a material shift in revenue mix towards product sales, is
encouraging as we grow the business and commercialise the
technology platform that the business has created over the past
years.
Administration costs
Administration costs and operating expenses were stable at
£8.8m for the period (2016/17: £8.7m) despite an increase of
£0.5m in amortisation in the period. The Group continues to
exercise strong cost control with employment costs being the
major contributor to administration and capitalised R&D costs
at 54%. The number of staff remains relatively static at 108
(2016/17: 109) with total staff cost stable at £6.6m (2016/17:
£6.6m), despite the annual growth in revenue of over 30%.
eBITDA* and profit/(loss) from operations
Due to increased revenues, which have resulted in an expansion
of gross profit, EBITDA for 2017/18 was £0.5m compared with a
loss of £1.5m 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 earnings/(loss)
2017/18
£’000
11,845
56.4%
(2,533)
192
785
1,907
131
-
482
2016/17
£’000
8,968
57.1%
(3,794)
40
762
1,417
99
15
(1,461)
Mr Derek Bulmer
Chief Financial Officer
29 June 2018
08
Chief Financial
Officer’s Review
“Year-on-year growth in product sales
of 44% reflects further traction with
the D3S, SPECT and BMD products
as we delivered on the supply
contracts that have been announced
over the last 12–36 months”
8
*EBITDA defined as earnings before interest, taxation,
depreciation, amortisation, other income and share-based
payments. EBITDA is considered a key metric to the users of
the financial statements as it represents a useful milestone that
is reflective of the performance of the business as a result of
revenue growth. Share-based payments are added back when
calculating the Group’s EBITDA as this is currently an expense
with a zero direct cash impact on financial performance.
The improvement in EBITDA in 2017/18 compared with
2016/17 is substantially a result of additional gross margin
generated from higher revenues. Together with the control over
administration costs noted above, the impact of the operational
gearing within the Group is evident.
Loss before tax for the year was narrowed to £2.5m (2016/17:
£3.8m loss), driven by the improved EBITDA offset by increases
in depreciation and amortisation.
During 2017/18, the Group recognised a loss of £1m (2016/17:
profit £0.7m) as other comprehensive income that arose in
respect of a net investment in a foreign operation as described
in note 3 to the financial statements.
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 £1.4m for
the year (2016/17: £0.7m). The Group deferred tax provision
movement remained static at £nil (2016/17: £nil) due to 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 £1.4m (2016/17: £0.7m).
earnings per Share (“epS”)
Due to the £1.3m reduction in the loss for the period, the EPS
is recorded in the year on a basic and diluted basis as 0.4p loss
per share (2016/17: 1.8p loss per share).
r&D
The Group invested £3.4m in the year (2016/17: £4.2m) 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. This investment was offset by further amortisation
of development costs in 2017/18 of £1.2m (2016/17: £0.7m).
Hence, the net development cost capitalisation in 2017/18 was
£1.3m lower at £2.2m compared with £3.5m in 2016/17. A
further £4.0m (2016/17: £3.5m) 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 continue to be through the
expansion in the D3S suite of products and the SPECT and
BMD platforms linked to existing contract deliverables and of
significant future revenue opportunities. The Group continues
to undertake this investment in order to advance its commercial
advantage. This was manifest in the period in D3S, SPECT and
BMD product sales. This investment is considered critical and
KromeK Group plc
Annual Report & Accounts 2018
ongoing as the Group commercialises the opportunities that the
technology provides and expands capabilities in several different
applications.
During the period, the Group undertook expenditure on patents
and trademarks of £0.6m (2016/17: £0.3m) with seven new
patents filed and 29 patents were granted.
capital expenditure
Capital expenditure in the year amounted to £0.3m (2016/17:
£0.3m), which primarily relates to some modest manufacturing
projects.
As noted in the Chairman’s Statement and Chief Executive
Officer’s Review, the Group has recently entered a 20-year
operating lease and has gained access to the new production
facility in the US since the year-end. This facility has been
purpose-built near to Pittsburgh, Pennsylvania, for one of
the Group’s subsidiary companies, eV Products. As part of
obtaining preferential rates associated with the lease, the Group
was required to place £1.25m cash as security into a money
market account during the year. However, as the lease was not
signed until after the year end, these amounts were technically
not under security at 30 April 2018. Nevertheless, the £1.25m
money market investment is not included as part of the cash
and cash equivalents at the year end.
cash Balance
Cash and cash equivalents was £9.5m at 30 April 2018 (31
October 2017: £15m; 30 April 2017: £20.3m). The change
compared with the prior year is as a result of several elements.
The net movement in working capital expansion in debtors,
inventory and payables of £6.7m is the most significant element
and was a requirement to ensure production and customer
delivery continuity as the US operations transitioned to the
new facilities, as noted above. This is due to an expected six
months’ down time required for the move and reinstallation and
commissioning of plant and machinery from the old facility to
the new. The Group anticipates that a significant element of the
working capital expansion during 2017/18 will reverse during
2018/19.
Further, and related, to this, £1.25m was transferred into
investment in a money market account (as detailed above).
Product development and capitalisation of £3.4m and capital
and IP expenditure of £0.9m made up the larger part of the
other cash outflows, partly offset by the EBITDA profit of £0.5m
and £0.9m received in R&D Tax Credits.
reserves reanalysis
Following a review, we have revisited the historical treatment
of certain balances within equity, as recorded at the time of the
IPO. As a result, a number of reanalysis adjustments have been
made as described in note 3 to the financial statements. There
is no overall change in the net assets or equity of the Group.
9
KromeK Group plc
Annual Report & Accounts 2018
Strategic Report (Continued)
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.
10
Review of
Principal Risks
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.
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.
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. The Group has also relocated one
of the US subsidiary companies to a custom-built
facility that specialises in the production of CZT
Gamma Cameras.
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.
10
KromeK Group plc
Annual Report & Accounts 2018
Risk
Description
Mitigation
Risks associated
with timing of
customer or third-
party projects
Risks associated
with exchange
rate fluctuations
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.
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 pounds 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 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 proportion of its revenues via the sale
of complete end-user products in three different
markets.
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.
Risks associated
with Brexit
As a consequence of the UK’s decision to leave the
European Union, there is international uncertainty
around the impact this will have on business and
trade.
The Group has significant operations and market
presence in non-EU territories such as the US and
the Far East, as well as a portfolio of products that
are market leaders because of the technological
capabilities offered. As a result, Brexit is not
expected to have a material impact on the Group,
however, management monitor the current economic
climate regularly for any potential future impacts.
Dr Arnab Basu mBe
Chief Executive Officer
29 June 2018
11
KromeK Group plc
Annual Report & Accounts 2018
Kromek’s high-resolution
CZT camera for SPECT enables
superior diagnostics for early
detection of diseases such as
cancer, Alzheimer’s and Parkinson’s
“Using CZT for medical imaging
is like jumping straight from VHS to HD DVD
in terms of image quality”
GE Healthcare website ‘The Pulse’
12
12
KromeK Group plc
Annual Report & Accounts 2018
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
Kromek Strengths
Achieved detector solution at acceptable price
premium over conventional detector technology
Offers plug-and-play solution providing fast route-
to-market and a stable and low technical risk
solution to the OEMs
Able to offer OEMs performance differentiation vs
GE and each other through camera customization
and application optimisation
Partnership with Chinese OEMs to target emerging
market opportunity within China
Small field of view
(FoV) camera
General purpose
camera
13
Thyroid camera
$100m+
Annual market
opportunity for Kromek
KromeK Group plc
Annual Report & Accounts 2018
Nuclear
Detection
Kromek’s offering
Kromek’s state-of-the-art D3S gamma neutron spectroscopic
personal radiation detector forms mobile networks for wide area
monitoring linked to a central command centre producing detailed
maps of radiation levels across large urban areas.
This enables threats and non-threats to be clearly differentiated with
real-time alarms triggered when the system locates and identifies
unexpected harmful radiation.
The D3S can be worn by frontline security workers and it offers an extensive
and effective safeguard against the threat of nuclear terrorism.
14
14
KromeK Group plc
Annual Report & Accounts 2018
Saving major cities from the threat of
a radiological dirty bomb
During the year, the Group’s D3S continued to be field-tested
in major areas in the US by DARPA and other agencies and
a number of customers in Europe and Asia. It was also used
by European authorities during the visit of the President of the
United States to Brussels in May 2017 and by other public
administrations across the globe for protection of strategically
important events and buildings.
to invest over a 10-year period in a number of programmes
covering chemical, biological, radiation and nuclear detection
(CBRN), which will be conducted jointly with companies
selected from the list of qualified contractors. The Group’s
management believes that Kromek is well-placed to be selected
under the programme for delivery of products based on the
D3S and other existing platforms.
It is being well-received by these parties, enhancing the
Group’s standing with government agencies and other potential
customers. Kromek expects some of this activity to materialise
into product purchase orders in due course.
Kromek was awarded a $1.6m extension to its DARPA contract
to add further features to the Kromek D3S family of equipment.
