Kromek Group plc
Annual report and accounts for the
year ended 30 April 2019
Advancing CZT manufacture to target
significant growth opportunities in
medical imaging and wide area nuclear
detection applications
Medical imaging
and nuclear
security
$1bn+ opportunity in each
sector over the next 10 years
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.
Kromek’s CZT-based
detectors significantly
advance the early
identification of disease,
such as cancer,
Alzheimer’s, Parkinson’s
and osteoporosis.
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
12 Strategic Report: Review of
Principal Risks
20 Directors’ Biographies
22 Directors’ Report
24 Corporate Governance Report
27 Audit Committee Report
29 Remuneration Committee
Report
34 Independent Auditor’s Report
40 Consolidated income
statement
41 Consolidated statement of
comprehensive income
42 Consolidated statement of
financial position
43 Consolidated statement of
changes in equity
44 Consolidated statement of
cash flows
45 Notes to the consolidated
financial statements
78 Company financial statements
Annual Report & Accounts 2019
Page 1
Financial Highlights
Revenue
£14.5m
h23%
Adjusted
EBITDA*
£2.0m
Cash &
Equivalents
£20.6m
Product
% of Sales
83%
h25%
value
Gross
Margin
57.2%
2017/18: £11.8m
2017/18: £0.5m
30 Apr 18: £9.5m
2017/18: 81%
2017/18: 56.4%
*Adjusted 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 9.
“Milestone year with growth driven by
SPECT products in medical imaging
and D3S platform in nuclear detection
– and delivered key target of increasing
adjusted EBITDA”
“Successfully commenced operations from
new high-volume manufacturing facility
in US following relocation to purpose-
built premises in Pittsburgh to cater for
increased demand in medical imaging”
Operational Highlights
D3S platform is now being sold in over
18 countries across Europe and Asia
as well as in the US
Two-year contract by US Dept of Homeland Security
to develop CZT detector modules for advanced X-ray
systems for passenger baggage screening
$1.5m
Secured a new nuclear security OEM
customer with a three-year contract
$1.4m
Won a new five-year contract from existing
OEM customer to provide customised detector
modules for baggage screening products
$7.8m
$58.1m
Awarded significant contract
by existing OEM customer for
CZT detectors and advanced
electronics to be used in
state-of-the-art medical
imaging system
$ 0.7m
Awarded contract for new OEM customer in
the nuclear medicine instrumentation market
to be delivered over 18 months
Received expansion to existing order under
five-year security screening contract
$2.7m
Awarded contract by DTRA for two-year
project to develop ruggedised, small form-
factor D3S platform for military use
$1.8m
Continued to advance towards achieving first
full clinical validation of Kromek’s CZT-based
SPECT detector system
Page 2
KromeK Group plc
“Major progress was made in our Medical Imaging business
by completing the integration of our CZT detector assemblies
into a system capable of producing clinical grade images”
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Sir Peter Williams CBE
Chairman
26 June 2019
In the year ended 30 April 2019, Kromek took a
number of significant steps towards its long-term
growth goals. The progress of 2017/18 was sustained
into the 2018/19 fiscal year as we remained at the
forefront in developing solutions to combat some of
the greatest security and health challenges faced by
society today.
We continued to gain traction in all of our business
segments with the award of high-value, multi-year
contracts from our commercial and large government
customers worldwide. Over the last three fiscal years,
we have won more than $80m of contracts, across
all of our core sectors, demonstrating the strength of
our technology base, the successful conversion of our
growing order pipeline and the deep and long-lasting
partnerships that we are continuing to build with our
customers.
This year, Kromek continued to execute on previously-
signed agreements, which in turn helped grow profit
at the adjusted EBITDA level providing clear evidence
of this progress. In addition, new customers, new
contracts and repeat orders were won in all our target
markets. These new awards, alongside customers
increasingly moving from R&D programmes to full
commercialisation as cadmium zinc telluride (“CZT”)
detection technology progressively replaces legacy
systems, demonstrates the scale of opportunity in front
of us.
It also provides us with greater visibility over revenue
for the coming years and confidence in our growth
prospects. Overall, we have achieved significant
milestones in commercialising our technology this
year and remain confident of furthering our strategy of
becoming the preferred sub-systems supplier to major
OEMs through existing and new relationships.
Arnab Basu, our Chief Executive Officer, provides a
detailed review of our operational achievements for
the year and the progress made in our two key growth
areas of single photon emission computed tomography
(“SPECT”) products in medical imaging and our D3S
platform in nuclear detection. The superior detail in
SPECT images means this technology will improve
early stage diagnosis of diseases such as cancer and
Parkinson’s, ensuring better patient outcomes. This
is recognised by major healthcare OEMs, which are
driving market adoption.
Annual Report & Accounts 2019
Page 3
“We remain at the forefront in developing solutions to combat
some of the greatest security and health challenges faced by
society today”
For our D3S platform, 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. However, the threat of a “dirty” bomb is global
and government agencies around the world are gearing up
to guard against it. Our D3S platform is already involved in
deployments across Europe and Asia, and, while the potential
of the US market remains substantial, the demand for portable
advanced radiation detectors for nuclear safeguarding is a
significant global market opportunity.
Strengthened Global Base – New Facilities in
uS
Given the strategic importance of the US markets, last year
we laid the foundations to support future growth there and
relocated our US operations to new premises near Pittsburgh,
Pennsylvania. The new purpose-built facility serves as the
focus of our medical imaging business, providing world-class
manufacturing of CZT-based SPECT products. The new facility
is fully operational and has significantly increased capacity and
efficiency of the manufacturing process.
In the last quarter of the year, we raised £21m from new and
existing shareholders to strengthen the balance sheet and to
enable us to capitalise on the significant growth opportunities
for our flagship medical imaging products and the D3S platform.
This included investing in our manufacturing facilities in the US
and UK to both expand future capacity and drive efficiencies.
We continually monitor the political environment and keep
under review the potential impact of Brexit. However, we
are strategically well-placed to navigate whatever will be the
outcome of the Brexit process because we operate from both
the UK and the US, with significant manufacturing facilities
in both locations, and sell to an international customer base
through a combination of distributors and direct to OEMs.
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. We also give special thanks to Dr Graeme Speirs, who
stepped down as a Non-executive Director during the year, for
his tremendous support and guidance over the years, and we
wish him all the best for the future.
Kromek has the market opportunities, the technology and
the products to excel, and so, with the strengthening of our
foundations and with sustained long-term growth drivers, we
look forward to delivering significant shareholder value in the
years to come.
“Over the last three fiscal years, we have won more than $80m of
contracts, across all of our core sectors, demonstrating the strength of our
technology base, the successful conversion of our growing order pipeline
and the deep and long-lasting partnerships that we are continuing to build
with our customers”
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Page 4
KromeK Group plc
Strategic Report
“This was a milestone year for Kromek...we increased our
revenue by 23% to £14.5m...adjusted EBITDA to £2.0m...and,
successfully delivered our largest second half revenue in the
Group’s history”
Dr Arnab Basu MBE
Chief Executive Officer
26 June 2019
This was a milestone year for Kromek as we delivered
on all of our objectives, including our key target
of growing adjusted EBITDA. For the full year, we
increased our revenue by 23% to £14.5m (2017/18:
£11.8m) and adjusted EBITDA fourfold to £2.0m
(2017/18: £0.5m). In particular, we successfully
delivered our largest second half revenue in the
Group’s history, which was in excess of £10m. This
progress was based on Kromek continuing to execute
on previously-signed agreements as well as winning
new customers, new contracts and repeat orders
across our target markets, with growth driven by
increasing adoption of our next-generation molecular
imaging single photon emission computed tomography
(“SPECT”) products in medical imaging and our D3S
family of products in nuclear detection. It also reflects
the increasing commercialisation of our technology,
with product sales accounting for 83% of total revenue
(2017/18: 81%), representing growth in value of 25%.
We were also awarded one of our most significant
contracts to date, expected to be worth a minimum of
$58.1m over a seven-year period, to provide cadmium
zinc telluride (“CZT”) detectors and associated
advanced electronics to be used in state-of-the-art
medical imaging systems.
During the year, we significantly strengthened the
foundations of our business and ability to deliver on
future growth with the successful relocation of our US
operations to a new facility that has been purpose-built
for high-volume manufacturing of world-class medical
imaging products. This was furthered in the second
half of the year via a placing and open offer raising
£21m to support the growth of the medical imaging
business and sales and marketing of the D3S platform.
In addition, the fundraise strengthens the balance
sheet to provide flexibility to address and capitalise on
identified and future opportunities as they emerge.
medical Imaging
We made significant commercial progress in the
medical imaging markets during the year: delivering on
previously-won orders, receiving repeat orders from
existing customers as well as securing new contracts
with new customers across our key segments of
SPECT, bone mineral densitometry (“BMD”) and
gamma probes.
As noted, during the year, we secured one of our most
significant contracts to date, both from a strategic and
monetary perspective. The contract, which is from
an existing OEM customer, is expected to be worth
a minimum of $58.1m over a seven-year period. We
will provide the customer with CZT detectors and
associated advanced electronics to be used in its
state-of-the-art medical imaging systems.
We are receiving significant interest in our SPECT
products as the market continues to grow. The
Annual Report & Accounts 2019
Page 5
“We significantly strengthened the foundations of our business and ability to
deliver on future growth with the successful relocation of our US operations
to a new facility that has been purpose-built for high-volume manufacturing
of world-class medical imaging products”
generational change in the detector technology is led by
GE Healthcare, championing nuclear medical imaging and
recognising CZT as key to their next-generation systems.
During the year, we advanced towards achieving clinical
validation of our CZT-based SPECT detector system under
the contract signed in 2014 with an established manufacturer
of X-ray diagnostics and analysis equipment. We believe that
our CZT-based SPECT detectors will significantly enhance the
identification and management of diseases such as cancer
and Parkinson’s. We were also awarded a $700k order from a
new OEM customer, to be delivered over 18 months, to supply
our CZT detectors to be used to build next-generation nuclear
medical instrumentation.
In the BMD segment, which is used for the detection of
osteoporosis, we were awarded a repeat contract by an
existing OEM customer to provide CZT-based detectors for the
customer’s existing product line. The contract, which was worth
$340k, was delivered during the year.
In the gamma probes segment, which are used for radio guided
surgery, we 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
Our flagship D3S platform consists of a family of products
designed to cater for the varying demands of homeland security.
The D3S-ID is a wearable and concealable Radioisotope
Identification Device (RIID) gamma neutron detector for
immediate area detection. The D3S-NET builds on the features
of the D3S-ID by adding a networked solution, with each
device acting as a building block for wide area mapping on a
remotely-hosted server. The recently launched D3S-PRD has
the same hardware as the D3S-ID, but is a more cost-effective
device without some of the specialised reporting functionality of
the D3S-ID and is designed for first-line users. The D3S Drone
uses an unmodified D3S gamma neutron radiation detector
plugged into a custom-built transmission unit, which allows it to
communicate at up to ten kilometres to a base station.
During the year, we continued to increase sales of our D3S
products. This was supported by the expansion, following
the successful fundraise, of our D3S distribution network and
sales team. As a result, the D3S family of products is sold in 18
countries worldwide.
The D3S platform was used in active deployments and field-
tests in multiple locations of strategic importance and high risk
across the US, Asia and Europe. With some of these multi-year
trials approaching a successful conclusion, we anticipate this
activity translating to product and system-level sales in the
future.
This included continued deployment and field-testing in major
areas in the US by the Defense Advanced Research Projects
Agency (“DARPA”), an agency of the US Department of
Defense, under its SIGMA programme, and by other agencies.
The D3S platform was also used by the Belgian Federal Police
(Airport Unit), supported by the European Commission Counter
Terrorism Unit of the Directorate General for Home Affairs,
during the July 2018 NATO Summit in Brussels.
In addition, the D3S platform was selected by the European
Commission’s Directorate-General for Migration and Home
Affairs, working alongside security authorities in Belgium,
Luxembourg, The Netherlands and Spain, under a new initiative
to allow the law enforcement authorities to validate new and
emerging technologies for homeland protection. Deployment
commenced post period and over the next 12 months, the
European Commission will use our D3S-ID and D3S Drone
radiation detectors for the protection of public spaces across
multiple European locations covering high risk venues such as
airports, train stations and other public areas.
We were awarded a $1.8m contract by the Defense Threat
Reduction Agency (“DTRA”), an agency of the US Department
of Defense, to develop a next-generation, ruggedised small
form factor D3S for use by the US military to identify radioactive
threats in combat environments. The project, which is
scheduled to be delivered over a two-year period, is progressing
ahead of schedule as customer demand is accelerating
development towards commercialisation.
Also during the year, we were awarded a contract by DARPA,
as part of its new SIMGA+ initiative, to develop a proof-of-
concept vehicle-mounted device capable of detecting and
identifying pathogens used in a biological attack at significantly
higher speeds compared with current systems. This represents
our first contract for biological-threat detection, which expands
on our existing capabilities in radiological and nuclear threat
detection. We commenced development work under the
contract, which is progressing on track. The contract is worth
$2.0m over a twelve-month period and could potentially be
extended to a multi-year contract for the development of a fully-
deployable system.
In the nuclear markets, our portfolio also includes a range of
high resolution detectors and measurement systems used for
civil nuclear applications, primarily in nuclear power plants and
research. During the year, this area of business continued to
grow as expected, as we won several new customers, including
the Spanish Army and a new OEM customer. The contract
with the new OEM customer, which is for the supply of CZT
detectors, is worth at least $1.4m and will be delivered over a
three-year period, with minimum annual volumes for each year.
We also added new distributors in Europe and Asia for our civil
nuclear portfolio.
Page 6
KromeK Group plc
Strategic Report (Continued)
“We continued to develop and enhance products and platform
technologies that form elements of our product roadmap and to
enable us to maintain our leading market position”
Security Screening
In security screening, the regulatory framework in
Europe regarding explosive detection systems for
cabin baggage (EDSCB), overseen by the European
Civil Aviation Conference, is focused on increasing
safety as well as convenience and efficiency for
passengers. This includes installing equipment that is
sufficiently sophisticated to allow passengers to keep
their liquids and laptops inside their cabin baggage
when passing through security, which is driving OEMs
to adopt technologies such as Kromek’s to meet
these higher performance standards. We also provide
OEM components for hold luggage scanning.
During the year, we received an order expansion
under our five-year contract that was awarded in 2017
by a US-based OEM customer that is an emerging
global leader in homeland security. The order
expansion increased the total value of the contract
by at least 90% to a minimum of $5.8m over the five
years, with the additional $2.7m relating to the orders
for the third and fourth years of the contract.
An existing OEM customer that is a leading company
in X-ray imaging systems awarded Kromek a new
five-year supply contract worth a minimum of $7.8m.
The contract is for the customisation of current
technologies and CZT detector modules and supply
for the baggage security screening market.