The enhancements will provide greater operational capability by
improving user experience and enabling the device to provide
further information to the Homeland Security community and
First Responders for some particularly demanding situations.
In addition, Kromek was named as a qualified contractor under
the US Department of Defense’s Indefinite Delivery Indefinite
Quantity (“IDIQ”) Joint Enterprise – Research, Development,
Acquisition, and Production/Procurement (“JE-RDAP”) contract
framework. The JE-RDAP vehicle has been allocated $8.2bn
Kromek has already successfully delivered over 10,000 D3S
units as a sole supplier to the Defense Advanced Research
Projects Agency (“DARPA”), an agency of the US Department
of Defense, under its SIGMA programme. This programme has
conducted successful trials in Washington DC, New Jersey and
many other strategically important areas.
Kromek strengths
First-mover and incumbency advantage for small
form factor networked radiation detectors
Sole supplier to DARPA and endorsed by US
government
Price / value proposition supports large scale
adoption economics
Qualified contractor for US military for D3S
Strong brand awareness among international
governments
10,000
D3S units delivered
$100m+
Annual market
opportunity for Kromek
“Now permanently deployed in
the Port of New York and New Jersey”
“Used to protect President Trump in Brussels”
1515
KromeK Group plc
Annual Report & Accounts 2018
Kromek’s GR1 is the world’s smallest and
highest performance room temperature
gamma-ray spectrometer...
it’s also one of the most versatile!
“Aerial drones incorporating Kromek’s GR1 spectrometer,
can be deployed at any nuclear incident to give real-time monitoring of
the radiation intensity and its distribution”
1614
16
“The GR1 was selected as the
primary mobile detection tool by
authorities for the post-Fukushima
response and clean up”
KromeK Group plc
Annual Report & Accounts 2018
Kromek’s GR1 family of spectrometers are universally recognised
as the world’s smallest and highest-performing room temperature
gamma-ray spectrometers offering leading-edge specification in a
compact form.
The GR1 was selected as the primary mobile detection tool
by authorities for the post-Fukushima response and clean up
after the Tohoku earthquake and tsunami resulted in the nuclear
meltdown at the Daiichi power plant.
Fukushima showed that it was impossible to quickly and safely
assess the spread of radiation and its intensity with handheld
instruments without risking the users’ safety.
A team from Bristol University, led by Dr Peter Martin, devised a
system using aerial drones incorporating the GR1, that can be
deployed at any nuclear incident to give real-time monitoring of
the radiation intensity and its distribution.
Software takes the altitude and GPS of the device and combines
that with the radiation signal collected from the GR1 and
processes it to create a radiation intensity heatmap depicting
areas of contamination, particularly useful for planning escape
and evacuation routes from a nuclear incident or identifying
contaminated areas for clean up or isolation.
Exhaustively tested, results showed GR1 generated data from the
drone was just as accurate as a handheld device but eliminated
risking exposing the user to potentially hazardous situations.
Keeping users’ out of harm’s way
The drone can be remotely operated (up to 4½ miles away),
ensuring operator safety. It can also be pre-programmed with
GPS way-points allowing it to autonomously record the radiation
signal on a given flightpath or programmed to repeat a search
pattern allowing measurements to be built up and compared over
time.
The GR1 / drone combination replaces expensive large fixed
arrays of detectors with single mobile detector units to accurately
map large areas that are contaminated with nuclear radiation.
The GR1 / drone technology has been successfully deployed
at numerous sites across the globe since Fukushima, Sellafield
nuclear fuel reprocessing and nuclear decommissioning site in
the UK, the Chernobyl nuclear site in the Ukraine, old tin mines
in Cornwall UK (an area of high naturally occurring radiation) and
various other sites where nuclear material is stored.
principal applications
n Monitoring nuclear sites
n Rapid response disaster monitoring whether from a radiation
leak, large scale nuclear disaster or a terrorist event
n The mining industry for prospecting radioactive ore bodies
n Within the oil and gas industry for detecting NORM (normally
occurring radioactive matter)
17
KromeK Group plc
Annual Report & Accounts 2018
Sir Peter Williams
Chairman
Audit Committee Chair
Sir Peter completed his degree and PhD at Cambridge,
and then taught at Selwyn College. He then moved into
industry, working at VG Instruments where he became
Deputy Chief Executive and at Oxford Instruments, the first
spin out from Oxford University, where he held the positions
of CEO and Chairman. He also chaired Isis Innovation
Ltd, the technology transfer arm of Oxford University. He
received a CBE in 1992 and was knighted in the Queen’s
Birthday Honours list of 1998. He is currently Chairman of
the National Physical Laboratory, and VP and Treasurer of
the Royal Society.
18
Directors’
Biographies
Dr Arnab Basu
Chief Executive Officer
Dr Basu has a PhD in physics from Durham University,
specialising in semiconducting sensor materials. Arnab
held senior management positions in his family business,
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).
18
18
Mr Derek Bulmer
Chief Financial Officer and
In-House Counsel
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.
KromeK Group plc
Annual Report & Accounts 2018
Mr Lawrence Kinet
Non-Executive Director
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 Graeme Speirs
Non-Executive Director
Dr Speirs is an experienced entrepreneur and owner of the
Polymer Holdings Group and Polymer N2, an investment
company focused on UK start-ups in the technology, life
sciences and energy sectors. Graeme graduated with
first class honours in chemistry and a PhD in molecular
physics from Aberdeen University, and holds a masters
degree in Technology and Economics from the University
of Birmingham. Involved in the oil and gas industry, Graeme
is an expert in the design and manufacture of polymer
composite products.
roles with
Mr Jerel Whittingham
Non-Executive Director
Remuneration Committee Chair
Mr Whittingham has extensive experience in investor,
operational and strategy
technology-rich
companies including Incuvest LLC, Generics Group plc,
Durlacher plc, Amphion Innovations plc, INMARSAT and a
number of start-ups. He was appointed to the Board of
Kromek Group plc in September 2013 and also served
on the Board of DSC Ltd, a predecessor company of the
Group. Currently he combines NED and operational roles in
technology growth companies. He also served as CEO and
later Executive Chairman of Myconostica Ltd, a medical
technology company spun out from a leading UK university.
Mr Christopher Wilks
Non-Executive Director
Mr Wilks has considerable experience in the fields of
both science and finance. He is currently CFO at Signum
Technology, which he co-founded in 2012. As CFO at
Sondex plc, he successfully managed their Main Market
listing on the LSE and several post IPO acquisitions. Sondex
was acquired by GE in 2007. After graduating from Durham
University, he joined Marconi Space Systems designing
space craft power systems; he then trained as a Chartered
Accountant at Arthur Young (now Ernst & Young).
19
19
KromeK Group plc
Annual Report & Accounts 2018
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 2018.
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 2018, principal risks and uncertainties,
research and development, financial KPIs and the outlook for
future years, are set out in the Chairman’s and Chief Executive
Officer’s Statements and the Chief Financial Officer’s Review, on
pages 2-9.
Future developments
The Group’s development objectives for 2018–19 are disclosed
in the Strategic Report on pages 4-11.
20
Directors’ Report
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 2018.
results and dividends
The consolidated income statement is set out on page 31.
The Group’s loss after taxation amounted to £1.10m (2016/17:
£3.08m).
The Directors do not recommend the payment of a dividend for
the year ended 30 April 2018.
During the year ended 30 April 2018, the Group made political
donations of £nil (2016/17: £nil) and charitable donations of £nil
(2016/17: £nil).
20
Directors
The Directors who served throughout the year and up to the
date of signing this report were as follows:
Dr A Basu
Mr D Bulmer
Sir P Williams
Mr L Kinet
Dr G K Speirs
Mr J H Whittingham
Mr C Wilks (appointed 1 October 2017)
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 Group and parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare Group and
parent Company financial statements for each financial year.
As required by the AIM Rules of the London Stock Exchange
they are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
as adopted by the EU (IFRSs as adopted by the EU) and
applicable law and have elected to prepare the parent
Company financial statements on the same basis.
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 Group and parent
Company and of their profit or loss for that period. In preparing
each of the Group and parent Company financial statements,
the directors are required to:
n select suitable accounting policies and then apply them
consistently;
n make judgements and estimates that are reasonable,
relevant and reliable;
n state whether they have been prepared in accordance with
IFRSs as adopted by the EU;
n assess the Group and parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters
related to going concern; and
n use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to
cease operations, or have no realistic alternative but to do
so.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
KromeK Group plc
Annual Report & Accounts 2018
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent Company and
enable them to ensure that its financial statements comply
with the Companies Act 2006. They are responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a Strategic Report and a Directors’
Report that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the UK 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 resigned as auditor during the period. KPMG LLP
were appointed to fill the vacancy. KMPG 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.
Substantial shareholders
As at 30 May 2018, shareholders holding more than 3% of the
share capital of Kromek Group Plc were:
Name of shareholder
Number of
shares
% of voting
rights
Miton Asset Management Ltd
49,201,886
18.89
Polymer Holdings
Hargreaves Lansdown Asset
Management
20,273,475
16,077,031
Herald Investment Management
13,747,059
Kilik & Co
9,482,169
Interactive Investor Shareholding
8,985,402
NFU Mutual Investment
Services Ltd
8,228,569
7.78
6.17
5.28
3.64
3.45
3.16
By order of the Board
Dr Arnab Basu mBe
Chief Executive Officer
29 June 2018
21
KromeK Group plc
Annual Report & Accounts 2018
As an AIM listed company, Kromek Group plc is not obliged to
comply with the UK Corporate Governance 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 approving 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, Jerel Whittingham and Christopher Wilks, all
22
Corporate
Governance
Report
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 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.
22
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.
KromeK Group plc
Annual Report & Accounts 2018
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 concerns other than via the Executive Directors
and senior leadership team.
Going concern
As at 30 April 2018, the Group had net assets of £40.3m
(2016/17: £42.2m) and cash and cash equivalents of £9.5m
(2016/17: £20.3m) 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.
23
KromeK Group plc
Annual Report & Accounts 2018
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 comply with the requirements of the
Companies Act 2006.
The remuneration committee is responsible for recommending
the remuneration and other terms of employment for the
Executive Directors of Kromek Group plc.
In determining remuneration for the year, the committee has
given consideration to the requirements of the UK Corporate
Governance Code.
remuneration policy
The remuneration of Executive Directors is determined by the
committee and the remuneration of Non-Executive Directors is
approved by the full Board of Directors. The remuneration of
the Chairman is determined by the Independent Non-Executive
Directors.
The remuneration packages of Executive Directors comprise the
following elements:
24
Directors’
Remuneration
Report (Unaudited)
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 contractual bonus is awarded at the end of each financial
year, the quantum of which is at the discretion of the Board,
having considered the recommendations of the remuneration
committee. The maximum bonus currently ranges from between
25%–100% of basic salary to reward for Executives’ contribution
to the growth in revenue, and specific targeted or strategic
objectives.
24
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 incentive schemes, which are designed
to promote long-term improvement in the performance of the
Group, sustained increase in shareholder value and clear linkage
between executive reward and the Group’s performance.
The LTIP is based on total shareholder return (“TSR”) relative
to an AIM peer group. Any awards made vest only after three
years. A review was undertaken by external advisors during the
year which resulted in some modifications of the criteria to bring
them in line with market best practice. The annual LTIP award
was reduced to reflect the introduction of a parallel value creation
share plan “VC” following the 2017/18 review. The VC will vest in
May 2022 and pay-outs, if any, are based on the absolute value
of the Group at that date. There is a minimum value threshold
before any pay-out may occur and a maximum value cap.
The Remuneration Committee and Board use external
independent advisors to provide guidance on benchmarks,
scheme structures and metrics. During 2017/18 three different
companies provided advice on specific matters. Of the three,
KPMG LLP provided advice on LTIP best practice but not on
specific executive schemes. The use of KPMG in this capacity
predated their role as the Group’s auditor.
Service contracts
Arnab Basu and Derek Bulmer have service contracts with notice
periods (to the Company) of nine and six months respectively.
The committee considers the Directors’ notice periods to be
appropriate as they are in line with the market and take account
of the Directors’ knowledge and experience.
Non-executive Directors
The salaries 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 (Audited)
Emoluments of the Directors for the year ended 30 April 2018
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 2018
£’000
30 April 2017
£’000
10
10
10
53
KromeK Group plc
Annual Report & Accounts 2018
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
Christopher Wilks
30 April 2018
30 April 2017
Number
2,952,000
100,000
100,000
250,000
23,768,415
364,890
75,000
%
1.1
0.0
0.0
0.1
9.2
0.0
0.0
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
-
* Graeme Speirs has a direct interest in 3,494,940 (2017: 3,494,940) ordinary shares and is interested in 20,273,475 ordinary shares
(2017: 20,273,475) held through Polymer Holdings Ltd. In total, Mr Speirs is interested, directly or indirectly, in 23,768,415 (2017:
23,768,415) ordinary shares amounting to 9.2% (2017: 9.2%) of the issued share capital.
Directors’ emoluments for the year ended 30 April 2018
The table below forms part of the audited financial statements:
Salary
£’000
Fees
£’000
Benefits
£’000
Bonus
Paid
£’000
Pension
contributions
£’000
Total emoluments
2018
£’000
Total emoluments
2017
£’000
Non-executive chairman
Sir Peter Williams
executive
Arnab Basu
Derek Bulmer
Non-executive
Lawrence Kinet
Graeme Speirs
Jerel Whittingham
Christopher Wilks
74
210
137
36
36
39
19
-
-
-
-
-
-
-
-
9
7
-
-
-
-
-
127
50
-
-
-
-
-
10
10
-
-
-
-
74
356
204
36
36
39
19
74
235
197
36
36
39
-
executive Directors’ share incentive scheme (lTIp)
Share incentive scheme for Arnab Basu, Chief Executive Officer, and Derek Bulmer, Chief Financial Officer
The remuneration committee agreed, in December 2017, an incentive award scheme for Arnab Basu and Derek Bulmer, to offer them
up to 471,910 and 307,865 shares respectively, at a price of 1p per share to vest based on specified performance criteria.
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.
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.
As at 30 April 2018, the shares issued in 2016, 2017 and 2018 remained unvested.
During 2017/18 as noted on page 24, a new incentive award scheme was introduced regarding an Average Valuation Creation of
the Company, referred to as the “VC”. This has awarded Arnab Basu and Derek Bulmer 2,001,791 and 1,601,432 options under
the scheme respectively. However, these options only vest after 5 years (at 1p per share) and are subject to challenging specific
performance criteria over that period commencing 1 May 2017. The quantity of options that vest is weighted, such that the maximum
amount only vests on achievement of all performance criteria.
25
KromeK Group plc
Annual Report & Accounts 2018
Directors’ Remuneration Report (continued)
Share price during the year
During the year to 30 April 2018, the highest share price was 35.63p (2017: 33.75p) and the lowest share price was 19.75p (2017:
19.86p). The market price of the shares at 30 April 2018 was 21.15p (2017: 30.12p).
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
The following table shows the movement in the total share options that have been granted to Arnab Basu and Derek Bulmer
(separate to those under the LTIP scheme as detailed on the previous page). These options are not linked to any specified
performance criteria:
Director
Date of grant
exercise
price p
At 1 may
2017 number
Awarded
during the
year
exercised
during the
year
At 30 April
2018 number
expiry date
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
-
-
-
-
-
-
-
-
1,000,000
20 September 2021
500,000
13 September 2020
125,000
15 October 2022
250,000
31 May 2023
Consolidated Financial Statements
for the year ended 30 April 2018
26
KromeK Group plc
Annual Report & Accounts 2018
Consolidated Financial Statements
for the year ended 30 April 2018
27
KromeK Group plc
Annual Report & Accounts 2018
Independent Auditor’s Report To The Members of Kromek Group plc
1 our opINIoN IS uNmoDIFIeD
n The risk
We have audited the financial statements of Kromek Group
plc (“the Company”) for the year ended 30 April 2018 which
comprise the consolidated income statement, the consolidated
statement of comprehensive income, consolidated statement of
financial position, consolidated statement of changes in equity,
consolidated statement of cash flows, company statement of
changes in equity, company statement of financial position,
company statement of cash flows and the related notes,
including the accounting policies in note 3.
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 2018 and of the Group’s loss for the year then ended;
n the Group financial statements have been properly prepared
in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRSs as
adopted by the EU);
n the parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU
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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities are described below. We have fulfilled our
ethical responsibilities under, and are independent of the Group
in accordance with, UK ethical requirements including the
FRC Ethical Standard as applied to listed entities. We believe
that the audit evidence we have obtained is a sufficient and
appropriate basis for our opinion.
2 Key AuDIT mATTerS: our ASSeSSmeNT oF rISKS
oF mATerIAl mISSTATemeNT
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters, in
decreasing order of audit significance, were as follows:
Group: recoverability of capitalised development costs:
£13.4m (2017: £11.6m)
Refer to page 36 (Accounting Policy) and page 51 (financial
disclosures).
Subjective valuation – The Group is developing its
own technologies and products across various markets
and sectors, with each project being at various stages of
development. The nature of the technologies is market
disruptive and there is no proven historic track record for the
commercial success of the Group’s products. The ultimate
recoverability therefore of costs capitalised is inherently
subjective and requires a judgement as to the likely financial
success in the market place of the products developed.
The estimated recoverable amount is subjective due to the
inherent uncertainty involved in forecasting and discounting
future cash flows.
n our response
Our procedures included:
n Tests of detail - Comparing the sum of the forecast
discounted cash flows relevant to the sale of products
developed as a result of the development costs
capitalised, and comparing to the carrying value of those
assets to identify any shortfall.
n Sensitivity analysis – We performed sensitivity analysis
on the assumptions, including growth rates and discount
rates included in the above valuations to identify the
breakeven point.
n Sector experience - for qualifying projects, considering
the Group’s assessment of their future financial prospects
by reference to our knowledge of the Group’s business
and our experience of the industry.
n Historical comparisons – We compared the historic
budget versus actual financial data in order to make an
assessment of the Group’s forecasting ability given the
reliance on future forecast revenues in the discounted
cashflows used to support the carrying value.