We were also awarded a $1.5m two-year contract
by the US Department of Homeland Security to
develop CZT detector modules for commercial
off-the-shelf detectors for advanced X-ray systems
for passenger baggage screening. This award
reflects our established relationship with the US
government for developing next-generation radiation
detection solutions for national defence and security
applications.
manufacturing Facilities and r&D
During the year, we relocated our US operations
to a new purpose-built premises near Pittsburgh,
Pennsylvania. The facility offers a world-class platform
upon which to build next-generation CZT-based
molecular imaging SPECT detector assemblies and
other medical imaging products. The building, under
a 20-year lease, also provides a significantly more
efficient facility, is in a preferable location for attracting
talent and enhances transport connectivity. It also
allows for further capacity expansion, which, combined
with our fundraising, means that we can deliver on the
anticipated growth in medical imaging – which has
already been evidenced by the award of the significant
seven-year $58.1m contract – and provides a strong
basis on which to strengthen this part of the business.
Following the fundraising, we have also invested in
expanding our capacity at our UK manufacturing facility
as well as significantly increasing process automation
in both the UK and US. With greater automation,
we will expand our throughput capacity as well as
improve efficiencies. We intend to implement these
improvements in a phased manner over the course of
this current financial year.
Our R&D efforts focused on two key areas. We
continued to develop and enhance products and
platform technologies that form elements of our
product roadmap and to enable us to maintain our
leading market position. Importantly, we also focused
on value engineering to increase cost efficiencies to
enable us to offer competitively priced products whilst
maintaining our margins. During the year, 11 new
patents were filed and 16 patents were granted.
We worked on both externally and internally funded
R&D activities, with the proportion continuing to
transition away from externally funded R&D projects as
our technologies are increasingly commercialised. We
expect investment in R&D to remain at a steady level
over the next few years as we seek to maintain our
commercial advantage.
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Annual Report & Accounts 2019
Page 7
Our US operations were relocated to a new, purpose-built premises near
Pittsburgh, Pennsylvania. The facility offers a world-class platform upon
which to build next-generation CZT-based molecular imaging SPECT
detector assemblies and other medical imaging products.
The building allows for further capacity expansion, which, combined
with the fundraising, means that we can deliver on the anticipated
growth in medical imaging – which has already been evidenced by the
award of the significant seven-year $58.1m contract – and provides a
strong basis on which to strengthen this part of the business.
outlook
Kromek entered 2019/20 in a stronger position than
ever before. We are delivering on existing customer
product contracts as well as continuing to gain traction
in all of our business segments with the award of high-
value, multi-year contracts from commercial and large
government customers worldwide. This has given us
strong visibility over revenues for the next six to 24
months. As a result, we are confident of delivering
growth for full year 2019/20, in line with market
expectations.
Looking further ahead, with the increasing market
adoption of our customers’ next-generation products
that incorporate Kromek’s radiation detection solutions,
we are receiving increasing demand from existing
customers as well as interest from potential customers.
As a result of our new high-volume manufacturing
facility in the US for medical imaging products,
combined with the fundraising completed in the second
half of 2018/19 to support growth across the business,
we are well-placed to capitalise on these expanding
opportunities. Consequently, we continue to look to the
future with confidence.
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KromeK Group plc
Strategic Report (Continued)
“£1.5m improvement in adjusted EBITDA in 2018/19
compared with 2017/18 is substantially a result of
additional gross margin generated
from higher revenues”
Mr Derek Bulmer
Chief Financial Officer
26 June 2019
Kromek achieved year-on-year revenue growth of
23% and a fourfold increase in adjusted EBITDA
resulting in loss before tax being reduced to £1.3m
(2017/18: £2.5m loss). The balance sheet has been
strengthened following the placing and open offer
in February 2019 where the Group raised funds of
£19.8m net of expenses.
During the year, three new accounting standards
were adopted: IFRS 15 ‘Revenue from Contracts with
Customers’; IFRS 16 ‘Leases’ (early adopted); and
IFRS 9 ‘Financial instruments’. The impact of these
standards is described below.
revenue
The Group achieved total revenue growth of 23%
to £14.5m (2017/18: £11.8m), which was driven by
higher sales across both product and R&D revenue
activities. Product sales grew by 25% to £12.1m
(2017/18: £9.6m), which accounted for 83% of total
revenue (2017/18: 81%) and revenue from R&D
contracts grew by 14% to £2.5m (2017/18: £2.2m),
as detailed in the table below:
revenue
mix
2018/19
2017/18
£’000 % share
£’000 % share
product
12,060
r&D
Total
2,457
14,517
83%
17%
9,611
2,234
11,845
81%
19%
The continued year-on-year growth in product sales
reflects further traction with the D3S, SPECT and BMD
products as we delivered on the supply of multi-year
contracts that have been announced over recent
months and years.
The new revenue standard IFRS 15 ‘Revenue from
Contracts with Customers’ came into mandatory effect
for the Group during 2018/19. However, following a
comprehensive review, this mandatory change in the
Group’s revenue recognition policy has not materially
impacted the value of revenue that would have been
recognised under the former revenue standards, IAS
18 Revenue and IAS 11 Construction Contracts, in
2018/19 or during 2017/18.
Gross margin
The year-on-year increase in revenue resulted in growth
of gross profit to £8.3m (2017/18: £6.7m). Due to a
similar revenue mix, the margin remained relatively
static year-on-year, with a slight improvement to 57.2%
(2017/18: 56.4%).
Administration costs
Administration costs and operating expenses increased
by £0.2m to £9.0m (2017/18: £8.8m). This increase is
the net result of:
• £0.8m additional costs resulting from the impact of
foreign exchange fluctuations on consolidation and
revaluations of working capital balances (a weaker
average Pound to US Dollar ratio during 2018/19
compared with 2017/18);
Annual Report & Accounts 2019
Page 9
• £0.2m costs being reallocated from administration costs
to finance costs as required under the new accounting
standard IFRS 16 ‘Leases’ (see note 2 in the consolidated
financial statements below); and
• general cost savings of £0.4m made throughout 2018/19.
IFrS 16
As detailed in the Group’s Interim Results announcement on
14 January 2019, the Group has adopted the new accounting
standard, IFRS 16 ‘Leases’, and is accounting for its existing
leases in accordance with this standard.
Mandatory adoption of IFRS 16 comes into effect for the Group
for the accounting period ending 30 April 2020, and, therefore,
the Group has decided to early adopt this standard to best
reflect the new 20-year lease for the US facility. This adoption
applies to the accounting of all four existing property leases of
the Group.
In accordance with IFRS 16, right of use (ROU) assets
representing the present value of future lease payments have
been recognised on the face of the balance sheet at 30 April
2019 totalling £4.0m (30 April 2018: nil). Corresponding
liabilities have also been recognised on the face of the balance
sheet, which are split between amounts due within one year
and amounts due after more than one year: at 30 April 2019
these liabilities totalled £4.2m (30 April 2018: nil). For more
information on IFRS 16, see notes 1 to 37 to the consolidated
financial statements below.
Adjusted eBITDA* and result from operations
Primarily due to increased revenues, which resulted in a £1.6m
increase in gross profit, adjusted EBITDA for 2018/19 was
£2.0m compared with £0.5m 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
Adjusted eBITDA
2018/19
£’000
14,517
57.2%
(1,270)
364
879
1,806
195
1,974
2017/18
£’000
11,845
56.4%
(2,533)
192
785
1,907
131
482
*Adjusted EBITDA is defined as earnings before interest, taxation,
depreciation, amortisation, other income and share-based payments.
Adjusted EBITDA is considered a key metric to the users of the financial
statements as it represents a useful milestone that is reflective of the
performance of the business as a result of revenue growth. Share-
based payments are added back when calculating the Group’s adjusted
EBITDA as this is currently an expense with a zero direct cash impact
on financial performance.
The £1.5m improvement in adjusted EBITDA in 2018/19
compared with 2017/18 is substantially a result of additional
gross margin generated from higher revenues. This reflects the
operational gearing of the Group, supported by the control over
administration costs noted above.
Loss before tax for the year was reduced by 48% to £1.3m
(2017/18: £2.5m loss), largely driven by the £1.5m increase
in adjusted EBITDA and partially offset by higher interest,
depreciation and share-based payments that were largely due
to the impact of IFRS 16.
During 2018/19, the Group recognised other comprehensive
income of £1.2m (2017/18: £1.0m loss) that arose in respect of
exchange differences on a net investment in a foreign operation
as described in note 3 to the financial statements. Unlike the
£0.8m additional costs resulting from foreign exchange on
consolidation and revaluations of working capital balances
noted above that were expensed to the profit and loss account,
this gain has been treated as effectively a reserve movement
only.
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 £1.0m for
the year (2017/18: £1.4m). The Group’s deferred tax provision
movement remained static at £nil (2017/18: £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 £1.0m (2017/18: £1.4m).
earnings per Share (“epS”)
Due to the £0.8m reduction in loss after tax for the year, the
EPS is recorded in the year on a basic and diluted basis as 0.1p
loss per share (2017/18: 0.4p loss per share).
r&D
The Group invested £2.7m in the year (2017/18: £3.4m) 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 capitalisation is lower in the current year because
of the facility move in the US during the first half of 2018/19.
Development work was temporarily suspended in Kromek
US to accommodate the shutdown of the old facility and
transfer to the new facility. Based upon the existing portfolio of
development projects that are currently in operation primarily
regarding SPECT and D3S, such amounts capitalised are likely
to increase in future financial years as the Group continues with
product development, unaffected by one-off events such as a
facility relocation.
This investment was offset by further amortisation of
development costs in 2018/19 of £1.2m (2017/18: £1.2m).
Hence, the net development cost capitalisation in 2018/19
was £0.7m lower at £1.5m compared with £2.2m in 2017/18.
A further £5.3m (2017/18: £4.0m) was incurred in research
relating to the core technology platform and manufacturing
capabilities and expensed through the income statement.
Key areas of development continue to be the expansion in the
D3S suite of products and the SPECT and BMD platforms
linked to existing and expanding contract deliverables and of
significant future revenue opportunities. The Group continues
to undertake this investment in order to advance its commercial
advantage.
Page 10
KromeK Group plc
Strategic Report (Continued)
During the year, the Group undertook expenditure on
patents and trademarks of £0.2m (2017/18: £0.6m)
with 11 new patents filed and 16 patents granted
(2017/18: seven new patents filed and 29 patents
granted).
capital expenditure
Capital expenditure in the year amounted to £3.6m
(2017/18: £0.3m). This increase consisted of:
• £2.5m relating to the enhancements required for
medical imaging (including SPECT) manufacturing
capabilities at the new US facility. These additions
were financed in full by a corresponding loan with
the Group’s landlord
• £0.5m relating to assets under construction
– primarily the required increase in production
capacity following the award of the $58.1m seven-
year supply contract with a key medical OEM. The
Group expects to spend up to a further £8m-£10m
over the next 18 months in respect of such assets;
and
• £0.6m relating to modest capital expenditure
across IT and general fixtures and fittings.
cash Balance
Cash and cash equivalents were £20.6m at 30 April
2019 (30 April 2018: £9.5m). The £11.1m increase
in cash during 2018/19 was a combination of the
following:
• Adjusted EBITDA profit for the year of £2.0m, less
net finance costs of £0.3m
•
Increase in working capital of £7.5m (see below for
more detail)
• R&D Tax Credit receipts of £1.2m
•
Investment in product development and other
intangibles, with capitalised development costs of
£2.7m and IP additions of £0.2m
• Net proceeds raised from the issue of shares of
£19.8m
• Capital expenditure net of financing loans of £1.2m
The £7.5m increase in key working capital balances is
analysed as follows:
• A £0.2m increase in inventories held at 30 April
2019 to £3.2m (30 April 2018: £3.0m). Following
the $58.1m medical imaging contract awarded
in January 2019, the Group is holding more
component stock. This is an indicative feature of
a contract that is centred around product supply
rather than R&D
• An £8.7m increase in trade and other receivables
owed to the Group at 30 April 2019 to £20.0m (30
April 2018: £11.3m):
o The majority (55%) of this overall increase
is directly due to an expansion of amounts
recoverable on contract (“AROC”). In line
with IFRS 15, the Group recognises revenue
associated with the performance obligations of
such contracts “over time”, which best reflects
the transfer of control. There has been an
increase in the value of the AROC over the last
12-24 months. The reason for this increase
is because of the lead time to build on a
number of long-term contracts. This position
has been augmented due to the relocation of
the US facility; to some extent, forward build
was undertaken by the Group to mitigate any
risk of delays that may have resulted from
the relocation. This ensures that through a
critical time of growth, the Group has sufficient
product to deliver on these contracts in line
with delivery requirements and expectations
of customers. The Group expects shipment
of products and a corresponding conversion
of this AROC balance into invoices and then
cash over the next 6 to 18 months. This timing
will coincide with the beneficial impact that the
new US facility will bring to the organisation
“The Group invested £2.7m in near-term product
developments...reflecting the continued commitment
to invest for the future growth of the business with new
and enhanced products”
)
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Annual Report & Accounts 2019
Page 11
o Other increases in trade and other receivables relate
to the timing of invoicing around the financial year end
and the overall 23% increase in revenue for the year.
The Group was also impacted by the recent furlough
of the US Government during the second half of the
year, which effectively delayed the invoicing of some
contracted revenues into months 11 and 12
• A £1.4m increase in current liabilities to £8.3m (2017/18:
£6.9m). This increase is a feature of additional capital
expenditure in the year relating to the continuation of the
assets under construction and the timing of invoicing around
the year end
• During March 2019, the Group renewed its existing revolving
credit facility with HSBC. The facility has been extended
from £3.0m to £5.0m and the renewal period has increased
to a minimum of 3 years, with an additional option for
up to 5 years. Further, up to £2.0m of the facility can be
used to fund plant and machinery as well as supporting
working capital expansion. This is a continuation of a
strong relationship with HSBC and provides the Group with
additional funding capacity and options as it grows over the
coming years. At 30 April 2019, £3.0m of the facility was
drawn (30 April 2018: £3.0m).
Page 12
KromeK Group plc
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
Risks associated
with management
of the Group’s
growth strategy
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 more 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.
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 and working capital.
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.
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.
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 detector
assemblies used for single-photon
emission computed tomography (SPECT).
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 large growing
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.
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Risk
Description
Mitigation
Risks associated
with timing of
customer or third-
party projects
Risks associated
with exchange
rate fluctuations
Risks associated
with Brexit
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 headquartered 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.
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 will continue to monitor Brexit
and other macroeconomics factors such as US and
China relations.
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.
The Group has significant operations and market
presence in non-EU territories such as the US
and Asia, as well as a portfolio of products that
are market leaders because of the technological
capabilities offered. As a result, the Group is
strategically well-placed to navigate whatever will
be the outcome of the Brexit process. However,
management continually monitors the political
environment and keeps the potential impact of Brexit
under review and other global economic events such
as the existing relationship between the US and
China.
Dr Arnab Basu mBe
Chief Executive Officer
26 June 2019
Page 14
KromeK Group plc
“Using CZT for medical imaging
is like jumping straight from VHS to HD DVD
in terms of image quality”
GE Healthcare website ‘The Pulse’
Background image: Piron Guillaume
Annual Report & Accounts 2019
Page 15
CZT SPECT - A brilliant leap in
medical imaging
Gamma detector technology was first introduced in the
late 1950s, a technological wonder comparable with the
introduction of the first colour TVs. Television has changed
beyond recognition since then, but SPECT gamma detector
technology has remained largely the same, which has set limits
on the performance that can be obtained.