Group: revenue from contract customers £5,422,000
(2017: £2,218,000).
Refer to page 36 (Accounting Policy) and pages 43 to 46
(financial disclosures).
n The risk
Subjective estimate: Certain of the Group’s contracts with
its customers involve the construction of complex technical
equipment and provision of associated services that are not
separable from the products over a period of more than one
year. These contracts are accounted for in accordance with
IAS11. This requires an estimate at each period end as to
the stage of completion of those contracts, revenue being
recognised with reference to that stage of completion. The
stage of completion is estimated by the Group with reference
to costs incurred compared to total forecast contract
costs. This requires an estimate of costs to complete the
contract. Many of the contracts include new technologies or
applications such that estimates of total contract costs are
inherently judgmental.
28
KromeK Group plc
Annual Report & Accounts 2018
n our response
Our procedures included:
n Tests of detail – For material contracts, we performed
testing of specific items in detailed breakdowns of costs
incurred to date and costs to complete by comparing to
the supporting invoices and timesheets.
n personnel interviews – we held discussions with
non-finance personnel to gain an understanding of work
performed to date and those still required to complete the
contract, in order to challenge the Group’s assessment of
its stage of completion. This included project managers
on each contract to ensure that technical input is sought
as part of the total contract cost estimates.
n Historical comparisons – we evaluated the historical
accuracy of the Group’s cost to complete estimation by
comparing actual costs to budgeted forecasts.
n Independent reperformance – we agreed costs
to complete to detailed breakdowns and checked
mathematical accuracy. We also reperformed the revenue
recognition calculations based upon the percentage stage
of completion to ensure revenue recognised had been
calculated and processed correctly.
parent company only: recoverability of carrying value of
inter-company receivable £43.0m (2017: £38.8m)
Refer to page 39 (Accounting Policy) and page 68 (financial
disclosures).
n The risk
Forecast-based valuation – The parent company balance
sheet includes a receivable from a subsidiary of £43.0m
(2017: £38.8m). The subsidiary is the intermediate holding
company and itself has subsidiaries that are currently loss
making and given the nature of their development stage
activities, the Company’s assessment of potential impairment
is inherently subjective. Given the nature of the business,
the Company assesses recoverability with reference to their
expectations of the success of current and future contracts/
developments in the marketplace.
n our response
Our procedures included:
n our sector experience – We considered the current
stage of the various projects currently in development
in the subsidiaries, progress in the market with related
products and likelihood of success given the nature
of those developments and discussions with potential
counter-parties.
n comparing valuations - Comparing the sum of the
forecast discounted cash flows relevant to the activities
of the subsidiaries, and comparing to the carrying value
of those assets to identify any shortfall and therefore
indicator of impairment.
n Sensitivity analysis – We performed breakeven analysis
on the assumptions made in the forecast valuation,
including the discount rate and forecast growth rates.
n comparing valuations – We considered the carrying
value of investment and inter-company receivable with
reference to the net assets of the subsidiaries and the
market capitalisation of the Group.
3 our ApplIcATIoN oF mATerIAlITy AND AN
overvIew oF THe Scope oF our AuDIT
The materiality for the Group financial statements as a
whole was set at £179,000, determined with reference to a
benchmark of Group loss before taxation, normalised over a 5
year period, of which it represents 5%.
Materiality for the Parent Company financial statements as
a whole was set at £134,000, determined with reference
to a benchmark of net assets and chosen to be lower than
materiality for the Group financial statements as a whole. It
represents 0.3% of the stated benchmark.
We agreed to report to the Audit Committee any corrected
and uncorrected identified misstatements exceeding £8,950
in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s 5 reporting components, we subjected 5 to full
scope audits for Group reporting purposes. These components
accounted for 100% of: total Group revenue, Group loss before
taxation and total Group assets.
The Group team approved the component materialities, which
ranged from £11,000 to £134,000, having regard to the mix of
size and risk profile of the Group across the components. All
component audits, including that of the parent company, were
performed by the Group team.
4 we HAve NoTHING To reporT oN GoING coNcerN
We are required to report to you if we have concluded that the
use of the going concern basis of accounting is inappropriate
or there is an undisclosed material uncertainty that may cast
significant doubt over the use of that basis for a period of at
least twelve months from the date of approval of the financial
statements. We have nothing to report in these respects.
5 we HAve NoTHING To reporT oN THe oTHer
INFormATIoN IN THe ANNuAl reporT
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not
cover the other information and, accordingly, we do not express
an audit opinion or, except as explicitly stated below, any form
of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements
audit work, the information therein is materially misstated
or inconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.
29
KromeK Group plc
Annual Report & Accounts 2018
Independent Auditor’s Report (continued)
Strategic report and directors’ report
Based solely on our work on the other information:
n we have not identified material misstatements in the strategic
report and the directors’ report;
n in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
n in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
6 we HAve NoTHING To reporT oN THe oTHer
mATTerS oN wHIcH we Are requIreD To reporT
By excepTIoN
8 THe purpoSe oF our AuDIT worK AND To wHom
we owe our reSpoNSIBIlITIeS
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.
Nick plumb (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
29 June 2018
Under the Companies Act 2006, we are required 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.
We have nothing to report in these respects.
7 reSpecTIve reSpoNSIBIlITIeS
Directors’ responsibilities
As explained more fully in their statement set out on pages 20
to 21, the directors are responsible for: the preparation of the
financial statements including being satisfied that they give a
true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud
or error; assessing the Group and parent Company’s ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern; and using the going concern basis of
accounting unless they either intend to liquidate the Group or
the parent Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue our opinion in an auditor’s report. Reasonable assurance
is a high level of assurance, but does not guarantee that an
audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of the
financial statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
30
continuing operations
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative 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 2018
Consolidated income statement
For the year ended 30 April 2018
2018
£’000
11,845
(5,161)
6,684
-
(214)
(8,811)
2017
£’000
8,968
(3,851)
5,117
(15)
(194)
(8,662)
(2,341)
(3,754)
35
(227)
5
(45)
(2,533)
(3,794)
1,429
710
(1,104)
(3,084)
(0.4)
(0.4)
(1.8)
(1.8)
31
KromeK Group plc
Annual Report & Accounts 2018
Consolidated statement of comprehensive income
For the year ended 30 April 2018
loss for the year
Items that are or may be subsequently reclassified to profit or loss:
2018
£’000
2017
£’000
(1,104)
(3,084)
Exchange differences on translation of foreign operations
(1,026)
685
Total comprehensive loss for the year
(2,130)
(2,399)
32
KromeK Group plc
Annual Report & Accounts 2018
Consolidated statement of financial position
As at the year ended 30 April 2018
Non-current assets
Goodwill
Other intangible assets
Investments – Long term cash deposits
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
Borrowings
Provisions for liabilities
Net current assets
Non-current liabilities
Deferred tax liabilities
Total liabilities
Net assets
equity
Share capital
Share premium account
Merger reserve
Translation reserve
Accumulated losses
Total equity
Note
15
16
17
19
21
21
23
25
24
22
27
28
29
30
2018
£’000
1,275
16,555
1,250
3,097
22,177
3,014
11,334
1,167
9,488
25,003
47,180
(3,500)
(3,000)
(424)
(6,924)
18,079
-
(6.924)
40,256
2,604
42,625
21,853
(269)
(26,557)
40,256
As restated*
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
42,592
21,853
757
(25,584)
42,209
*See note 3 for details of the restatement.
The financial statements of Kromek Group plc (registered number 08661469) were approved by the board of directors and
authorised for issue on 29 June 2018. They were signed on its behalf by
Dr Arnab Basu mBe
Chief Executive Officer
33
KromeK Group plc
Annual Report & Accounts 2018
Consolidated statement of changes in equity
For the year ended 30 April 2018
Share capital
£’000
Share premium
account
£’000
Merger
reserve
£’000
Capital
redemption
reserve
£’000
Translation
reserve
£’000
Accumulated
losses
£’000
Total
equity
£’000
1,522
44,484
-
1,175
-
(20,678)
21,853
(1,175)
1,522
23,806
21,853
-
-
-
-
-
-
1,069
18,786
-
-
-
-
-
-
-
2,591
42,592
21,853
-
-
-
13
-
-
-
-
33
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
72
-
72
-
(22,599)
24,654
-
-
(22,599)
(3,084)
(24,654)
(3,084)
685
-
685
685
(3,084)
(2,399)
-
-
-
99
19,855
99
757
(25,584)
42,209
-
(1,104)
(1,104)
(1,026)
-
(1,026)
(1,026)
(1,104)
(2,130)
-
-
-
131
46
131
Balance at 1 may 2016
as reported
Prior period adjustment
see note 3)
As restated
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
Balance at 30 April 2017
(as restated)
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
Balance at 30 April 2018
2,604
42,625
21,853
- (269)
(26,557) 40,256
34
Net cash used in operating activities
Investing activities
Investment into Money Market account
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
Revolving credit facility
Net proceeds on issue of shares
Interest paid
Net cash generated from financing activities
Net (decrease)/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 2018
Consolidated statement of cash flows
For the year ended 30 April 2018
Note
31
2018
£’000
2017
£’000
(4,613)
(1,500)
(1,250)
35
(272)
(641)
(3,450)
(5,578)
-
46
(227)
(181)
(10,372)
20,343
(483)
9,488
-
5
(261)
(320)
(4,187)
(4,763)
3,000
19,855
(45)
22,810
16,547
3,857
(61)
20,343
35
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements
For the year ended 30 April 2018
1. GeNerAl INFormATIoN
Kromek Group plc is a company incorporated and domiciled in the United Kingdom under the Companies Act. These financial
statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group
operates. Foreign operations are included in accordance with the policies set out in note 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” IAS 11 Construction
Contracts.