Now, in the same way as photography and television have
gone from analogue and black and white to digital and colour,
medical imaging is going digital and colour too, and CZT is an
enabling technology.
SPECT (single photon emission computed tomography) is
a nuclear medicine diagnostic imaging modality where the
patient is injected with a radio-pharmaceutical tracer which
concentrates at sites signifying diseases like cancer, Alzheimer’s
or Parkinson’s.
Long-term health concerns regarding exposing patients to
radiation have driven the development of more innovative
detector assemblies with features such as CZT solid-
state digital detectors to take a more precise image of the
examination area.
The main advantages of using CZT are:
• Exceptional image resolution with superior specificity
• Reduced patient dose to a fraction of historical levels
• Detector sensitivity up to 10-times that of conventional
gamma detectors
• Shorter scan time reduces the frequency with that
examinations are likely to be compromised because of
patient movement, and leads to a better patient experience
• Enables images of several tracers at once, further reducing
scan time
Improved image quality
•
Perhaps the most important thing is that, despite the dramatic
reduction in imaging time and radiation dose, it achieves this
without compromising diagnostic accuracy.
Because the CZT detector set-up is significantly lighter and
smaller than previous assemblies, the architecture can be
optimised. For example with breast imaging, the active area
of the detector can be placed closer to the chest during
examination.
Some studies with CZT-based gamma detectors show
improved patient experience with up to four-times lower
injected dose, and provided shorter, more bearable
examinations with greater patient comfort because scans lastes
only a few minutes.
The impacts and benefits of using CZT are vast. For example,
if you can see a cancer when it’s smaller and you can see
it earlier then you get a more effective diagnosis. From this
you are able to develop a more effective patient treatment
strategy and, together with faster patient throughput and faster
treatment cycle, it dramatically lowers the cost of care.
As we enter a new era in nuclear medicine, transitioning from
analogue to digital, CZT-based detectors are coming of age.
Kromek provides simple turn-key product solutions and a
robust supply chain for OEMs to integrate CZTbased detector
assemblies into their new systems or fit into their existing
system architecture.
Small field of view
gamma detector
assembly
Kromek Strengths
Achieved detector solution at acceptable price premium over conventional detector technology
Offer 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 competing OEMs through detector assembly
customisation and application optimisation
Partnership with Chinese OEMs to target emerging market opportunity within China
Page 16
KromeK Group plc
protecting
civilians and
Infrastructure
Against Nuclear
Threats
Background image: Josh Hild
Annual Report & Accounts 2019
Page 17
Catering for the unpredictable
demands of homeland security
Kromek’s flagship D3S platform is a family of products
that cater for the varying and unpredictable demands
of homeland security. Small but powerful, wearable
yet discreet, it is one of the fastest and most accurate
isotope ID devices on the market that enables users to
carry out wide area searches for nuclear threats.
At just five inches tall, it’s smaller than your average
smartphone. The ID App rapidly detects very low levels
of radiation, even if they pose no significant risk.
There are several variants:
• D3S-ID is a powerful device with extended detection
capabilities that enable safe monitoring in potentially
high dose environments. It is a complete dual
RIID (radioisotope identification device) and PRD
(personal radiation device) packaged in a single
compact device yet has all the features needed
by CBRN experts. Results can be reported back
discreetly and instantly using the industry standard
‘Reachback Report’ on the Android app.
• D3S-PRD (personal radiation device) is a recent
addition to the family and is the only commercially
available PRD that detects the presence of radiation
and displays the isotope ID in seconds. Designed
for first-line users, it shares the D3S-ID hardware but
is a more cost-effective device without some of the
specialised reporting functionality, providing non-
expert users with a cutting-edge capability.
• D3S-NET builds on D3S-ID features by adding a
networked solution, with thousands of devices
working together, each device acting as a building
block for wide area mapping on a remotely hosted
server.
D3S-PRD can be easily upgraded to a D3S-ID via
a simple online software upgrade, creating a single
device with two modes of operation: PRD and RIID
at the press of a button, giving greater flexibility to
meet challenges without having to carry any additional
(heavier) equipment or call in specialist help.
The D3S Drone uses an D3S gamma neutron radiation
detector plugged into a custom-built transmission unit,
which allows it to communicate at up to ten kilometres
to a base station.
The D3S platform has been used in active
deployments and field-tests in multiple locations of
strategic importance and high risk across the US,
Asia and Europe. With some of these multi-year trials
approaching a successful conclusion, we anticipate
this activity translating to product and system-level
sales in the future.
From prD to rIID at the touch of a button
prD
rIID
One detector
One smartphone
Two modes of operation
Page 18
KromeK Group plc
Chernobyl's ‘Red Forest’ -
one of the most radioactive
locations on Earth - has
just been surveyed by UK
scientists using a fleet
of drones equipped with
Kromek detectors
Aerial drones incorporating Kromek’s radiation detectors
can be deployed at any nuclear incident to give real-time monitoring of
the radiation intensity and its distribution
Background image: Hugh Mitton
Annual Report & Accounts 2019
Page 19
First Drone Survey of Chernobyl’s ‘Red Forest’
Reveals Unknown Radioactive Hotspots
In this case, a fixed-wing drone was equipped with
two Kromek Sigma 50 radiation detectors. The
Sigma 50 is a scintillation detector using CsI(Tl),
which is designed to be robust and can survive
hazardous conditions. The Sigma 50s is also
integrated in rotary drones that are used to scan
places of interest following the initial survey.
These can hover and use their sensors to acquire
high-resolution data and reconstruct in 3D format.
The survey, conducted in April 2019, confirmed the
current understanding of the radiation distribution
in the forest, but in far greater detail than has
previously been available, and also identified a few
unexpected hotspots local authorities had no idea
existed. Kromek continues to work with customers
and partners to provide unique detection solutions
for applications that previously had been impossible
to address.
Just 500m from the Chernobyl nuclear complex,
the ‘Red Forest’ is one of the most radioactive
locations on Earth. In the aftermath of the 1986
Chernobyl Power Plant reactor meltdown, the
amount of radiation contaminating the area killed
many of the forest’s trees and turned them a deep
reddish orange - leaving many areas still strictly out
of bounds to humans.
Everyone expected the forest to be contaminated
but how could such a large area be mapped for
radiation effectively? The answer has now been
provided by a team of British scientists who
surveyed the area using a fleet of drones equipped
with Kromek radiation detectors.
The mission was undertaken by Professor Tom Scott
with a team from Bristol University and the National
Centre for Nuclear Robotics (NCNR). The NCNR is
a consortium of UK research experts tasked with
developing the next generation of technologies for
use in cleaning up Britain’s 4.9 million tonnes of
nuclear waste.
The NCNR has developed a drone-mapping system
that allows scientists to investigate hazardous
places from a safe distance. Fixed wing drones are
used to make a general radiation map by flying at
about 40mph (65km/h) just above the treetops, in
a grid pattern. Fixed wing drones provide several
advantages over rotary drones: they can fly for
longer, they can fly faster and they typically can carry
a heavier payload.
Images: Bristol University
Page 20
KromeK Group plc
Sir Peter Williams, CBE, FREng, FRS, completed his degree and
PhD at Cambridge University, 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 was
formerly Chairman of the National Physical Laboratory, and VP and
Treasurer of the Royal Society. He is currently Chairman of the Daiwa
Anglo Japanese Foundation.
in his
Dr Basu has a PhD in physics from Durham University, specialising
in semiconducting sensor materials. He held senior management
family business, serving over 250 major
positions
telecommunications and consumer electronics manufacturers,
including Siemens and GEC. He also worked in commercial product
development for Elmwood Sensors Ltd (Honeywell Group, UK).
A prominent figure within the business community, Dr Basu was
awarded EY ‘Entrepreneur of the Year’ (2009) and received an MBE
for services to regional development and international trade (2014).
A qualified Chartered Accountant and Barrister, Mr Bulmer has
worked with KPMG and undertaken a number of senior management
roles with blue-chip public companies, including Bass plc, AWG plc
and Ibstock plc. Additionally, and more recently, a number of roles as
Finance Director of privately owned groups in both the IT and oil and
gas industries have provided a wealth of experience in executing
and managing business acquisitions plus significant aspects of the
commercial and legal disciplines of corporate management.
Sir Peter Williams
Chairman
Dr Arnab Basu
Chief Executive Officer
Mr Derek Bulmer
Chief Financial Officer and
In-House Counsel
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Mr Kinet has over 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. Mr Kinet 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 and 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.
Mr Whittingham has extensive experience in investor, operational and strategy
roles with technology-rich companies, including Incuvest LLC, Generics Group plc,
Durlacher plc, Amphion Innovations plc, INMARSAT and a number of start-ups. He
was appointed to the Board of Kromek Group plc in September 2013 and also served
on the Board of DSC Ltd, a predecessor company of the Group. Currently he combines
NED and operational roles in technology growth companies. He also served as CEO
and later Executive Chairman of Myconostica Ltd, a medical technology company
spun out from a leading UK university.
Mr Wilks BSc, FCA, has considerable experience in both science and finance. He was
formerly the Chief Financial Officer at Signum Technology, which he co-founded in
2012. Prior to this, he was Chief Financial Officer at Sondex plc where he successfully
managed their listing on the Main Market of the London Stock Exchange in 2003
and made several post-IPO acquisitions. In 2007 Sondex was acquired by GE. After
graduating from Durham University with a BSc in Applied Physics and Electronics,
Christopher initially joined Marconi Space Systems designing power systems for
space craft, and he then trained as a Chartered Accountant at Arthur Young (now
EY). After qualifying as a Chartered Accountant in audit, he became a Manager in the
Corporate Finance team at EY. His intimate understanding of the physics and financial
worlds adds valuable insight and expertise to the Board of Kromek.
Mr Lawrence Kinet
Non-Executive Director
Mr Jerel Whittingham
Non-Executive Director
Remuneration Committee Chair
Mr Christopher Wilks
Non-Executive Director
Audit Committee Chair
Page 22
KromeK Group plc
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 2019.
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. The Group
realises revenue primarily on the sale of radiation
equipment, development of radiation technology and
for leading research into different potential applications
of its detection technology.
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
2019, 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 8-11.
Future developments
The Group’s development objectives for 2019/20 are
disclosed in the Strategic Report on pages 4-13.
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, and the Group has significant operations and
manufacturing facilities in both the US and UK, the
Directors believe the Group is strategically well-placed
to navigate whatever will be the outcome of the Brexit
process. However, the Directors continually monitor
the political environment and keep the potential impact
of Brexit under review and other global economic
events such as the existing relationship between the
US and China. 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 2019.
results and dividends
The consolidated income statement is set out on page
40.
The Group’s loss after taxation amounted to £0.3m
(2017/18: £1.1m).
The Directors do not recommend the payment of a
dividend for the year ended 30 April 2019.
During the year ended 30 April 2019, the Group made
political donations of £nil (2017/18: £nil) and charitable
donations of £nil (2017/18: £nil).
Directors
The Directors who served throughout the year and
up to the date of signing this report (unless otherwise
stated) were as follows:
Dr A Basu
Mr D Bulmer
Sir P Williams
Mr L Kinet
Mr J H Whittingham
Mr C Wilks
Dr G Speirs (resigned 1 October 2018)
The emoluments and interests of the Directors in the
shares of the Group are set out in the Remuneration
Committee 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 in respect
of the annual report and the financial statements
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. Under 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 they 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.
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In preparing each of the Group and parent Company financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them
These policies are circulated to staff as part of the employee
manual, and reminders sent on a regular basis as the manual is
updated and changed.
consistently;
• make judgements and estimates that are reasonable,
relevant and reliable;
• state whether they have been prepared in accordance with
IFRSs as adopted by the EU;
• assess the Group and parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters
related to going concern; and
• 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
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.
employees
Kromek develops and manufactures products and systems that
are designed to make the world a safer place. The Board and
senior management value technological development in the
Group’s sector and actively support developments that lead to
better scanning and detection systems. To this end, Kromek
participates in technology transfer projects, and works with
many universities and other places of learning worldwide. The
Board, executive team and staff are active across a wide range
of industry steering groups, organisations and other stakeholder
organisations. All staff are encouraged to meet and participate
in events and conferences that operate in their area of expertise.
The Group’s learning and development policy encourages
employees to further their professional development. Operating
a business that is fair and equitable for all is vital to the Group’s
success. Kromek’s ethical values are outlined in its:
• Equal opportunity policy;
• Personal harassment policy;
• Family-friendly policy;
• Equality, inclusion and diversity policy; and
• Anti-bribery and corruption policy.
The Group has several routes in place to reinforce ethical
behaviour, which, depending upon the situation, could
be resolved in the regular one-to-one meeting, personal
improvement plan or in more severe action, including immediate
dismissal.
The Group’s current number of staff at the date of this report is
126 and the percentage of this number that is female is 27%.
Auditor
Each of the persons who is a Director at the date of approval of
this annual report confirms that:
• so far as the Director is aware, there is no relevant audit
information of which the Group’s auditor is unaware; and
•
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.
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 April 2019, 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
69,958,835
20.30
26,234,615
7.61
Canaccord Genuity Wealth
Management
Polymer Holdings
Hargreaves Lansdown Asset
Management
Kilik & Co
20,273,475
19,180,103
18,985,559
Herald Investment Management
17,747,059
Interactive Investor Shareholding
10,725,634
By order of the Board
Dr Arnab Basu mBe
Chief Executive Officer
26 June 2019
5.88
5.57
5.51
5.15
3.11
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Page 24
KromeK Group plc
The Directors recognise the importance of sound
corporate governance and have chosen to apply the
Quoted Companies Alliance Corporate Governance
Code (the QCA Code). The QCA Code was developed
by the QCA, in consultation with a number of
significant institutional small company investors, as a
corporate governance code applicable to 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.
Board meetings
The Board met five times during the year ended 30
April 2019, including one AGM and one strategy away
day. The following details the Board meetings during
2018/19 and the attendees:
Date
27/06/2018
25/09/2018
(Strategy day)
01/10/2018
(AGM)
11/12/2018
26/02/2019
Attendees
Sir Peter Williams
Arnab Basu
Derek Bulmer
Lawrence Kinet
Graeme Speirs
Jerel Whittingham
Christopher Wilks
Sir Peter Williams
Arnab Basu
Derek Bulmer
Lawrence Kinet
Graeme Speirs
Jerel Whittingham
Christopher Wilks
Sir Peter Williams
Arnab Basu
Derek Bulmer
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
Sir Peter Williams
Arnab Basu
Derek Bulmer
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
Sir Peter Williams
Arnab Basu
Derek Bulmer
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
Board effectiveness
The Board has set out, in the contract for Non-
Executive Directors, the time commitment required and
asked for confirmation that the Director can devote
enough time to meet the expectations of the Board.
The Board currently anticipates a minimum time
commitment of one day per month and further days
if required for the satisfactory fulfilment of Directors’
duties. This includes attendance at six Board meetings
per annum, including attendance at four in person,
the AGM, any general meeting, one annual Board
away day and at least one site visit per year. During
the year, the Board visited Kromek’s US facilities, and
it is likely that this will become an annual commitment.
Also, Directors are expected to devote appropriate
preparation time ahead of each meeting.