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 have considered the impact of IFRS 9 and IFRS 15 and conclude that these new standards are not expected to have
a significant impact on the accounts when adopted. With regard to IFRS 9, the only area considered of key relevance relates to
provisions in respect of trade receivables. Given Group’s approach to provisions for doubtful or bad debts the Directors consider that
no further analysis will be required. On the matter of IFRS 15, the Group has undertaken a full review of all current revenue streams
and contracts and concluded that none of them will require any significant change in measure under the new standard.
The Directors continue to assess the impact of IFRS 16 Leases before it is implemented for periods beginning on or after 1 January
2019. The Group currently has property lease agreements in place for its main sites of business in the UK (Sedgefield and Huddersfield)
and in the US (Pittsburgh, PA and Riverside, CA) which are currently accounted for as operating leases. These property leases typically
span periods of between 2-20 years. The adoption of the standard will have a material impact on the balance sheet of the Group when
recognising the property asset and the present value of future lease payments. There are no other significant leases in the Group other
than these property leases. The Group will be able to give a quantification of the impact of IFRS 16 by the end of 2019.
We continue to evaluate the impacts of these new standards as we progress through our project for transition and there remains a risk
that the final outcome may be different once that project is completed and the standards are adopted.
SIGNIFIcANT AccouNTING polIcIeS
3.
Basis of preparation
The Group financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the
European Union (“IFRSs”) and IFRIC interpretations.
The financial statements have been prepared on the historical cost basis modified for assets recognised at fair value on acquisition.
Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting
policies adopted are set out below.
During the year, following a review, the Directors identified that the capital of the Group and Company differed from each other. On
investigation, it was identified that the difference arose from the accounting entries made as part of the Group reconstruction in
the year ended 30 April 2014. On further investigation, it was noted that a number of capital entries related to the former ‘topco’,
Kromek Limited, had been included within the capital of the Group. This included a capital redemption reserve of £1,175,000 and
share premium of £20,678,000. These capital entries have been removed and replaced with a merger reserve of £21,853,000 to
reflect the difference between the capital of the Company and the book value of the net assets recognised as at the date of the
Group reconstruction. These adjustments did not have an impact on the net assets or loss of the Group. See note 1 in the Company
accounts for an associated adjustment that has been made to the prior period Company balance sheet.
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
36
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
3.
SIGNIFIcANT AccouNTING polIcIeS (COntinuED)
Basis of consolidation (continued)
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 2018, the Group had net assets of £40.3m (2017: £42.2m) and cash and cash equivalents of £9.5m (2017: £20.3m)
including £3m (2017: £3m) drawn down on the Group’s Revolving Credit Facility 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.
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 to primarily OEM customers and from the research and development
contracts which are typically with government agencies, such as Innovate in the UK, DARPA and DNDO in the US. 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 which reasonably reflects
the stage of completion of the contract.
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.
37
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
3.
SIGNIFIcANT AccouNTING polIcIeS (COntinuED)
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. Revenue that has been recognised in the income statement but remain unbilled at the date of the
statement of financial position are included as amounts recoverable on contract.
Interest revenue
iv)
Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue
can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the
effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected
life of the financial asset to that asset’s net carrying amount on initial recognition.
leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to
the lessee. All other leases are classified as operating leases.
The Group as lessee
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except
where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are
consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate
benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is
more representative of the time pattern in which economic benefits from the leased asset are consumed.
Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the
minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other payables. Each lease
payment is allocated between the liability and finance charges so as to achieve a constant rate of interest costs charged to the income
statement on the outstanding balance.
Foreign currencies
The individual results of each Group company are presented in the currency of the primary economic environment in which it operates
(its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group
company are expressed in pound sterling, which is the functional currency of the Company, and the presentation currency for the
consolidated financial statements. The Directors have applied IAS 21 The Effects of Changes in Foreign Exchange Rates and have
come to the conclusion that the inter-company loans held by Kromek Limited, substantially form part of the net investment in Kromek
USA, and so any gain or loss arising on the inter-company loan balances are recognised as other comprehensive income in the period.
In preparing the results of the individual companies, transactions in currencies other than the entity’s functional currency (foreign
currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each statement of financial position
date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date.
Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date
when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not
retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are
translated at exchange rates prevailing on the statement of financial position date. Income and expense items are translated at the
average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange
rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and
accumulated in equity.
On consolidation, the results of overseas operations are translated into Sterling at rates approximating to those ruling when the
transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those
operations, are translated at the rate ruling at the statement of financial position date. Exchange differences arising on translating the
opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in other comprehensive
income and are credited/(debited) to the retranslation reserve.
Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to
them and that the grants will be received.
Government grants towards job creation and growth (RGF) costs are recognised as income over the periods necessary to match them
with the related costs of creating those jobs.
38
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
3.
SIGNIFIcANT AccouNTING polIcIeS (COntinuED)
operating result
Operating loss is stated as loss before tax, finance income and costs.
retirement benefit costs
The Group operates a defined contribution pension scheme for employees.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. For these schemes the
assets of the schemes are held separately from those of the Group in independently administered funds. Payments made to state-
managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations
under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. Tax is recognised in the income statement except
to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. The R&D tax credit is
calculated using the current rules as set out by HMRC and is recognised in the income statement during the period in which the R&D
programmes occurred.
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;
39
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
3.
SIGNIFIcANT AccouNTING polIcIeS (COntinuED)
Internally-generated intangible assets – research and development expenditure (continued)
its intention to complete the intangible asset and use or sell it;
its ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate
the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally,
the usefulness of the intangible asset.
the availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset; and
its ability to measure reliably the expenditure attributable to the intangible asset during its development.
Research expenditure is written off as incurred. Development expenditure is also written off, except where the Directors are satisfied
as to the technical, commercial and financial viability of individual projects. In such cases, the identifiable expenditure is deferred and
amortised over the period during which the Group is expected to benefit. This period normally equates to the life of the products the
development expenditure relates to. Where expenditure relates to developments for use rather than direct sales of product the cost is
amortised straight-line over a 2-15-year period. Provision is made for any impairment.
Amortisation of the intangible assets recognised on the acquisitions of NOVA R&D, Inc. and eV Products, Inc. are recognised in the
income statement on a straight-line basis over their estimated useful lives of between five and fifteen years.
patents and trademarks
Patents and trademarks are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives.
Impairment of tangible and intangible assets excluding goodwill
At each statement of financial position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows
that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit (CGU) to which the
asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual
CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be
identified.
An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the
asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a 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
40
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
3.
SIGNIFIcANT AccouNTING polIcIeS (COntinuED)
provisions for liabilities (continued)
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.
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.
41
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
3.
SIGNIFIcANT AccouNTING polIcIeS (COntinuED)
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 33.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of equity instruments that will eventually vest. The vesting date is determined based
on the date an employee is granted options, usually three years from date of grant. At each statement of financial position date, the
Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting
conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment to equity reserves.
cash
Cash, for the purposes of the statement of cash flows, comprises cash in hand and deposits repayable on demand, less overdrafts
repayable on demand.
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. 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.
The recoverability of the development costs are assessed on an annual basis using the latest forecasts and management expectations
regarding the markets in which the Group operates in. Where the recoverable amount is deemed less than the currently carrying value
of the development cost a 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.
Impairment of other 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.
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. Management have judged
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. 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.
42
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
4.
crITIcAl AccouNTING juDGemeNTS AND Key SourceS oF eSTImATIoN uNcerTAINTy (COntinuED)
Key sources of estimation uncertainty (continued)
ii) 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. A change in the estimate of total forecast contract costs would impact the stage of completion
of those contracts and the level of revenue recognised thereon which could have a material impact on the results of the Group.
iii) R&D tax credit
The R&D tax credit is calculated using the current rules as prescribed by HMRC. The estimation is based on the actual UK
R&D projects that qualify for the scheme that have been carried out in the period. Management form an estimation of the tax
credit on a prudent basis and then obtain additional professional input from the current tax providers prior to submission of
the claim to HMRC
5.
reveNue
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
2018
£’000
5,399
1,024
5,422
11,845
-
-
11,845
2017
£’000
6,676
74
2,218
8,968
(15)
-
8,953
6. operATING SeGmeNTS
products and services from which reportable segments derive their revenues
For management purposes, the Group is organised into two geographical business units (USA and UK) and it is on these operating
segments that the Group is providing disclosure.