The Board requires the Directors to disclose any
other significant time commitments and to obtain the
agreement of the Chairman, or in the event that the
Chairman has a conflict of interest in relation to such
matter, obtain the agreement of one of the Company’s
independent Non-Executive Directors, before accepting
additional commitments that might affect the time to
devote to the role as a Non-Executive Director of the
Company.
The Board is satisfied that, between the Directors, the
executive team and senior management, the Group
has an effective and appropriate balance of skills and
experience. These include the areas of technology,
business operation, finance, innovation, international
trading and marketing. All Directors have extensive
technical qualifications and experience relating to their
area of operation.
The Board conducts half yearly reviews of the
effectiveness of its performance as a unit and of the
individual members, meeting with Board members to
discuss their involvement with the Company to ensure
that:
1. their contribution is relevant and effective;
2. that they are committed to Kromek and its values;
and
3. where relevant, they have maintained their
independence.
In order to measure the effectiveness of the Board
against these three points, four areas of performance
are considered:
1. Process and relationships
• Effective in dispatching business in and
between meetings.
• Good internal board dynamics.
• Good key relationships.
2. Coverage
• Focuses on key issues and risks.
•
Initiative-taking, dealing with crises and
identifying emerging issues.
Annual Report & Accounts 2019
Page 25
3. Impact
• Contributes to the Company’s performance.
4. Sustainability
• Aware of, and interested in, good practice.
The above forms a basis for discussion around performance in
one-to-one discussions with Board members, CEO, CFO and
Chairman to measure effectiveness. These occur after Board
meetings and during other meetings with the senior team. The
Board has not adopted any more mechanistic performance
exercises, but this is always under consideration and may be
adopted in the future.
relations with stakeholders
Shareholders
The Company communicates with shareholders through
the Annual Report and Accounts, full-year and half-year
announcements, regulatory announcements, the Annual
General Meeting (AGM) and one-to-one meetings with existing
and potential new shareholders. The Chairman aims to ensure
that the Chairs of the audit and remuneration committees are
available at the Annual General Meeting to answer questions.
All regulatory announcements along with annual reports and
notices of all general meetings over the last five years are
available on the corporate website and are publicised through
Kromek’s social media channels and newsletters.
The Board receives regular updates on the views of
shareholders through briefings and reports from Investor
Relations, the CEO, CFO and the Company’s brokers. The
Company communicates with institutional investors frequently
through briefings with management and, at a minimum, at the
time of the publication of the half year and full year results.
Broader stakeholders
Kromek develops and manufactures products and systems
that are designed to make the world a safer place. To support
this goal, Kromek participates in technology transfer projects,
and works with many universities and other places of learning
worldwide. The Board, executive team and staff are active
across a wide range of industry steering groups, organisations
and other stakeholder organisations.
As noted in the Directors’ Report above, the Group’s learning
and development policy encourages employees to further their
professional development. The Group also has a number of
policies to ensure the operation of a business that is fair and
equitable for all.
Audit committee
The Audit Committee is chaired by Christopher Wilks, an
Independent Non-Executive Director. The other members are
Sir Peter Williams, Lawrence Kinet and Jerel Whittingham,
all Independent Non-Executive Directors. For the year under
review, Dr Graeme Speirs was also a member of the Audit
Committee until his retirement as a Non-executive Director on 1
October 2018. The committee meets at least two 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.
The Audit Committee meets two times per year and the
following details the Audit Committee meetings and attendees
during the year ended 30 April 2019:
Date
27/06/2018
14/12/2018
Attendees
Sir Peter Williams
Derek Bulmer
Lawrence Kinet
Graeme Speirs
Jerel Whittingham
Christopher Wilks
Sir Peter Williams
Derek Bulmer
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
remuneration committee
The Remuneration Committee is chaired by Jerel Whittingham,
an Independent Non-Executive Director. The other member is
Lawrence Kinet, an Independent Non-Executive Director. For
the year under review, Dr Graeme Speirs was also a member
of the Remuneration Committee until his resignation as a
Non-Executive Director on 1 October 2018. 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
Remuneration Committee Report on pages 29 to 31.
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. The Directors
have set out below some of the key aspects of the Group’s
internal control procedures.
Page 26
KromeK Group plc
Going concern
As at 30 April 2019, the Group had net assets of
£61.2m (30 April 2018: £40.3m) and cash and cash
equivalents of £20.6m (30 April 2018: £9.5m) 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.
An ongoing process has been established for
identifying, evaluating and managing the significant
risks faced by the Group. The process has been in
place for the full year under review and up to the
date of approval of the annual report and financial
statements. The Board regularly reviews this process
as part of its review of such risks within its meetings.
Where any weaknesses are identified, an action
plan is prepared to address the issues and is then
implemented.
Each year the Board approves the annual budget.
Key risk areas are identified, reviewed and monitored.
Performance is monitored against budget, relevant
action is taken throughout the year and updated
forecasts are prepared as appropriate.
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.
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Annual Report & Accounts 2019
Page 27
On behalf of the Board, I am pleased to present the
Audit Committee report for the year ended 30 April
2019.
Firstly, I would like to pass my gratitude and
appreciation to Sir Peter Williams, who officially
stepped down as Chair of the Audit Committee in
June 2018. Sir Peter had been the Chair of the Audit
Committee for the last three financial years and his
work has seen the continued operation of an effective
Audit Committee. I look forward to continuing this
work as the Group continues to make technological,
commercial and financial advances.
The Audit Committee is responsible for ensuring that
the financial performance of the Group is properly
reported and reviewed. Its role includes monitoring
the integrity of the financial statements, reviewing
internal control and risk management systems,
reviewing any changes to accounting policies, and
reviewing and monitoring the extent of the non-audit
services undertaken by external auditors outside the
committee schedule to ensure there is full opportunity
for discussion.
members of the Audit committee
The Committee consists of four Independent
Non-Executive Directors: me (as Chair), Sir Peter
Williams (as former Chair), Lawrence Kinet and Jerel
Whittingham. During the year, Graeme Speirs was a
member of the Audit Committee as a non-independent
Non-Executive Director until he resigned from the
Board on 1 October 2018.
The Board is satisfied that I, as Chairman of the
Committee, have recent and relevant financial
experience. I was formerly Chief Financial Officer at
Signum Technology, which I co-founded in 2012.
Prior to this, I was Chief Financial Officer at Sondex
plc, where I successfully managed their listing on the
Main Market of the London Stock Exchange in 2003
and made several post-IPO acquisitions. In 2007
Sondex was acquired by GE. After graduating from
Durham University with a BSc in Applied Physics and
Electronics, I initially joined Marconi Space Systems
designing power systems for space craft, and then
trained as a Chartered Accountant at Arthur Young
(now EY).
Duties
The main duties of the Audit Committee are set out
in its Terms of Reference, which are available on
the Company’s website (www.kromek.com) and are
available on request from the Company Secretary.
The main items of business considered by the Audit
Committee during the year included:
•
review of the financial statements and annual
report
• consideration of the external audit report and
management representation letter;
• going concern review;
•
•
•
review of the 2019 audit plan and audit engage-
ment letter;
review of suitability of the external auditors;
review of the risk management and internal control
systems;
review and approval of the interim results;
•
• assessment of the need for an internal audit func-
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tion;
•
review of whistleblowing reports; and
• meeting with the external auditor without
management present.
role of the external auditor
The Audit Committee monitors the relationship with
the external auditor, KPMG LLP, to ensure that auditor
independence and objectivity are maintained. As
part of its review, the Audit Committee monitors the
provision of non-audit services by the external auditor.
The breakdown of fees between audit and non-audit
services is provided in note 7 of the Group’s financial
statements. The non-audit fees related to tax advice
for the Group.
The Audit Committee also assesses the auditor’s
independence and performance. The year ended
30 April 2019 represents the first year that David
Mitchell, the KPMG LLP audit director and
Responsible Individual (RI), has signed the accounts.
He has replaced Nick Plumb as the RI in the year
following staff rotation. The year ended 30 April
2019 represents the second year that KPMG LLP
have acted as the external auditor of the Group,
having replaced the Group’s former external auditors,
Deloitte LLP during the year ended 30 April 2018.
Having reviewed the auditor’s independence and
performance, the Audit Committee recommends that
KPMG LLP be re-appointed as the Group’s auditor at
the next AGM.
Audit process
The auditor prepares an audit plan for its review of
the full year financial statements. The audit plan sets
out the scope of the audit, areas to be targeted and
audit timetable. This plan is reviewed and agreed
in advance by the Audit Committee for discussion.
No major areas of concern were highlighted by the
auditor during the year; however, areas of significant
risk and other matters of audit relevance are regularly
communicated. The auditor currently calculates
materiality using the Group’s normalised loss before
tax. As the Group’s loss before tax has reduced
to £1.3m during 2018/19 (2017/18: £2.5m), the
materiality of the Group has consequently reduced
by 16% to £150k (2017/18: £179k). Despite the
reduction in materiality, there were no unadjusted
material differences reported by the auditor to the
Audit Committee.
Page 28
KromeK Group plc
Internal audit
At present the Group does not have an internal audit
function, and the Audit Committee believes that
management is able to derive assurance as to the
adequacy and effectiveness of internal controls and
risk management procedures without one.
risk management and internal controls
As described on page 24 of the Corporate
Governance Report, the Group has established
a framework of risk management and internal
control systems, policies and procedures. The Audit
Committee is responsible for reviewing the risk
management and internal control framework and
ensuring that it operates effectively. During the year,
the Audit Committee reviewed the framework and is
satisfied that the internal control systems in place are
currently operating effectively.
Whistleblowing
The Group has in place a whistleblowing policy that
sets out the formal process by which an employee of
the Group may, in confidence, raise concerns about
possible improprieties in financial reporting or other
matters. Whistleblowing is a standing item on the
Audit Committee’s agenda, and an opportunity for
updates is provided at each meeting. During the year,
there were no incidents for consideration.
christopher Wilks
Audit Committee Chairman
26 June 2019
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Annual Report & Accounts 2019
Page 29
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 makes the
following disclosures voluntarily, which are not intended
to comply with the requirements of the Companies Act
2006.
for
The Remuneration Committee
recommending the remuneration and other terms of
employment for the Executive Directors of Kromek
Group plc.
responsible
is
remuneration
the
In determining
Remuneration Committee has given consideration to
the requirements of the UK Corporate Governance
Code.
the year,
for
remuneration policy
The remuneration of Executive Directors is determined
by the Remuneration Committee and the remuneration
of Non-Executive Directors is approved by the full
Board of Directors. The remuneration of the Chairman
is determined by the Independent Non-Executive
Directors.
The remuneration packages of Executive Directors
comprise the following elements:
Basic salary and benefits
Basic salaries for Executive Directors are reviewed
annually, having regard to individual performance and
market practice. In most cases, benefits provided to
Executive Directors comprise the provision of a Group
car, or appropriate allowance, health insurance and
contributions to a Group personal pension scheme.
Annual bonus
A 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 executives’ contribution to the growth
in revenue, and specific targeted or strategic objectives.
Long-Term Incentive Plan (“LTIP”)
The Group believes that share ownership by Executive
Directors and employees strengthens the link between
their personal interests and those of the Group and the
shareholders.
The Group has executive 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. 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 Remuneration 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 2019 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:
Year ended
Director
Arnab Basu
Derek Bulmer
30 April 2019
£’000
30 April 2018
£’000
10
10
10
10
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Page 30
KromeK Group plc
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Directors’ shareholdings
Beneficial interests of the Directors in the shares of the Group are shown below:
Arnab Basu
Derek Bulmer
Peter Williams
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
30 April 2019
30 April 2018
Number
2,952,000
112,292
150,000
300,000
364,890
125,000
%
0.9
0.0
0.0
0.1
0.1
0.0
Number
2,952,000
100,000
100,000
250,000
364,890
75,000
%
1.1
0.0
0.0
0.1
0.0
0.0
Directors’ emoluments for the year ended 30 April 2019
The table below forms part of the audited financial statements:
Non-executive chairman
Sir Peter Williams
executive
Arnab Basu
Derek Bulmer
Non-executive
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
Graeme Speirs*
Total
Salary
£’000
Benefits
£’000
Bonus
paid
£’000
Pension
contributions
£’000
Total
emoluments
2018/19
£’000
Total
emoluments
2017/18
£’000
74
210
154
38
41
38
15
570
-
11
8
-
-
-
-
-
133
58
-
-
-
-
-
10
10
-
-
-
-
19
191
20
74
364
230
38
41
38
15
800
74
356
204
36
39
19
36
764
*Graeme Speirs resigned from his position as a Non-Executive Director on 1 October 2018.
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 January 2019, 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 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.
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 received specialist advice from the Group’s auditor.
As at 30 April 2019, the shares issued in 2017, 2018 and 2019 remained unvested.
During 2017/18 as noted on page 29, 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.
Annual Report & Accounts 2019
Page 31
Share price during the year
During the year to 30 April 2019, the highest share price was 31.34p (2017/18: 35.63p) and the lowest share price was 21.22p
(2017/18: 19.75p). The market price of the shares at 30 April 2019 was 25.50p (30 April 2018: 21.15p).
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 2018
number
Awarded
during the
year
exercised
during the
year
At 30 April 2019
number
expiry date
Arnab Basu
20 Nov 2011
Derek Bulmer
13 Sept 2010
Derek Bulmer
15 Oct 2012
Derek Bulmer
31 May 2013
20.0
20.0
20.0
20.0
1,000,000
500,000
125,000
250,000
-
-
-
-
-
-
-
-
1,000,000
20 Sept 2021
500,000
13 Sept 2020
125,000
15 Oct 2022
250,000
31 May 2023
Page 32
KromeK Group plc
This page intentionally left blank
Kromek Group plc
Annual report and accounts for the
year ended 30 April 2019
Annual Report & Accounts 2019
Page 33
Kromek Group plc
Annual report and accounts for the
year ended 30 April 2019
Page 34
KromeK Group plc
Independent Auditor’s Report To The Members of Kromek Group plc
1 our opINIoN IS uNmoDIFIeD
Overview
We have audited the financial statements of Kromek Group
plc (“the Company”) for the year ended 30 April 2019 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:
— 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 2019 and of the Group’s loss for the year then ended;
— 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);
— 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
— 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.
Materiality:
Group financial statements as
a whole
£150,000 (2018: £179,000)
5% (2018: 5%) of Group loss
before tax
Coverage
100% (2018: 100%) of Group
loss before tax
Key audit matters vs 2018
Recurring risks
Event driven
tu
tu
tu
Revenue recognition on
contracts
Recoverability of capitalised
development costs
Recoverability of parent
company’s debt due from
group entities
New: The impact of
uncertainties due to the UK
exiting the European Union
New: Going concern
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. We summarise
below the key audit matters in arriving at our audit opinion
above. 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.
The risk
our response
The impact of uncertainties due to the
UK exiting the European Union
Refer to page 12-13 (principal risks),
page 27-28 (Audit Committee Report),
page 47-55 (accounting policy) and page
45-85 (financial disclosures).
Unprecedented levels of uncertainty
All audits assess and challenge the
reasonableness of estimates and related
disclosures and the appropriateness of
the going concern basis of preparation
of the financial statements (see below).
All of these depend on assessments
of the future economic environment
and the group’s future prospects and
performance.
Brexit is one of the most significant
economic events for the UK and at the
date of this report its effects are subject
to unprecedented levels of uncertainty of
outcomes, with the full range of possible
effects unknown.
We developed a standardised firm-
wide approach to the consideration of
the uncertainties arising from Brexit in
planning and performing our audits. Our
procedures included:
Our Brexit knowledge
— We considered the directors’
assessment of Brexit-related sources
of risk for the group’s business and
financial resources compared with
our own understanding of the risks.
We considered the directors’ plans to
take action to mitigate the risks.
Assessing transparency
— We considered all of the Brexit related
disclosures together, including those
in the strategic report, comparing
the overall picture against our
understanding of the risks.
However, no audit should be expected
to predict the unknowable factors or
all possible future implications for a
company and this is particularly the case
in relation to Brexit.
Annual Report & Accounts 2019
Page 35
Revenue recognition on contracts
ongoing at year end
(£14.5 million; 2018: £11.8 million)
Refer to page 27-28 (Audit Committee
Report), page 48 (accounting policy) and
page 56 (financial disclosures).
The risk
our response
Subjective estimate:
Our procedures included:
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. This is
the first year that the Group is required
to account for revenue under IFRS 15
Revenue from Contracts with Customers.
The Group has to make an assessment
of the progress of each contract in order
to determine how much revenue to
recognise. 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.
Each contract is reviewed to identify and
assess distinct performance obligations,
and the transaction price allocated to
each.
For contracts ongoing at year
end, inaccurate identification of
the performance obligations and/
or incorrectly concluding whether
performance obligations have been
satisfied could lead to material variances
in the amounts recognised in revenue.
Inaccurate allocation of contract price to
separate performance obligations and/
or assessment of whether revenue from
ongoing contracts at year end should be
recognised ‘over time’ rather than ‘point
in time’, under the relevant accounting
standards, could lead to material
variances in the amounts recognised in
revenue.
The effect of these matters is that, as part
of our risk assessment, we determined
that revenue recognised of £5.6
million has a high degree of estimation
uncertainty, with a potential range of
reasonable outcomes greater than our
materiality for the financial statements as
a whole, and possibly many times that
amount. The financial statements (note 4)
disclose the sensitivity estimated by the
Group
— Accounting analysis: For selected
contracts ongoing at year end we
inspected the signed contracts
to identify relevant performance
obligations and other key information
in order to assess whether the
Group’s determination that contract
revenue should be recognised
over time or at a point in time was
appropriate and whether amounts
attributed to separate performance
obligations were accurate.
— Test of detail – For selected
contracts ongoing at year
end, we inspected the signed
contracts to identify relevant
performance obligations and
corroborated with reference to
customer correspondence, other
documentation, or Group project
personnel interviews whether these
obligations had been satisfied and
revenue appropriately allocated to the
performance obligations and reflected
in the financial statements.
— Historical comparisons – We
evaluated the historical accuracy
of the Group’s cost to complete
estimation by comparing actual costs
to budgeted forecasts.
— 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
assess revenue recognised had been
calculated and processed correctly.
— Assessing transparency – We
assessed the adequacy of the
disclosures about the judgement
involved in the identification of
performance obligations and the
classification of ongoing contracts
at year end as over time or point in
time under the relevant accounting
standards.
Page 36
KromeK Group plc
Independent Auditor’s Report (Continued)
Recoverability of capitalised
development costs
(£15.3 million; 2018: £13.4 million)
Refer to page 27-28 (Audit Committee
Report), page 52 (accounting policy) and
page 64 (financial disclosures).
The risk
our response
Subjective valuation:
Our procedures included:
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.
The effect of these matters is that,
as part of our risk assessment, we
determined that the recoverable amount
of capitalised development costs has a
high degree of estimation uncertainty,
with a potential range of reasonable
outcomes greater than our materiality for
the financial statements as a whole, and
possibly many times that amount. The
financial statements (note 4) disclose the
sensitivity estimated by the Group.
— 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.
— Sensitivity analysis – We
performed sensitivity analysis on the
assumptions, including growth rates
and discount rates included in the
Group’s valuations to identify the
breakeven point.
— 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.
— Assessing transparency – We
assessed the adequacy of the
disclosures about the judgement
involved in the recoverability of
capitalised development costs.
Annual Report & Accounts 2019
Page 37
Going concern
(Refer to page 27-28 (Audit Committee
Report), page 47-55 (accounting policy)
and page 45-85 (financial disclosures).
Recoverability of parent company’s
debt due from group entities
(£46.9 million; 2018: £43.0 million)
Refer to page 27-28 (Audit Committee
Report), page 47-55 (accounting policy)
and page 45-85 (financial disclosures).
our response
Our procedures included:
Historical comparisons:
— We compared the Group’s forecasts
to actual cash flows achieved in the
year and in earlier years.
Sensitivity analysis:
— We considered sensitivities over
the level of available financial
resources indicated by the Group’s
financial forecasts taking account
of reasonably possible (but not
unrealistic) adverse effects that could
arise from these risks individually and
collectively.
Assessing transparency:
— Assessing the completeness and
accuracy of the matters covered
in the going concern disclosure
with reference to our audit findings
from the above procedures and
our understanding of the Group’s
business and strategies.
The risk
Disclosure quality:
The financial statements explain how the
Board has formed a judgement that it is
appropriate to adopt the going concern
basis of preparation for the group and
parent company.
That judgement is based on an evaluation
of the inherent risks to the Group’s and
Company’s business model and how
those risks might affect the Group’s and
Company’s financial resources or ability
to continue operations over a period of at
least a year from the date of approval of
the financial statements.
The risks most likely to adversely affect
the Group’s and Company’s available
financial resources over this period were
in relation to the timing and delivery
of larger contracts which can cause
material fluctuations in actual cash flows
compared to those forecast.
There are also less predictable but
realistic second order impacts, such
as the impact of Brexit and the erosion
of customer or supplier confidence,
which could result in a rapid reduction of
demand and available financial resources.
The risk for our audit was whether or
not those risks were such that they
amounted to a material uncertainty that
may have cast significant doubt about
the ability to continue as a going concern.
Had they been such, then that fact
would have been required to have been
disclosed.
Forecast-based valuation
Our procedures included:
The carrying amount of the group debtor
balance is significant and at risk of
irrecoverability due to the loss-making
position of the subsidiary companies.
The estimated recoverable amount of
these balances is subjective due to the
inherent uncertainty in forecasting trading
conditions and cash flows used in the
budgets.
The effect of these matters is that, as part
of our risk assessment, we determined
that the recoverable amount of the these
balances has a high degree of estimation
uncertainty, with a potential range of
reasonable outcomes greater than our
materiality for the financial statements as
a whole, and possibly many times that
amount. The financial statements (note 4)
disclose the sensitivity estimated by the
Company.
Benchmarking assumptions:
Challenging the assumptions used in
the cash flows included in the budgets
based on our knowledge of the Group
and the markets in which the subsidiaries
operate;
Historical comparisons:
Assessing the reasonableness of the
budgets by considering the historical
accuracy of the previous forecasts;
Our sector experience:
Evaluating the current level of trading,
including identifying any indications of
a downturn in activity, by examining the
post year end management accounts
and considering our knowledge of the
Group and the market; and
Assessing transparency:
Assessing the adequacy of the parent
company’s disclosures in respect of the
group debtor balance.
Page 38
KromeK Group plc
Independent Auditor’s Report (Continued)
3. our ApplIcATIoN oF mATerIAlITY AND
AN overvIeW oF The Scope oF our AuDIT
Normalised Group Loss before Tax
£2,935,000 (2018: £3,580,000)
Group Materiality
£150,000 (2018: £179,000)
Materiality for the Group financial statements as
a whole was set at £150,000 (2018: £179,000),
determined with reference to a benchmark of group
normalised loss before tax, normalised by averaging
over the last four years due to fluctuations in the
business cycle, of £2,935,000, of which it represents
5% (2018: 5%).
Materiality for the Parent company financial
statements as a whole was set at £140,000
(2018: £134,000), determined with reference to a
benchmark of company total assets, chosen to be
lower than materiality for the group as a whole, of
which it represents 0.2% (2018: 0.3% of net assets).
We agreed to report to the Audit Committee any
corrected or uncorrected identified misstatements
exceeding £7,500, in addition to other identified
misstatements that warranted reporting on qualitative
grounds.
All of the Group’s 6 (2018: 6) reporting components,
were subjected to full scope audits for group
purposes.
The components within the scope of our work
accounted for the percentages illustrated opposite.
The Group team instructed component auditors as
to the significant areas to be covered, including the
relevant risks detailed above and the information
to be reported back. The Group team approved
materialities ranging from £4,000 to £140,000,
having regard to the mix of size and risk profile of
the Group across the components. The work on
all components, including the audit of the parent
company, was performed by the Group team.
£150,000
Whole financial statements
materiality (2018: £179,000)
£140,000
Range of materiality at 6
components (£4,000-£140,000)
(2018: £11,000 to £134,000)
Normalised LBT
Group Materiality
£7,500
Misstatements reported to the
audit committee (2018: £8,950)
Group revenue
Group loss before tax
0
0
100%
(2018 100%)
100
100
Group total assets
0
0
100%
(2018 100%)
100
100
0
0
100%
(2018 100%)
100
100
Full scope for group
audit purposes 2019
Full scope for group
audit purposes 2018
4. We hAve NoThING To reporT oN GoING
coNcerN
not a guarantee that the group or the company will continue in
operation.
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
Company or the Group or to cease their operations, and as
they have concluded that the Company’s and the Group’s
financial position means that this is realistic. They have also
concluded that there are no material uncertainties that could
have cast significant doubt over their ability to continue as a
going concern for at least a year from the date of approval of
the financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of
the Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to
that in this audit report. However, as we cannot predict all
future events or conditions and as subsequent events may
result in outcomes that are inconsistent with judgements that
were reasonable at the time they were made, the absence of
reference to a material uncertainty in this auditor’s report is
In our evaluation of the Directors’ conclusions, we considered
the inherent risks to the Group’s and Company’s business
model and analysed how those risks might affect the Group’s
and Company’s financial resources or ability to continue
operations over the going concern period. The risks that we
considered most likely to adversely affect the Group’s and
Company’s available financial resources over this period were in
relation to the timing and delivery of larger contracts which can
cause material fluctuations in actual cash flows compared to
those forecast.
As these were risks that could potentially cast significant doubt
on the Group’s and the Company’s ability to continue as a
going concern, we considered sensitivities over the level of
available financial resources indicated by the Group’s financial
forecasts taking account of reasonably possible (but not
unrealistic) adverse effects that could arise from these risks
individually and collectively and evaluated the achievability of
Annual Report & Accounts 2019
Page 39
the actions the Directors consider they would take to improve
the position should the risks materialise. We also considered
less predictable but realistic second order impacts, such as
the impact of Brexit and the erosion of customer or supplier
confidence, which could result in a rapid reduction of available
financial resources.
Based on this work, 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 a year from the date of approval of
the financial statements.
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.
Strategic report and directors’ report
Based solely on our work on the other information:
— we have not identified material misstatements in the
strategic report and the directors’ report;
— in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
— 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
Under the Companies Act 2006, we are required to report to
you if, in our opinion:
— 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
— the parent Company financial statements are not in
agreement with the accounting records and returns; or
— certain disclosures of directors’ remuneration specified by
law are not made; or
— 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 page
22-23, 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.
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.
David mitchell
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
26 June 2019
Page 40
KromeK Group plc
Consolidated income statement
For the year ended 30 April 2019
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
9
10
6
11
13
2019
£’000
14,517
(6,208)
8,309
-
(184)
(9,031)
(906)
155
(519)
2018
£’000
11,845
(5,161)
6,684
-
(214)
(8,811)
(2,341)
35
(227)
(1,270)
(2,533)
987
1,429
(283)
(1,104)
(0.1)
(0.1)
(0.4)
(0.4)
Annual Report & Accounts 2019
Page 41
Consolidated statement of comprehensive income
loss for the year
Items that are or may be subsequently reclassified to profit or loss:
For the year ended 30 April 2019
2019
£’000
(283)
2018
£’000
(1,104)
Exchange differences on translation of foreign operations
1,218
(1,026)
Total comprehensive income/(loss) for the year
935
(2,130)
Page 42
KromeK Group plc
Consolidated statement of financial position
As at 30 April 2019
Non-current assets
Goodwill
Other intangible assets
Investments – long-term cash deposits
Property, plant and equipment
Right-of-use asset
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
Lease obligation
Net current assets
Non-current liabilities
Lease obligation
Loans
Total liabilities
Net assets
equity
Share capital
Share premium account
Merger reserve
Translation reserve
Accumulated losses
Total equity
Note
14
15
16
17
19
21
21
23
26
25
24
24
26
28
29
30
31
2019
£’000
1,275
18,165
1,250
6,252
3,975
30,917
3,227
19,997
987
20,616
44,827
75,744
(4,884)
(3,133)
-
(273)
(8,290)
36,537
(3,938)
(2,313)
(6,251)
(14,541)
61,203
3,446
61,600
21,853
949
(26,645)
61,203
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
The financial statements of Kromek Group plc (registered number 08661469) were approved by the Board of Directors and
authorised for issue on 26 June 2019. They were signed on its behalf by
Dr Arnab Basu mBe
Chief Executive Officer
Annual Report & Accounts 2019
Page 43
Consolidated statement of changes in equity
For the year ended 30 April 2019
Share capital
£’000
Share
premium
account
£’000
merger
reserve
£’000
Translation
reserve
£’000
Accumulated
income/
(losses)
£’000
Total
equity
£’000
Balance at 1 may 2017
2,591
42,592
21,853
757
(25,584)
42,209
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
-
-
-
13
-
-
-
-
33
-
-
-
-
-
-
-
(1,104)
(1,104)
(1,026)
-
(1,026)
(1,026)
(1,104)
(2,130)
-
-
-
131
46
131
Balance at 30 April 2018
2,604
42,625
21,853
(269)
(26,557)
40,256
IFrS 15 adjustment
Loss for the year
Exchange difference on translation of
foreign operations
Total comprehensive income/(losses)
for the year
-
-
-
-
-
-
-
-
Issue of share capital net of expenses
842
18,975
Credit to equity for equity-settled share
based payments
-
-
-
-
-
-
-
-
-
-
1,218
-
-
(283)
-
(283)
1,218
1,218
(283)
935
-
-
-
19,817
195
195
Balance at 30 April 2019
3,446
61,600
21,853
949
(26,645)
61,203
Page 44
KromeK Group plc
Consolidated statement of cash flows
For the year ended 30 April 2019
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
Net proceeds on issue of shares
New loans and borrowings
Payment of loan and borrowings
Payment of lease liability
Interest paid
Net cash generated from/(used in) financing activities
Net increase/(decrease) 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
Note
32
2019
£’000
2018
£’000
(4,777)
(4,613)
-
155
(3,644)
(210)
(2,731)
(6,430)
19,817
2,557
(111)
(486)
(293)
21,484
10,277
9,488
851
20,616
(1,250)
35
(272)
(641)
(3,450)
(5,578)
46
-
-
(227)
(181)
(10,372)
20,343
(483)
9,488
Annual Report & Accounts 2019
Page 45
Notes to the consolidated financial statements
For the year ended 30 April 2019
GeNerAl INFormATIoN
1.