Both business units focus on the three key markets of the Group (Medical Imaging, Nuclear detection and Security Screening).
Typically, the USA business unit focuses on Medical Imaging and the UK on Nuclear detection and Security Screening. However, this
arrangement is flexible and can vary based on the geographical location of the Group’s customer.
The chief operating decision maker is the Board of Directors who assess performance of the segments using the following key
performances indicators: revenues, gross profit and operating profit. The amounts provided to the Board with respect to assets and
liabilities are measured in a way consistent with the Financial Statements.
The turnover, profit on ordinary activities and net assets of the Group are attributable to one business segment, i.e. the development
of digital colour X-ray imaging enabling direct materials identification, as well as developing a number of detection products in the
industrial and consumer markets.
Analysis by geographical area
A geographical analysis of the Group’s revenue by destination is as follows:
United Kingdom
North America
Asia
Europe
Australasia
Total revenue
2018
£’000
1,253
3,547
6,080
949
16
11,845
2017
£’000
931
4,455
3,276
296
10
8,968
43
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
6. operATING SeGmeNTS (COntinuED)
A geographical analysis of the Group’s revenue by origin is as follows:
year ended 30 April 2018
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)/profit
Interest received
Interest expense
(loss)/profit before tax
Tax credit
(loss)/profit 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
44
2,914
1,024
129
4,067
(940)
3,127
(3,955)
35
(227)
(4,147)
1,429
(2,718)
192
-
(1,429)
307
1,132
-
111
(2,405)
17
307
790
1,132
26,975
(5,503)
5,585
-
5,293
10,878
(2,160)
8,718
1,614
-
-
1,614
-
1,614
-
-
-
478
775
-
20
2,887
83
478
3,300
775
20,205
(1,421)
8,499
1,024
5,422
14,945
(3,100)
11,845
(2,341)
35
(227)
(2,533)
1,429
(1,104)
192
-
(1,429)
785
1,907
-
131
482
100
785
4,090
1,907
47,180
(6,924)
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
6. operATING SeGmeNTS (COntinuED)
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
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)
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.
45
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
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
Information about major customers
2018
£’000
9,611
2,234
11,845
2017
£’000
6,671
2,297
8,968
Included in revenues arising from USA operations are revenues of approximately £4,773k (2017: £1,869k) which arose from the
Group’s largest customer (2017: major customer). Included in revenues arising from UK operations are revenues of approximately
£1,265k (2017: £2,925k) which arose from a major customer (2017: largest customer).
7.
loSS BeFore TAx For THe yeAr
Loss before tax for the year has been arrived at after (crediting)/charging:
2018
£’000
(593)
4,015
785
1,907
4,672
6,642
2017
£’000
(792)
3,520
762
1,417
4,534
6,638
2018
£’000
2017
£’000
55
55
33
33
88
56
56
2
2
58
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
- Taxation and other services
total non-audit fees
total
46
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
STAFF coSTS
9.
The average monthly number of employees (excluding non-executive directors) was:
2018
Number
2017
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
89
6
11
108
2018
£’000
5,662
504
345
131
6,642
2
88
7
12
109
2017
£’000
5,592
526
421
99
6,638
The total Directors’ emoluments (including non-executive directors) was £744k (2017: £616k). The aggregate value of contributions
paid to money purchase pension schemes was £20k (2017: £63k) in respect of two directors (2017: two directors).
The highest paid director received emoluments of £346k (2017: £235k) and amounts paid to money purchase pension schemes
was £10k (2017: £10k).
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
2018
£’000
1,307
258
57
97
1,719
2018
£’000
35
35
2017
£’000
1,047
187
134
81
1,449
2017
£’000
5
5
47
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
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
2018
£’000
227
227
2018
£’000
1,167
262
-
1,429
-
-
-
2017
£’000
45
45
2017
£’000
596
114
-
710
-
-
-
Total tax credit in income statement
1,429
710
Corporation tax is calculated at 19% (2017: 19.9%) 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% (2017: 19.918%)
Expenses not deductible for tax purposes
Effect of R&D
Rate differences effect of R&D
Share scheme deduction under Part 12 CTA 2009
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
2018
£’000
2,533
481
115
879
-
64
(305)
-
-
262
10
(77)
1,429
2017
£’000
3,794
755
(29)
833
-
89
(71)
-
-
114
(897)
(84)
710
Further details of deferred tax are given in note 22. There are no tax items charged to other comprehensive income.
48
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
12.
TAx (COntinuED)
reconciliation of tax credit (continued)
The rate of corporation tax for the year is 19% (2017: 19.92%). Finance (No.2) Act 2015 reduced the rate from 19% 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 £46k (2017: £168k). The asset has not
been recognised as it is not considered probable that there will be future profits available.
The other tax jurisdiction that the Group currently operates in is the US. Any deferred tax arising from the US operations is
calculated at 26% which represents the revised rate of 21% following recent tax reform in the US (plus an allowance for state taxes
at 5%). The recent tax reform that has taken place in the US over the last 12 months is not expected to have a significant impact.
DIvIDeNDS
13.
The Directors do not recommend the payment of a dividend (2017: £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)
2018
£’000
(1,104)
2018
Number
2017
£’000
(3,084)
2017
Number
260,161,744
174,572,586
2,606,464
3,564,858
262,768,208
178,137,444
2018
(0.4)
(0.4)
2017
(1.8)
(1.8)
Due to the Group having losses in each of the years, the fully diluted loss per share for disclosure purposes, as shown in the income
statement, is the same as for the basic loss per share.
49
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
15. GooDwIll
cost
At 1 May 2017
At 30 April 2018
Accumulated impairment losses
At 1 May 2017
At 30 April 2018
carrying amount
At 30 April 2018
At 30 April 2017
£’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
2018
£’000
1,275
2017
£’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
10 year forecasts for each cash-generating unit. The base 10-year projection is year-on-year growth over the next 10 years, with
overheads remaining relatively stable. The annual growth rate of the CGU for the next 10 years is expected to be 70%. These cash
flows are then discounted at the Company’s weighted average cost of capital of 12.37% (2017: 11.42%).
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 2018 (2017: £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 2018. For illustrative purposes, a compound
reduction in revenue of 10% in each of years 1-10 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 impairment in 2018 or 2017.
50
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
16. oTHer INTANGIBle ASSeTS
Development
costs
£’000
Patents,
trademarks &
other intangibles
£’000
cost
At 1 May 2017
Additions
Exchange differences
At 30 April 2017
Amortisation
At 1 May 2017
Charge for the year
Exchange differences
At 30 April 2018
carrying amount
At 30 April 2018
At 30 April 2017
12,940
3,449
(456)
15,933
1,317
1,218
(26)
2,509
13,424
11,623
6,285
641
(141)
6,785
3,084
689
(119)
3,654
3,131
3,201
Total
£’000
19,225
4,090
(597)
22,718
4,401
1,907
(145)
6,163
16,555
14,824
The Group 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.
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 2018 was £1,067k (2017: £1,521k), 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.
51
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
17.
properTy, plANT AND equIpmeNT
Computer
Equipment
£’000
Plant and
machinery
£’000
Fixtures and
fittings
£’000
cost or valuation
At 1 May 2017
Additions
Disposals
Exchange differences
At 30 April 2018
Accumulated depreciation and
impairment
At 1 May 2017
Charge for the year
Eliminated on disposal
Exchange differences
At 30 April 2018
carrying amount
At 30 April 2018
At 30 April 2017
848
99
-
(15)
932
617
101
-
(8)
710
222
231
7,897
133
-
(191)
7,839
4,488
662
-
(118)
5,032
2,807
3,409
222
40
(1)
(10)
251
164
22
(1)
(2)
183
68
58
Total
£’000
8,967
272
(1)
(216)
9,022
5,269
785
(1)
(128)
5,925
3,097
3,698
Assets held under finance leases with a net book value of nil (2017: £40k) 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
2018
£’000
1,093
1,488
433
3,014
2017
£’000
1,846
1,132
226
3,204
The cost of inventories recognised as an expense during the year in respect of continuing operations was £4,672k (2017: £4,534k).
The write-down of inventories to net realisable value amounted to £235k (2017: nil). The reversal of write-downs amounted to nil
(2017: £2k). 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.
52
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
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
2018
£’000
7,556
7,556
8,062
(506)
7,556
2018
£’000
3,245
7,556
200
333
1,167
12,501
2017
£’000
3,139
3,139
3,139
-
3,139
2017
£’000
2,304
3,139
183
379
596
6,601
Amount receivable for the sale of goods
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 54 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
2018
£’000
114
58
-
876
1,408
2017
£’000
50
12
15
48
125
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.
53
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
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
2018
£’000
-
-
-
303
303
2017
£’000
-
-
-
667
667
Of the £303k of debtors at 121+ days a cumulative full provision totalling £303k for doubtful debts has been made at 30 April 2018
as noted below.
At 30 April 2018, trade receivables are shown net of an allowance for doubtful debts of £303k (2017: £435k) arising from the ordinary
course of business, as follows:
Balance at 1 May 2017
Provided during the year
(Released) during the year
Impact of foreign exchange
Balance at 30 April 2018
2018
£’000
435
32
(155)
(9)
303
2017
£’000
408
-
-
28
436
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.
54
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
22. 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 2017
(Credit)/charge to profit or loss
At 30 April 2018
Fair value
revaluation of
acquired
intangibles
£’000
Accelerated
capital allowances
£’000
Short term
timing
differences
£’000
1,073
(350)
723
873
(29)
844
(16)
(11)
(27)
Tax
losses
£’000
(1,930)
390
(1,540)
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
2018
£’000
1,540
(1,540)
-
2017
£’000
1,930
(1,930)
-
At the statement of financial position date, the Group has unused tax losses of £21,786k (2017: £20,991k) available for offset against
future profits. A deferred tax asset has been recognised in respect of £6,763k (2017: £6,763k) of such losses. The asset is considered
recoverable because it can be offset to reduce future tax liabilities arising in the Group. No deferred tax asset has been recognised in
respect of the remaining £15,023k (2017: £14,228k) 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.
23. TrADe AND oTHer pAyABleS
Trade payables and accruals
Deferred income
2018
£’000
3,490
10
3,500
2017
£’000
3,557
1,010
4,567
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 49 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.
55
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
24. provISIoNS For lIABIlITIeS
At 1 May
Charge to profit or loss
Impact of foreign exchange
At 30 April
2018
£’000
169
269
(14)
424
2017
£’000
-
169
-
169
During the prior year, the Company was given notice on one of its sites. The site’s delapidations provision reflects management’s best
estimates and ability to measure the likely costs that may be incurred restoring the building back to its original state. An onerous lease
provision has been recognised in the current year. Given that both provisions are expected to be settled in the next 12-18 months, the
impact of discounting the provision would be immaterial.
25. BorrowINGS
Secured borrowing at amortised cost
Revolving credit facility
Finance lease liabilities
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
2018
£’000
3,000
-
3,000
3,000
-
2017
£’000
3,000
-
3,000
3,000
-
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.
The weighted average interest rates paid during the year were as follows:
Revolving credit facility
Finance lease liabilities
2018
%
3.10
0.82
2017
%
3.10
0.82
56
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
26.
DerIvATIveS FINANcIAl INSTrumeNTS AND HeDGe AccouNTING
At 30 April 2018 and 30 April 2017, the Group had no derivatives in place for cash flow hedging purposes.
27.
SHAre cApITAl
Allotted, called up and fully paid:
259,095,618 (2017: 152,211,082) Ordinary shares of £0.01 each
1,300,000 (2017: 106,884,536) Ordinary shares issued at £0.01 each
Total 260,435,618 (2017: 259,095,618) Ordinary shares of £0.01 each
During the year 1,340,000 shares (2017:1,755,000) were allotted under EMI share option schemes.
2018
£’000
2,591
13
2,604
28.
SHAre premIum AccouNT
Balance at 1 May 2017 - As restated (see note 3)
Premium arising on issue of equity shares
Balance at 30 April 2018
29.
TrANSlATIoN reServe
Balance at 1 May 2017
Exchange differences on translating the net assets of foreign operations
Balance at 30 April 2018
2017
£’000
1,522
1,069
2,591
£’000
45,592
33
45,625
£’000
757
(1,026)
(269)
Exchange differences relating to the translation of the net assets of the Group’s foreign operations, which relate to subsidiaries only,
from their functional currency into the parent’s functional currency, being Sterling, are recognised directly in the translation reserve.
30. AccumulATeD loSSeS
Balance at 1 May 2017
Net loss for the year
Effect of share-based payment credit
Balance at 30 April 2018
£’000
(25,584)
(1,104)
131
(26,557)
57
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
31.
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)/decrease in inventories
(Increase) in receivables
(Decrease)/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
2018
£’000
(1,104)
(35)
227
(1,429)
-
783
1,907
131
480
191
(5,330)
(1,067)
255
(5,471)
858
(4,613)
2018
£’000
9,488
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.
58
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
32. operATING leASe ArrANGemeNTS
The Group as lessee
Lease payments under operating leases
recognised as an expense in the year
2018
£’000
625
2017
£’000
532
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
2018
£’000
250
156
406
2017
£’000
528
590
1,118
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 2018 and 2017, the Group had no capital commitments or contingencies.
During June 2018, the key US operation took possession of the new custom-built premises for eV Products, located near Pittsburgh,
Pennsylvania. This facility will be under a 20-year lease commencing from June 2018. As such, this lease is not included in the
amounts above as at 30 April 2018.
33.
SHAre BASeD pAymeNTS
equity-settled share option scheme
The Company has a share option scheme (EMI scheme) for all employees of the Group. Options are exercisable at a price equal to the
average quoted market price of the Company’s shares on the date of grant. The average vesting period is three years. If the options
remain unexercised after a period of 10 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
2018
weighted average
exercise price (£)
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
10,514,870
910,600
(1,340,000)
(234,400)
9,851,070
8,500,570
0.16
0.26
0.015
0.27
0.17
0.17
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
The weighted average share price at the date of exercise for share options exercised during the year was £0.015 (2017: £0.27). The
options outstanding at 30 April 2018 had a weighted average exercise price of £0.17 (2017: £0.16) and a weighted average remaining
contractual life of four years (2017: five years). The range of exercise prices for outstanding share options at 30 April 2018 was 1.5p to
79p (2017: 1.5p to 79p). In 2018, the aggregate of the estimated fair values of the options granted is £46k (2017: £15k). 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
2018
27p
27p
31.14%
6 years
0.37
0%
2017
31p
30p
36.42%
6 years
0.46
0%
59
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
33.
SHAre BASeD pAymeNTS (COntinuED)
equity-settled share option scheme (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 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.
During January 2018, 1,443,829 (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 £61k (2017: £79k). The amounts recognised as a
share-based payment expense for the year ended 30 April 2018 was £20k (2017: £71k).
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
2018
22p
1p
35.00%
3 years
0.32
0%
2017
22p
1p
35.00%
3 years
0.32
0%
During 2017/18, a new incentive award scheme was introduced for a number of key employees regarding an Average Valuation
creation of the Company, referred to as the “VC”. This has awarded key employees 8,007,162 options under the scheme. However,
these options only vest after five years (at 1p per share) and are subject to challenging specific performance criteria over that period
commencing 1 May 2017. The quantity of options that vest is weighted, such that the maximum amount only vests on achievement
of all performance criteria.
The Group recognised total expenses of £131k (2017: £99k) related to all equity-settled share-based payment transactions. This is
inclusive of both the equity settled share option scheme and the 2013 LTIP.
34.
reTIremeNT BeNeFIT ScHemeS
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for all employees. Where there are employees who leave the
schemes prior to vesting fully in the contributions, the contributions payable by the Group are reduced by the amount of forfeited
contributions.
The employees of the Group’s subsidiaries in the United States of America are members of a state-managed retirement benefit scheme
operated by the government of the United States of America. The subsidiaries are required to contribute a specified percentage of
payroll costs to the 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 £345k (2017: £421k) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at 30 April 2018, contributions of £23k (2017: £23k) due in respect of the current reporting
period had not been paid over to the scheme.
35.
FINANcIAl INSTrumeNTS
Financial Instruments
The Group’s principal financial instruments are cash and trade receivables.
The Group has exposure to the following risks from its operations:
capital risk
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the
return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy has remained unchanged
between 2017 and 2018.
The capital structure of the Group consists of net debt, which includes the borrowings disclosed in note 25 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 26 to 30.
The Group is not subject to any externally imposed capital requirements.
60
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
35.
FINANcIAl INSTrumeNTS (COntinuED)
capital risk (continued)
The Group’s primary source of capital is equity. By pricing products and services commensurately with the level of risk and focusing
on the effective collection of cash from customers, the Group aims to maximise revenues and operating cash flows.
Cash flow is further controlled by ongoing justification, monitoring and reporting of capital investment expenditures and regular
monitoring and reporting of operating costs. Working capital fluctuations are managed through employing the revolving credit facility
available, which at the year end was £3.0m (2017: £3.0m). Details of the revolving credit facility have been included in note 25.
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 pounds sterling. The Group also holds cash and cash equivalents in non-sterling denominated bank
accounts.
The following table shows the denomination of the year end cash and cash equivalents balance:
£ sterling
US$ sterling equivalent
€ sterling equivalent
2018
£’000
8,847
202
439
2017
£’000
22,783
(2,832)
393
Had the foreign exchange rate between sterling, US$ and € changed by 6% (2017: 11%), this would affect the loss for the year and net
assets of the Group by £65k (2017: £208k). 6% (2017: 11%) is considered a reasonable assessment of foreign exchange movement
as this has been the movement noted between 2017 and 2018 (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.