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.
Adoption of New and revised Standards
The accounting policies used in this financial report are consistent with International Financial Reporting Standards. However, new
accounting standards have been adopted as described below:
IFrS 15 revenue from contracts with customers (effective for year ends beginning on or after 1 January 2018)
The new accounting standard IFRS 15 sets out a single and comprehensive framework for revenue recognition. The guidance
in IFRS 15 is more detailed than previous IFRSs for revenue recognition (IAS 11 Construction Contracts and IAS 18 Revenue
and associated interpretations).
The Group has adopted IFRS 15 from 1 May 2018 and has chosen to apply the cumulative effect approach. As a result, the
Group is required to restate its opening equity position as at 1 May 2018 to reflect the impact of transitioning to IFRS 15.
However, when transitioning to IFRS 15, on 1 May 2018, there has been a zero impact on its opening equity position.
In line with the requirements of the standard in regard to the transition option adopted, the Group has not restated its
comparative information which continues to be reported under previous revenue standards, IAS 11 and IAS 18. As noted
below, the financial impact of this is zero.
Impact of the adoption of IFrS 15
Retained earnings as previously reported
Adjustment to earnings from adoption of IFRS 15 – profit before tax
Adjustment to earnings from adoption of IFRS 15 – deferred tax
retained earnings on adoption of IFrS 15 – 1 may 2018
Impact on the result for the year ended 30 April 2019
Revenue
Cost of sales
Gross profit
Distribution costs
Administration expenses
operating loss
Finance income
Finance costs
loss before tax
Tax
loss for the year from continuing operations
As reported
1 may 2018
£’000
(26,557)
-
-
(26,557)
Result before
adoption
of IFRS 15
£’000
Impact of
change
in GAAP
£’000
Result after
adoption
of IFRS 15
£’000
14,517
(6,208)
8,309
(184)
(9,031)
(906)
155
(519)
(1,270)
987
(283)
-
-
-
-
-
-
-
-
-
-
-
14,517
(6,208)
8,309
(184)
(9,031)
(906)
155
(519)
(1,270)
987
(283)
Page 46
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
ADopTIoN oF NeW AND revISeD STANDArDS (coNTINueD)
2.
Impact of the adoption of IFrS 15 (continued)
Revenue before the adoption of IFRS 15 was accounted for under IAS 11 and IAS 18.
An assessment of the impact of IFRS 15 was completed during the year across the Group’s revenue streams, including a comprehensive
review of contracts that were not completed at the date of initial application.
This review ascertained that under IFRS 15 all revenue that had been recognised in previous accounting periods up to and including
30 April 2018 under the former revenue standards of IAS 11 and IAS 18 are consistent with how the revenue would have been
recognised under IFRS 15 should this standard have been applied retrospectively to the same period.
In addition to this, IFRS 15 has not impacted the revenue and profit recognition of contracts commencing during the year which were
incomplete at 30 April 2019. The revenue from contracts that were formerly assessed under IAS 11 have been accounted for under
IFRS 15 as “over time” and, revenue from contracts that were formerly assessed under IAS 18 have been accounted for under IFRS
15 as “point in time”.
A summary of the new accounting policies and the nature of the changes to previous accounting policies in relation to the revenues
derived from the Group’s various goods and services are set out below:
Type of product or
service
Revenue from the sale
of radiation detection
equipment
Revenue from construction
contracts and grants
Nature, timing and satisfaction of performance obligations
and significant payment terms
Nature, timing and satisfaction
of performance
No material impact on adoption of
IFRS 15.
No material impact on adoption of
IFRS 15.
Revenue from the sale of radiation detection equipment is recognised
at a point in time on despatch unless the customer specifically
requests deferred delivery. For deliveries deferred, at the customer’s
request, revenues are recognised at a point in time when the
customer takes title of the goods provided that it is probable that
delivery will be made, the goods are identifiable and ready for delivery
and usual payment terms apply.
Construction contracts comprise contracts specifically negotiated for
the construction and design, development and delivery of specific
radiation equipment to a particular customer.
The transaction price of the contract is known from inception of the
contract.
Each contract is reviewed to identify the number of distinct
performance obligations and the transaction price is assigned
accordingly, usually by the value of work performed on an input cost
basis. Based on the performance of the contract to date, revenue is
recognised over time.
If relevant, an expected loss on a contract is recognised immediately
in the income statement.
In order to demonstrate a consistent revenue recognition of IFRS 15 compared to IAS 18 and IAS 11, the timing of the Group’s
revenue recognition can be disaggregated in 2018/19 and 2017/18 as follows:
Product and services transferred at a point in time – IFRS 15 (2018: IAS 18)
Products and services transferred over time – IFRS 15 (2018: IAS 11)
2019
£’000
8,952
5,565
2018
£’000
6,035
5,810
14,517
11,845
IFrS 16 leases
The Group has early adopted IFRS 16 Leases using the modified retrospective approach. Leases are initially recorded on the statement
of financial position whereby the right of use (“ROU”) asset is measured at an amount equal to the current outstanding lease liability.
Under this methodology, the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4.
The Group recognises a ROU asset and a lease liability at the transition date (1 May 2018). Leases subject to IFRS 16 are recorded
on the balance sheet, showing a ROU asset and a corresponding lease liability. The lease liability is initially measured at the present
value of future lease payments that are not paid at the commencement date, discounted using the relevant incremental borrowing
rate in line with the standard.
The ROU asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of
the useful life of the ROU or the end of the lease term.
Annual Report & Accounts 2019
Page 47
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
2.
ADopTIoN oF NeW AND revISeD STANDArDS (coNTINueD)
IFrS 16 leases (continued)
The standard allows two options for adoption – fully retrospective and modified retrospective. The Group has elected to take the
modified retrospective approach. As a result of this the Group has:
-
-
recognised a lease liability at 1 May 2018 for leases previously classified as operating leases applying IAS 17. The Group has
measured lease liabilities at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing
rate at the date of initial application;
recognised a right-of-use asset at 1 May 2018 for leases previously classified as operating leases applying IAS 17. The Group
has chosen to measure right-of-use assets at an amount equal to the lease liabilities, adjusted by the amount of any prepaid or
accrued lease payments relating to those leases recognised in the statement of financial position as at 30 April 2018; and
- 2018 comparatives are left unchanged, and any opening adjustment to net assets was recognised on 1 May 2018.
The Group has also applied the low value and short-term expedients.
All these leases adopted under IFRS 16 relate to property rentals; no other material leases that are above the expedient threshold are
required for IFRS 16 treatment.
As noted above, no comparatives are given for the adoption of IFRS 16. The Group has calculated that the right-of-use asset
recognised and corresponding liability as at 1 May 2018 is £1.3m.
The impact on adoption within the results reported as continued operations for the year ended 30 April 2019 is as follows:
- Finance costs have increased by £226k;
- Depreciation expense has increased by £334k due to the depreciation of the right-of-use asset;
- EPS has not changed; and
- Adjusted EBITDA has improved by £0.5m due to the reduction of rental expense.
IFrS 9 Financial Instruments
The Group has adopted IFRS 9 Financial Instruments which is mandatory for years commencing on or after 1 January 2018. The
Group does not believe that the new classification requirements have a material impact on its accounting for financial assets, financial
liabilities, loans, investments in debt securities that are all managed on a fair value basis.
At the end of each reporting period, financial instruments are assessed for impairment. Any impairment charge is recognised in the
profit and loss account.
3.
SIGNIFIcANT AccouNTING polIcIeS
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.
Basis of consolidation
The consolidated financial statements incorporate the results and net assets of the Group and entities controlled by the Group (its
subsidiaries) made up to 30 April each year. Control is achieved where the Group has the power to govern the financial and operating
policies of an investee entity so as to obtain benefits from its activities.
The results of subsidiaries acquired during the year are included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to results of subsidiaries
to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and
expenses, and profits are eliminated on consolidation.
Going concern
As at 30 April 2019, the Group had net assets of £61.2m (2018: £40.3m) and cash and cash equivalents of £20.6m (2018: £9.5m)
including £3m (2018: £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
Page 48
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
3.
SIGNIFIcANT AccouNTING polIcIeS (COnTInuED)
Business combinations (continued)
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:
•
•
•
•
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, the negative goodwill is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Goodwill
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill
is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and
the fair value of the 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.
contracts with customers – accounting policies applied since 1 may 2018
The Group has adopted IFRS 15 retrospectively from 1 May 2018 in accordance with paragraph C3(a) and has chosen to apply the
cumulative effect approach. As a result, the Group has restated its opening equity position as at 1 May 2018 to reflect the impact of
transitioning to IFRS 15. Comparatives for the year ended 30 April 2018 have not been restated.
The following expedients have been used in accordance with paragraph C5:
– revenue in respect of completed contracts that begin and end in the same accounting period has not been restated;
– revenue in respect of completed contracts with variable consideration reflects the transaction price at the date the contracts
were completed; and
– in the financial statements for the year ending 30 April 2019, the comparative information for the year ending 30 April 2018 will
not disclose the amount of the transaction price allocated to the remaining performance obligations or an explanation of when
the Group expects to recognise that amount as revenue.
Following the adoption of IFRS 15, the Group’s accounting policy in respect of revenue is as follows:
Revenue represents income derived from contracts for the provision of goods and services by the Group to customers in exchange
for consideration in the ordinary course of the Group’s activities.
Performance obligations
Upon approval by the parties to a contract, the contract is assessed to identify each promise to transfer either a distinct good or
service or a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer.
Goods and services are distinct and accounted for as separate performance obligations in the contract if the customer can benefit
from them either on their own or together with other resources that are readily available to the customer and they are separately
identifiable in the contract.
Transaction price
At the start of the contract, the total transaction price is estimated as the amount of consideration to which the Group expects to be
entitled in exchange for transferring the promised goods and services to the customer, excluding sales taxes. Variable consideration,
such as price escalation, is included based on the expected value or most likely amount only to the extent that it is highly probable
that there will not be a reversal in the amount of cumulative revenue recognised. The transaction price does not include estimates of
consideration resulting from contract modifications, such as change orders, until they have been approved by the parties to the
Annual Report & Accounts 2019
Page 49
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
3.
SIGNIFIcANT AccouNTING polIcIeS (COnTInuED)
Transaction price (continued)
contract. The total transaction price is allocated to the performance obligations identified in the contract in proportion to their relative
stand-alone selling prices. Given the bespoke nature of many of the Group’s products and services, which are designed and/or
manufactured under contract to the customer’s individual specifications, there are sometimes no observable stand-alone selling
prices. Instead, stand-alone selling prices are typically estimated based on expected costs plus contract margin consistent with the
Group’s pricing principles.
Revenue and profit recognition
Revenue is recognised as performance obligations are satisfied as control of the goods and services is transferred to the customer.
For each performance obligation within a contract, the Group determines whether it is satisfied over time or at a point in time. The
Group has determined that the performance obligations of the majority of its contracts are satisfied at a point in time. Performance
obligations are satisfied over time if one of the following criteria is satisfied:
– the customer simultaneously receives and consumes the benefits provided by the Group’s performance as it performs;
– the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or
– the Group’s performance does not create an asset with an alternative use to the Group and it has an enforceable right to payment
for performance completed to date.
For each performance obligation to be recognised over time, the Group recognises revenue using an input method, based on costs
incurred in the period. Revenue and attributable margin are calculated by reference to reliable estimates of transaction price and
total expected costs, after making suitable allowances for technical and other risks. Revenue and associated margin are therefore
recognised progressively as costs are incurred, and as risks have been mitigated or retired. The Group has determined that this
method faithfully depicts the Group’s performance in transferring control of the goods and services to the customer.
If the over-time criteria for revenue recognition are not met, revenue is recognised at the point in time that control is transferred to the
customer, which is usually when legal title passes to the customer and the business has the right to payment, for example, on delivery.
The Group’s contracts that satisfy the over time criteria are typically product development contracts where the customer simultaneously
receives and consumed the benefit provided by the Groups performance.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately as an
expense.
Contract modifications
The Group’s contracts are sometimes amended for changes in customers’ requirements and specifications. A contract modification
exists when the parties to the contract approve a modification that either changes existing or creates new enforceable rights and
obligations. The effect of a contract modification on the transaction price and the Group’s measure of progress towards the satisfaction
of the performance obligation to which it relates is recognised in one of the following ways:
(a) prospectively as an additional, separate contract;
(b) prospectively as a termination of the existing contract and creation of a new contract; or
(c) as part of the original contract using a cumulative catch up.
The majority of the Group’s contract modifications are treated under either (a) (for example, the requirement for additional distinct
goods or services) or (c) (for example, a change in the specification of the distinct goods or services for a partially completed contract),
although the facts and circumstances of any contract modification are considered individually as the types of modifications will vary
contract-by-contract and may result in different accounting outcomes.
Costs to obtain a contract
The Group expenses pre-contract bidding costs which are incurred regardless of whether a contract is awarded. The Group does not
typically incur costs to obtain contracts that it would not have incurred had the contracts not been awarded.
Costs to fulfil a contract
Contract fulfilment costs in respect of over time contracts are expensed as incurred. No such costs have been incurred in current or
previous years. Contract fulfilment costs in respect of point in time contracts are accounted for under IAS 2 Inventories.
Inventories
Inventories include raw materials, work-in-progress and finished goods recognised in accordance with IAS 2 in respect of contracts
with customers which have been determined to fulfil the criteria for point in time revenue recognition under IFRS 15. It also includes
inventories for which the Group does not have a contract. This is often because fulfilment costs have been incurred in expectation of a
contract award. The Group does not typically build inventory to stock. Inventories are stated at the lower of cost, including all relevant
overhead.
Contract receivables
Contract receivables represent amounts for which the Group has an unconditional right to consideration in respect of unbilled revenue
recognised at the balance sheet date and comprises costs incurred plus attributable margin.
Page 50
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
3.
SIGNIFIcANT AccouNTING polIcIeS (COnTInuED)
Contract liabilities
Contract liabilities represent the obligation to transfer goods or services to a customer for which consideration has been received, or
consideration is due, from the customer.
leases
The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been
restated and continues to be reported under IAS 17 and IFRIC 4.
The Group recognised a ROU asset and a lease liability at the lease commencement date. The ROU asset is initially measured at cost,
which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date,
plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying
asset or the site on which it is located, less any lease incentives received.
The ROU asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of
the useful life of the ROU or the end of the lease term. The estimated useful lives of the ROU assets are determined on the same basis
as those of property and equipment. In addition, the ROU is periodically reduced by impairment loses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease, or, if that rate cannot be readily determined, the Group’s incremental borrowing
rate.
Lease payments included in the measurement of the lease liability comprise fixed payments.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future
lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be
payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or
termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the ROU asset, or is
recorded in profit or loss if the carrying amount of the ROU has been reduced to zero.
The Group has elected not to recognise ROU assets and lease liabilities for short-term leases of machinery that have a lease term of
12 months or less and leases of low value assets, including IT equipment. The Group recognises the lease payments associated with
these leases as an expense on a straight-line basis over the lease term.
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.
Annual Report & Accounts 2019
Page 51
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
3.
SIGNIFIcANT AccouNTING polIcIeS (COnTInuED)
Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to
them and that the grants will be received.
Government grants towards job creation and growth (RGF) costs are recognised as income over the periods necessary to match them
with the related costs of creating those jobs.
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.
i) current tax
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.
ii) Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the 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.
Page 52
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
3.
SIGNIFIcANT AccouNTING polIcIeS (COnTInuED)
Internally-generated intangible assets – research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from the Group’s product development is recognised only if all of the following
conditions are met:
•
•
•
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
its intention to complete the intangible asset and use or sell it;
its ability to use or sell the intangible asset;
• how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate
the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the
usefulness of the intangible asset;
•
the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible
asset; and
•
its ability to measure reliably the expenditure attributable to the intangible asset during its development.
Research expenditure is written off as incurred. Development expenditure is also written off, except where the Directors are satisfied
as to the technical, commercial and financial viability of individual projects. In such cases, the identifiable expenditure is deferred and
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.
Annual Report & Accounts 2019
Page 53
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
3.
SIGNIFIcANT AccouNTING polIcIeS (COnTInuED)
Inventories (continued)
Provision is made for obsolete, slow moving or defective items where appropriate. Items which have not shown activity for between
12-18 months will be provided for at a rate of 50%, and those which have not shown activity in 18 months or longer will be provided
for at a rate of 100% after consideration is given to the full or residual value where appropriate. Given the nature of the products and
the gestation period of the technology, commercial rationale necessitates that this provision is reviewed on a case by case basis.
provisions for liabilities
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than
not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Such provisions
are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the
balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of
money. Provisions are not recognised for future operating losses.
Financial instruments
(i) recognition and initial measurement
Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially
recognised when the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured
at fair value plus, for an item not at Fair Value Through Profit or Loss (FVTPL), transaction costs that are directly attributable
to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction
price.
(ii) classification and subsequent measurement
Financial assets
(a) Classification
On initial recognition, a financial asset is classified as measured at: amortised cost; Fair Value through Other Comprehensive
Income (FVOCI) – debt investment; FVOCI – equity investment; or FVTPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for
managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period
following the change in the business model.
A financial asset is measured at amortised cost if it meets both of the following conditions:
• It is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent
changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL.
Investments in subsidiaries are carried at cost less impairment.
Cash and cash equivalents comprise cash balances and call deposits.
(b) Subsequent measurement and gains and losses
Financial assets at FVTPL – these assets (other than derivatives designated as hedging instruments) are subsequently measured
at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.
Financial assets at amortised cost – these assets are subsequently measured at amortised cost using the effective interest
method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and
impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Financial liabilities and equity
Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:
(a) They include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and
(b) Where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that
includes no obligation to deliver a variable number of the Group’s own equity instruments or is a derivative that will be settled
by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
Page 54
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
3.
SIGNIFIcANT AccouNTING polIcIeS (COnTInuED)
Financial liabilities and equity (continued)
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so
classified takes the legal form of the Group’s own shares, the amounts presented in these financial statements for called up
share capital and share premium account exclude amounts in relation to those shares.
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is
classified as held for trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are
measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial
liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign
exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.
Where a financial instrument that contains both equity and financial liability components exists these components are separated
and accounted for individually under the above policy.
Intra-group financial instruments
Where the Group enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group,
the Group considers these to be insurance arrangements and accounts for them as such. In this respect, the Group treats the
guarantee contract as a contingent liability until such time as it becomes probable that the Group will be required to make a
payment under the guarantee.
(iii) Impairment
The Group recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost, debt
investments measured at FVOCI and contract assets (as defined in IFRS 15).
The Group measures loss allowances at an amount equal to lifetime ECL, except for other debt securities and bank balances
for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased
significantly since initial recognition, which are measured as twelve-month ECL.
Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECL. When
determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating
ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort.
This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and
informed credit assessment and including forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.
The Group considers a financial asset to be in default when:
• The borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as
realising security (if any is held); or
• The financial asset is more than 90 days past due.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
Twelve-month ECLs are the portion of ECLs that result from default events that are possible within twelve months after the
reporting date (or a shorter period if the expected life of the instrument is less than twelve months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed
to credit risk.
measurement of ecls
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls
(i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group
expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at FVOCI are
credit impaired. A financial asset is “credit impaired” when one or more events that have a detrimental impact on the estimated
future cash flows of the financial asset have occurred.
Write-offs
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic
prospect of recovery.
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
Annual Report & Accounts 2019
Page 55
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
3.
SIGNIFIcANT AccouNTING polIcIeS (COnTInuED)
Share-based payments (continued)
entitled to the options, which is based on a period of employment of three years from grant date. Details regarding the
determination of the fair value of equity-settled share-based transactions are set out in note 34.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis
over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. The vesting date is
determined based on the date an employee is granted options, usually three years from date of grant. At each statement of
financial position date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the
effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit
or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.
cash
Cash, for the purposes of the statement of cash flows, comprises cash in hand and deposits repayable on demand, less
overdrafts repayable on demand.
4.
crITIcAl AccouNTING JuDGemeNTS AND KeY SourceS oF eSTImATIoN uNcerTAINTY
In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make judgements,
estimates and 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. Management
have exercised and applied judgement when determining the useful economic life of development cost families. If the amortisation rate
of the SPECT and D3S development family were to be reduced to 10 and 5 years respectively, the amortisation charge for the year
would be £0.6m higher. 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.
performance obligations arising from customer contracts
As described in notes 2 and 3, the Group recognises revenue as performance obligations are satisfied when control of the goods
and services is transferred to the customer. Management have exercised and applied judgment in determining what the performance
obligation is and whether they are satisfied over time or at a point in time. In applying this judgement, management consider the nature
of the overall contract deliverable, legal form of the contract and economic resource required for the performance obligation to be
satisfied.
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.
ii) contract revenue
This policy requires forecasts to be made of the outcomes of long-term contracts, which include assessments and judge-
ments on changes in expected costs. A change in the estimate of total forecast contract costs would impact the stage of
Page 56
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
4. crITIcAl AccouNTING JuDGemeNTS AND KeY SourceS oF eSTImATIoN uNcerTAINTY (COnTInuED)
ii) contract revenue (continued)
completion of those contracts and the level of revenue recognised thereon which could have a material impact on the results
of the Group. In accordance with IFRS 15, £4,091k of contracted revenue is measured upon stage of completion, which is an
estimate. If the stage of completion were to be understated by 1%, this would have the effect of reducing revenue by £146k.
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. The Group has assumed 100% of the R&D tax credit is recoverable. If only 95% of the claim were to be
accepted by HMRC, this would have the effect of reducing the tax receivable and corresponding tax credit by £49k to £938k.
iv) 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 judge the recoverability at the balance sheet date and provide where appropriate. The provision for impairment
represents management’s best estimate of losses incurred in the portfolio at the balance sheet date, assessed on customer
risk scoring and commercial discussions.
5.
operATING SeGmeNTS
products and services from which reportable segments derive their revenues
For management purposes, the Group is organised into two geographical business units from which the Group currently operates
from (US 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 US 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
2019
£’000
2,267
4,869
5,452
1,905
24
2018
£’000
1,253
3,547
6,080
949
16
14,517
11,845
The Group has aggregated its market sectors into two reporting segments being the operational business units in the UK and US.
Annual Report & Accounts 2019
Page 57
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
5.
operATING SeGmeNTS (COnTInuED)
Analysis by geographical area (continued)
A geographical analysis of the Group’s revenue by origin is as follows:
Year ended 30 April 2019
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 adjusted EBITDA:
Net interest
Other operating income
Tax
Depreciation of PPE
Amortisation
Non-recurring other income
Share-based payment charge
Adjusted eBITDA
other segment information
Property, plant and equipment additions
Right-of-use assets
Depreciation of PPE
Intangible asset additions
Amortisation of intangible assets
Statement of financial position
Total assets
Total liabilities
6,718
1,020
82
7,820
(1,251)
6,569
(1,652)
155
(197)
(1,694)
1,020
(674)
42
-
(1,020)
432
1,085
-
184
49
569
1,051
432
1,309
1,085
41,370
(7,097)
4,694
-
4,534
9,228
(1,280)
7,948
746
-
(322)
424
(33)
391
322
-
33
447
721
-
11
1,925
3,075
3,257
447
1,632
721
11,412
1,020
4,616
17,048
(2,531)
14,517
(906)
155
(519)
(1,270)
987
(283)
364
-
(987)
879
1,806
-
195
1,974
3,644
4,308
879
2,941
1,806
34,374
(7,444)
75,744
(14,541)
Page 58
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
5.
operATING SeGmeNTS (COnTInuED)
Analysis by geographical area (continued)
Year ended 30 April 2018
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 adjusted EBITDA:
Net interest
Other operating income
Tax
Depreciation of PPE
Amortisation
Non-recurring other income
Share-based payment charge
Adjusted 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
uK operations
£’000
uS operations
£’000
Total for Group
£’000
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)
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.
Annual Report & Accounts 2019
Page 59
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
5.
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
2019
£’000
12,060
2,457
14,517
2018
£’000
9,611
2,234
11,845
Included in revenues arising from USA operations are revenues of approximately £4,092k (2018: £4,773k) which arose from the
Group’s largest customer. Included in revenues arising from UK operations are revenues of approximately £1,066k (2018: £1,265k)
which arose from a major customer.
6.
loSS BeFore TAx For The YeAr
Loss before tax for the year has been arrived at after (crediting)/charging:
Net foreign exchange losses/(gains)
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 8)
7.
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
2019
£’000
82
5,432
879
1,806
4,152
7,372
2018
£’000
(593)
4,015
785
1,907
4,672
6,642
2019
£’000
2018
£’000
62
62
34
34
96
55
55
33
33
88
Page 60
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
8.
STAFF coSTS
The average monthly number of employees (excluding non-executive directors) was:
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
2019
Number
2018
Number
2
95
7
12
116
2019
£’000
6,297
551
329
195
7,372
2
89
6
11
108
2018
£’000
5,662
504
345
131
6,642
The total Directors’ emoluments (including non-executive directors) was £780k (2018: £744k). The aggregate value of
contributions paid to money purchase pension schemes was £20k (2018: £20k) in respect of two directors (2018: two
directors). For a breakdown of remuneration by director, refer to the Directors’ emoluments table on page 30 within the
Remuneration Committee Report (pages 29-31).
The highest paid director received emoluments of £354k (2018: £346k) and amounts paid to money purchase pension
schemes was £10k (2018: £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.
2019
£’000
1,162
136
27
184
1,494
2018
£’000
1,307
258
57
97
1,719
Annual Report & Accounts 2019
Page 61
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
9.
FINANce INcome
Bank deposits
Total finance income
10.
FINANce coSTS
Interest on bank overdrafts, loans and borrowings
Interest expense for lease arrangements
Total interest expense
11.
TAx
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
2019
£’000
155
155
2019
£’000
293
226
519
2019
£’000
992
(5)
-
987
-
-
-
2018
£’000
35
35
2018
£’000
227
-
227
2018
£’000
1,167
262
-
1,429
-
-
-
Total tax credit in income statement
987
1,429
Corporation tax is calculated at 19% (2018: 19%) of estimated taxable loss for the year. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions.
Page 62
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
11.
TAx (COnTInuED)
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% (2018: 19.0%)
(Non-taxable income)/expenses not deductible
Effect of R&D
Share scheme deduction under Part 12 CTA 2009
Unrecognised movement on deferred tax
Adjustment in respect of previous periods
Unrelieved tax losses arising in the period
Fixed asset timing differences
Total tax credit for the year
2019
£’000
1,270
241
(205)
1,073
9
(74)
(5)
(52)
-
987
2018
£’000
2,533
481
115
879
64
(305)
262
10
(77)
1,429
Further details of deferred tax are given in note 22. There are no tax items charged to other comprehensive income.
The effect of R&D is the tax impact of capitalised development costs being deducted in the year in which they are incurred.
Adjustment in respect of previous periods relate to additional R&D tax credits the Group receives following final submission.
The rate of corporation tax for the year is 19% (2018: 19%). 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 £145k (2018: £46k). 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 21% which represents the revised rate of 21% following recent tax reform in the US.
12.
DIvIDeNDS
The Directors do not recommend the payment of a dividend (2018: £nil).
13.
loSSeS per ShAre
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
2019
£’000
(283)
2019
Number
2018
£’000
(1,104)
2018
Number
Weighted average number of ordinary shares for the purposes of basic losses per share
275,073,400
260,161,744
Effect of dilutive potential ordinary shares:
Share options
2,581,104
2,606,464
Weighted average number of ordinary shares for the purposes of diluted losses per share
277,654,504
262,768,208
Annual Report & Accounts 2019
Page 63
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
13.
loSSeS per ShAre (COnTInuED)
losses (continued)
Basic (p)
Diluted (p)
2019
(0.1)
(0.1)
2018
(0.4)
(0.4)
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.
14. GooDWIll
cost
At 1 May 2018
At 30 April 2019
Accumulated impairment losses
At 1 May 2018
At 30 April 2019
carrying amount
At 30 April 2019
At 30 April 2018
£’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
2019
£’000
1,275
2018
£’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 11.97% (2018: 12.37%).
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 2019 (2018: £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 2019. 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 2019 or 2018.
Page 64
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
15. oTher INTANGIBle ASSeTS
cost
At 1 May 2018
Additions
Exchange differences
At 30 April 2019
Amortisation
At 1 May 2018
Charge for the year
Exchange differences
At 30 April 2019
carrying amount
At 30 April 2019
At 30 April 2018
Development
costs
£’000
Patents,
trademarks &
other intangibles
£’000
15,933
2,731
421
19,085
2,509
1,207
38
3,754
15,331
13,424
6,785
210
207
7,202
3,654
599
115
4,368
2,834
3,131
Total
£’000
22,718
2,941
628
26,287
6,163
1,806
153
8,122
18,165
16,555
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 2019 was £952k (2018: £1,067k), 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.
Annual Report & Accounts 2019
Page 65
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
16.
properTY, plANT AND equIpmeNT
Assets Under
Construction
£’000
Computer
Equipment
£’000
Plant and
machinery
£’000
Fixtures and
fittings
£’000
cost or valuation
At 1 May 2018
Additions
Disposals
Exchange differences
At 30 April 2019
Accumulated depreciation and
impairment
At 1 May 2018
Charge for the year
Eliminated on disposal
Exchange differences
At 30 April 2019
carrying amount
At 30 April 2019
At 30 April 2018
17.
rIGhT-oF-uSe ASSeT
-
494
-
-
494
-
-
-
-
-
494
-
932
184
-
15
7,839
2,773
(145)
184
1,131
10,651
710
106
-
9
825
306
222
5,032
411
(139)
131
5,435
5,216
2,807
251
193
(24)
7
427
183
28
(24)
4
191
236
68
Total
£’000
9,022
3,644
(169)
206
12,703
5,925
545
(163)
144
6,451
6,252
3,097
The Group has early adopted IFRS 16 effective from 1 May 2018 and has recognised right-of-use assets for leases previously
classified as operating leases applying IAS 17.