61
KromeK Group plc
Annual Report & Accounts 2018
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2018
35.
FINANcIAl INSTrumeNTS (COntinuED)
liquidity risk (continued)
Weighted
average
effective
interest rate
%
Less than 1
month
£’000
1-3 months
£’000
3 months to
1 year
£’000
1-5 years
£’000
5+ years
£’000
Total
£’000
revolving credit facility
30 April 2017
revolving credit facility
30 April 2018
3.1
3.1
-
-
-
-
3,000
3,000
-
-
-
-
3,000
3,000
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
Investment in money market accounts
Cash and bank balances
Loans and receivables
Financial liabilities
Amortised cost
2018
£’000
1,250
9,488
11,001
2017
£’000
-
20,343
5,626
(3,925)
(4,736)
Fair values of Financial Assets and Financial liabilities
The following hierarchy classifies each class of financial asset or liability depending on the valuation technique applied in determining
its fair value:
Level 1: The fair value is calculated based on quoted prices traded in active markets for identical assets of liabilities.
Level 2: The fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. The fair value of a financial instrument is the price that would be received to sell and asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date.
Level 3: The fair value is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs).
In these financial statements, all of the above financial instruments are considered to be Level 2 in the fair value hierarchy. There have
been no transfers between categories in the current or preceding year. The fair value of financial instruments held at fair value have
been determined based on available market information at the balance sheet date of 30 April 2018.
36. 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 nil (2017: £100k) 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 2018, the balance outstanding in respect of this fee was nil (2017:
£100k) following payment 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.
62
KromeK Group plc
Annual Report & Accounts 2018
Company statement of financial position
As at the year ended 30 April 2018
Non-current assets
Investment in subsidiaries
Investment in money market account
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
Merger reserve
Accumulated losses
Total equity
3
5
6
7
11
12
13
2018
£’000
4,000
1,250
5,250
43,008
1,778
44,786
50,036
(271)
(3,000)
(3,271)
46,765
2,604
42,625
3,221
(1,685)
46,765
As restated*
2017
£’000
4,000
-
4,000
38,828
7,778
46,606
50,606
(352)
(3,000)
(3,352)
47,254
2,591
42,592
3,221
(1,150)
47,254
The loss for the year was £535k (2017: loss £476k). *See note 1 for details of the restatement.
The financial statements of Kromek Group plc (registered number 08661469) were approved by the Board of Directors and authorised
for issue on 29 June 2018. They were signed on its behalf by:
Dr Arnab Basu mBe
Chief Executive Officer
63
KromeK Group plc
Annual Report & Accounts 2018
Company statement of changes in equity
For the year ended 30 April 2018
equity attributable to equity holders of the company
Share capital
£’000
Share premium
account
£’000
Balance at 1 may 2016 (as reported)
Prior period adjustment (see note 1)
Balance at 1 May 2016 (as restated)
Loss for the year and total comprehensive losses
for the year
Issue of share capital net of expenses
Balance at 30 April 2017 (as restated)
Loss for the year and total comprehensive loss
for the year
Issue of share capital net of expenses
1,522
-
1,552
-
1,069
2,591
-
13
Merger
reserve
£’000
-
3,221
3,221
-
-
Accumulated
losses
£’000
Total
equity
£’000
(674)
-
(674)
24,654
3,221
27,875
(476)
(476)
-
19,855
23,806
-
23,806
-
18,786
42,592
3,221
(1,150)
47,254
-
33
-
-
(535)
-
(535)
46
Balance at 30 April 2018
2,604
42,625
3,221
(1,685)
46,765
64
KromeK Group plc
Annual Report & Accounts 2018
Company statement of cash flows
For the year ended 30 April 2018
Net cash used in operating activities
10
Investing activities
Investment in Money market account
Net cash used in investing activities
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 in cash and cash equivalents
cash and cash equivalents at beginning of year
cash and cash equivalents at end of year
2018
£’000
(577)
(1,250)
(1,250)
47
(4,144)
-
-
(76)
(4,173)
(6,000)
7,778
1,778
2017
£’000
(181)
-
-
19,855
(22,874)
-
3,000
(58)
(77)
(258)
8,036
7,778
65
KromeK Group plc
Annual Report & Accounts 2018
Notes to the Company financial statements
For the year ended 30 April 2018
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.
As noted in note 3 to the Group accounts, an adjustment has been made to the prior period capital of the Company and the Group.
As part of the Group reconstruction in 2013 a cost of investment equal to the net assets of Kromek Limited should have been
recognised at the time of the share-for-share exchange. As a result, the investment held on the balance sheet of the Company in
respect of Kromek Limited has now been reflected at £4,000,000, being the net assets of Kromek Limited at the time of the Group
reconstruction. As a consequence, a merger reserve of £3,221,000 has also been recognised and the original entry of £779,000,
previously taken to intercompany debtor due from Kromek Limited, has been reversed.
These adjustments increased net assets by £3,221,000 with no impact on the Company’s losses.
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 2018 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.
At 1 May 2017 (as restated, see note 1)
At 30 April 2018
66
£,000
4,000
4,000
KromeK Group plc
Annual Report & Accounts 2018
Notes to the Company financial statements (continued)
For the year ended 30 April 2018
4.
STAFF coSTS
The average monthly number of employees (excluding non-executive directors) was:
2018
£’000
2017
£’000
Research and development, production
Sales and marketing
Administration
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
2
1
2
5
2018
£’000
354
47
75
476
2018
£’000
2
1
2
5
2017
£’000
385
49
79
513
As restated
(see note 1)
2017
£’000
42,968
38,824
40
-
4
-
43,008
38,828
2018
£’000
248
23
271
2017
£’000
315
37
352
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.
67
KromeK Group plc
Annual Report & Accounts 2018
Notes to the Company financial statements (continued)
For the year ended 30 April 2018
7. BorrowINGS
Details regarding the borrowings of the Company are disclosed in note 25 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.
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
(Increase)/decrease in receivables
(Decrease)/increase in payables
Net cash from operating activities
11. SHAre cApITAl
Allotted, called up and fully paid:
259,095,618 (2017: 152,211,082) Ordinary shares of £0.01 each
1,340,000 (2017: 106,884,536) Ordinary shares issued at £0.01
Total 260,435,618 (2017: 259,095,618) Ordinary shares of £0.01 each
12. SHAre premIum AccouNT
Balance at 1 May 2017
Premium arising on issue of equity shares
Expenses arising on issue of equity shares
Balance at 30 April 2018
68
2018
£’000
(535)
75
(460)
(36)
(81)
(577)
2018
£’000
2,591
13
2,604
2017
£’000
(476)
58
(418)
14
223
(181)
2017
£’000
1,522
1,069
2,591
2018
£’000
42,592
33
-
42,625
KromeK Group plc
Annual Report & Accounts 2018
Notes to the Company financial statements (continued)
For the year ended 30 April 2018
13. AccumulATeD loSSeS
Balance at 1 May 2017
Net loss for the year
Balance at 30 April 2018
£’000
(1,150)
(535)
(1,685)
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 26 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.
69
KromeK Group plc
Annual Report & Accounts 2018
Notes to the Company financial statements (continued)
For the year ended 30 April 2018
14. FINANcIAl INSTrumeNTS (COntinuED)
liquidity risk (continued)
Weighted
average
effective
interest rate
%
3.1
3.1
revolving credit Facility
at 30 April 2017
revolving credit Facility
at 30 April 2018
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
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 nil (2017: £100k) 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 2018, the balance outstanding in respect of this fee was nil (2017:
£100k) following payment on 24 May 2017.
No dividends were paid in the period in respect of ordinary shares held by the Company’s Directors.
70
Directors, Secretary and Advisers
DIRECTORS
Dr A Basu
Mr D Bulmer
Sir P Williams
Mr L H N Kinet
Dr G K Speirs
Mr J H Whittingham
Mr C Wilks (appointed 1 October 2017)
COMPANY SECRETARY
Mr D Bulmer
REGISTERED OFFICE
BANKERS
NETPark
Thomas Wright Way
Sedgefield
TS21 3FD
NOMINATED ADVISER AND
jOINT BROKER
Cenkos Securities plc
6.7.8. Tokenhouse Yard
London
EC2R 7AS
jOINT BROKER
Cantor Fitzgerald
One Churchill Place
Canary Wharf
London
E14 5RB
HSBC Bank plc
1 Saddler Street
Durham
DH1 3NR
AUDITOR
KPMG LLP
Statutory Auditor
Newcastle upon Tyne
NE1 3DX
LEGAL ADVISER
Eversheds Sutherland
Bridgewater Place
Water Lane
Leeds
LS11 5DR
REGISTRAR
PUBLIC RELATIONS ADVISER
Link Asset Services
34 Beckenham Road
Beckenham
BR3 4TU
Luther Pendragon Ltd
48 Gracechurch Street
London
EC3V 0EJ
Kromek Group plc
NETPark, Thomas Wright Way,
Sedgefield, County Durham, TS21 3FD, UK