Details of the Group’s right-of-use assets and their carrying amount are as follows:
cost
Opening right-of-use asset recognised on adoption of IFRS 16 (1 May 2018)
Rent accrual release
New leases in the year
Effect of movements in exchange rates
cost at 30 April 2019
Depreciation
Charge for the year
Exchange differences
Depreciation at 30 April 2019
carrying amount
At 30 April 2019
2019
£’000
1,340
(163)
3,075
56
4,308
334
(1)
333
3,975
Page 66
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
18.
SuBSIDIArIeS
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
2019
£’000
1,394
1,656
177
3,227
2018
£’000
1,093
1,488
433
3,014
The cost of inventories recognised as an expense during the year in respect of continuing operations was £4,152k (2018: £4,672k).
The write-down of inventories to net realisable value amounted to £462k (2018: £235k). The reversal of write-downs amounted to nil
(2018: nil). 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.
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 and accrued income
Current tax assets
2019
£’000
12,362
12,362
12,929
(567)
12,362
2019
£’000
5,592
12,362
848
1,195
987
20,984
2018
£’000
7,556
7,556
8,062
(506)
7,556
2018
£’000
3,245
7,556
200
333
1,167
12,501
Amount receivable for the sale of goods
Trade receivables disclosed above are classified as financial assets at amortised cost.
The average credit period taken on sales of goods is 54 days. The Group initially recognises an impairment allowance 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.
Annual Report & Accounts 2019
Page 67
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
21.
TrADe AND oTher receIvABleS (COnTInuED)
Amount receivable for the sale of goods (continued)
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
2019
£’000
113
113
-
893
2018
£’000
114
58
-
876
1,119
1,048
In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from
the date credit was initially granted up to the reporting date.
The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
Ageing of impaired receivables at the statement of financial position date was:
31-60 days
61-90 days
91-120 days
121+ days
Total
2019
£’000
-
-
-
116
116
2018
£’000
-
-
-
303
303
At 30 April 2019, trade receivables are shown net of an impairment allowance of £116k (2018: £303k) arising from the ordinary course
of business, as follows:
Balance at 1 May 2018
Provided during the year
(Released) during the year
Impact of foreign exchange
Balance at 30 April 2019
2019
£’000
303
-
(193)
6
116
2018
£’000
435
32
(155)
(9)
303
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.
Page 68
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
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 2018
(Credit)/charge to profit or loss
At 30 April 2019
Fair value
revaluation of
acquired
intangibles
£’000
723
(384)
339
Accelerated
capital
allowances
£’000
Short term
timing
differences
£’000
Tax
losses
£’000
844
225
1,069
(27)
(1,540)
(127)
(154)
286
(1,254)
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
2019
£’000
1,254
(1,254)
-
2018
£’000
1,540
(1,540)
-
At the statement of financial position date, the Group has unused tax losses of £20,632k (2018: £21,786k) available for offset against
future profits. A deferred tax asset has been recognised in respect of £6,763k (2018: £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 £13,869k (2018: £15,023k) as it is not yet considered sufficiently certain 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
2019
£’000
4,871
13
4,884
2018
£’000
3,490
10
3,500
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 50 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.
Annual Report & Accounts 2019
Page 69
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
24.
leASe oBlIGATIoN
The Group has early adopted IFRS 16 effective from 1 May 2018 and has recognised a lease liability at 1 May 2018 for leases
previously classified as operating leases applying IAS 17. The Group has measured lease liabilities at the present value of the remaining
lease payments, discounted using the Group’s incremental borrowing rate at the date of initial application. Details of the Group’s
liability in respect of right-of-use assets and their carrying amount are as follows:
opening lease liability recognised on adoption of IFrS 16 (1 may 2018)
New leases entered into during the year
Finance costs
Payments made during the year
Impact of foreign exchange
At 30 April 2019
Presented as:
Lease liability payable within 1 year
Lease liability payable in more than 1 year
At 30 April 2019
2019
£’000
1,340
3,075
226
(486)
56
4,211
273
3,938
4,211
Rental charges associated with other low value leased assets that fall within the expedient threshold have been expensed to the profit
and loss accounts (£17k).
25.
provISIoNS For lIABIlITIeS
At 1 May
Charged to profit or loss
Fully utilised
Impact of foreign exchange
At 30 April
2019
£’000
424
-
(424)
-
-
2018
£’000
169
269
-
(14)
424
During the prior year, the Company was given notice on one of its sites. The sites dilapidations 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. The Group are
now free from future obligations relating to the old site so the provision has been released in full.
Page 70
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
26.
BorroWINGS
Secured borrowing at amortised cost
Revolving credit facility
Other borrowings
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
2019
£’000
3,000
2,446
5,446
3,133
2,313
2018
£’000
3,000
-
3,000
3,000
-
In February 2019, the Group successfully renewed its revolving credit facility. Previously a 24-month facility, this facility is now a 36
months deal with a plus 1, plus 1 option with regards to years 4 to 5. In addition to the extension of the renewal period, the quantum
of the facility has increased from £3.0m to £5.0m. 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.
During the year, the Group secured a £2.3m loan with the landlord of the new Zelienople premises in relation to additional leasehold
improvements. This loan is repaid in equal instalments on a monthly basis and attracts interest at 6.50% per annum. This facility is
secured against a standby letter of credit.
The RCF borrowing is 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
27.
DerIvATIveS FINANcIAl INSTrumeNTS AND heDGe AccouNTING
At 30 April 2019 and 30 April 2018, the Group had no derivatives in place.
Allotted, called up and fully paid:
260,435,618 (2018: 259,095,618) Ordinary shares of £0.01 each
84,199,471 (2018: 1,300,000) Ordinary shares issued at £0.01 each
Total 344,635,089 (2018: 260,435,618) Ordinary shares of £0.01 each
2019
%
3.10
5.30
2019
£’000
2,604
842
3,446
2018
%
3.10
-
2018
£’000
2,591
13
2,604
During the year 191,000 shares (2018: 1,340,000) were allotted under EMI share option schemes.
The Directors were authorised at the AGM in February 2019 to allot and issue 84,008,471 Ordinary Shares at a price of 24p per share.
Annual Report & Accounts 2019
Page 71
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
29.
ShAre premIum AccouNT
Balance at 1 May 2018
Premium arising on issue of equity shares
Expenses arising on issue of equity shares
Balance at 30 April 2019
30.
TrANSlATIoN reServe
Balance at 1 May 2018
Exchange differences on translating the net assets of foreign operations
Balance at 30 April 2019
£’000
42,625
20,163
(1,188)
61,600
£’000
(269)
1,218
(949)
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.
31.
AccumulATeD loSSeS
Balance at 1 May 2018
Net loss for the year
Effect of share-based payment credit
Balance at 30 April 2019
£’000
(26,557)
(283)
195
(26,645)
Page 72
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
32.
NoTeS To The cASh FloW STATemeNT
Loss for the year
Adjustments for:
Finance income
Finance costs
Income tax 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
Increase/(decrease) in payables
(Decrease)/increase in provisions
Cash used in operations
Income taxes received
Net cash used in operating activities
cash and cash equivalents
Cash and bank balances
2019
£’000
(283)
(155)
519
(987)
879
1,806
195
1,974
(213)
(8,663)
1,384
(424)
(5,942)
1,165
(4,777)
2019
£’000
20,616
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
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.
Annual Report & Accounts 2019
Page 73
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
33.
recoNcIlIATIoN oF lIABIlITIeS ArISING From FINANcING AcTIvITIeS
Balance at 1 May 2018
Cash flows;
- Repayments
Non – cash
- Recognition on adoption of IFRS 16
- Additions
- Effect of moving exchange rates
- Interest applied
Balance at 30 April 2019
34.
ShAre BASeD pAYmeNTS
loans and
borrowings
£’000
Lease liability
£’000
3,000
(247)
-
2,557
-
136
5,446
-
(486)
1,340
3,075
56
226
4,211
equity-settled share option scheme
The Company has a share option scheme (EMI scheme) for all employees of the Group. Options are exercisable at a price equal to the
average quoted market price of the Company’s shares on the date of grant. The average vesting period is three years. If the options
remain unexercised after a period of ten years from the date of grant the options expire. Options are forfeited if the employee leaves
the Group before the options vest.
Details of the share options outstanding during the year are as follows.
Number of share
options
2019
Weighted average
exercise price (£)
Number of share
options
2018
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
9,851,070
882,600
(191,000)
(514,200)
10,028,470
8,875,570
0.17
0.20
0.015
0.28
0.17
0.17
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
The weighted average share price at the date of exercise for share options exercised during the year was £0.015 (2018: £0.015). The
options outstanding at 30 April 2019 had a weighted average exercise price of £0.17 (2018: £0.17) and a weighted average remaining
contractual life of four years (2018: four 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 2019, the aggregate of the estimated fair values of the options granted is £46k (2018: £46k). 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
2019
26p
20p
29.30%
6 years
0.57
0%
2018
27p
27p
31.14%
6 years
0.37
0%
Page 74
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
34.
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 2019, 1,443,829 (2018: 1,443,829) 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 £183k (2018: £61k). The amounts recognised as a
share-based payment expense for the year ended 30 April 2019 was £12k (2018: £20k).
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
2019
22p
1p
35.00%
3 years
0.32
0%
2018
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 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.
The Group recognised total expenses of £195k (2018: £131k) related to all equity-settled share-based payment transactions. This is
inclusive of both the equity settled share option scheme and the 2013 LTIP.
35.
reTIremeNT BeNeFIT SchemeS
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for all employees. Where there are employees who leave the
schemes prior to vesting fully, 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 £329k (2018: £345k) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at 30 April 2019, contributions of £23k (2018: £23k) due in respect of the current reporting
period had not been paid over to the scheme.
36.
FINANcIAl INSTrumeNTS
Financial Instruments
The Group’s principal financial instruments are cash and trade receivables.
The Group has exposure to the following risks from its operations:
capital risk
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the
return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy has remained unchanged
between 2018 and 2019.
Annual Report & Accounts 2019
Page 75
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
36.
FINANcIAl INSTrumeNTS (COnTInuED)
capital risk (continued)
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 28 to 31.
The Group is not subject to any externally imposed capital requirements.
The Group’s primary source of capital is equity. By pricing products and services commensurately with the level of risk and focusing
on the effective collection of cash from customers, the Group aims to maximise revenues and operating cash flows.
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 (2018: £3.0m). Details of the revolving credit facility have been included in note 26.
The Group considers that the current capital structure will provide sufficient flexibility to ensure that appropriate investment can be
made, if required, to implement and achieve the longer-term growth strategy of the Group.
market risk
The Group may be affected by general market trends, which are unrelated to the performance of the Group itself. The Group’s success
will depend on market acceptance of the Group’s products and there can be no guarantee that this acceptance will be forthcoming.
Market opportunities targeted by the Group may change and this could lead to an adverse effect upon its revenue and earnings.
Foreign currency risk
The Group’s operations are split between the UK and the US, and as a result the Group incurs costs in currencies other than its
presentational currency of 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
2019
£’000
24,229
(4,156)
543
2018
£’000
8,847
202
439
Had the foreign exchange rate between sterling, US$ and € changed by 4% (2018: 6%), this would affect the loss for the year and net
assets of the Group by £12k (2018: £65k). 4% (2018: 6%) is considered a reasonable assessment of foreign exchange movement as
this has been the movement noted between 2018 and 2019 (2017 and 2018).
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.
Amounts recoverable on contract arise following revenue recognized over time in line with IFRS 15. The balance of £12,362k at 30
April 2019 will convert into invoiced revenues following product dispatch to the customer. The Group retain physical possession of the
inventory, which passes to the customer on payment of invoice. Under these contracts, the Group retains the right to be compensated
at a minimum for the full value of the contract in the event of early termination.
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.
Page 76
KromeK Group plc
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
36.
FINANcIAl INSTrumeNTS (COnTInuED)
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.
Weighted
average
effective
interest rate
%
3.1
3.1
5.3
5.0
revolving credit facility at
30 April 2018
revolving credit facility at
30 April 2019
other Borrowing Facilities
at 30 April 2019
lease obligations at
30 April 2019
Less than 1
month
£’000
1-3 months
£’000
3 months to
1 year
£’000
1-5 years
£’000
5+ years
£’000
Total
£’000
3,000
3,000
3,000
-
-
-
11
21
32
-
-
-
33
65
98
3,000
3,000
3,000
-
-
-
-
-
-
89
527
1,786
2,446
187
1,183
2,755
4,211
3,276
1,710
4,541
9,657
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
2019
£’000
1,250
20,616
18,802
2018
£’000
1,250
9,488
11,001
(14,513)
(3,925)
Annual Report & Accounts 2019
Page 77
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2019
36.
FINANcIAl INSTrumeNTS (COnTInuED)
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 an 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 2019.
37.
relATeD pArTY TrANSAcTIoNS
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation
and are not disclosed in this note. Transactions between the Group and its related parties are disclosed below.
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.
Page 78
KromeK Group plc
Company statement of financial position
As at 30 April 2019
Non-current assets
Investment in subsidiaries
Amounts due from subsidiary company
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
Note
3
5
6
7
11
12
13
2019
£’000
4,000
46,902
1,250
52,152
157
16,943
17,100
69,252
(349)
(3,000)
(3,349)
65,903
3,446
61,600
3,221
(2,364)
65,903
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
The loss for the year was £679k (2018: loss £535k).
The financial statements of Kromek Group plc (registered number 08661469) were approved by the Board of Directors and authorised
for issue on 26 June 2019. They were signed on its behalf by:
Dr Arnab Basu mBe
Chief Executive Officer
Annual Report & Accounts 2019
Page 79
Company statement of changes in equity
For the year ended 30 April 2019
equity attributable to equity holders of the company
Share capital
£’000
Share
premium
account
£’000
merger
reserve
£’000
Accumulated
losses
£’000
Total
equity
£’000
Balance at 1 may 2017
2,591
42,592
3,221
(1,150)
47,254
Loss for the year and total comprehensive losses
for the year
Issue of share capital net of expenses
-
13
-
33
-
-
(535)
-
(535)
46
Balance at 30 April 2018
2,604
42,625
3,221
(1,685)
46,765
Loss for the year and total comprehensive loss
for the year
Issue of share capital net of expenses
-
842
-
18,975
-
-
(679)
(679)
-
19,817
Balance at 30 April 2019
3,446
61,600
3,221
(2,364)
65,903
Page 80
KromeK Group plc
Note
10
Company statement of cash flows
For the year ended 30 April 2019
Net cash used in operating activities
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
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
cash and cash equivalents at beginning of year
cash and cash equivalents at end of year
2019
£’000
(650)
-
-
19,817
(3,934)
(68)
15,815
15,165
1,778
16,943
2018
£’000
(577)
(1,250)
(1,250)
47
(4,144)
(76)
(4,173)
(6,000)
7,778
1,778
Annual Report & Accounts 2019
Page 81
Notes to the Company financial statements
For the year ended 30 April 2019
1.
SIGNIFIcANT AccouNTING polIcIeS
The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act,
the separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted
by the European Union.
The financial statements have been prepared on the historical cost basis except for the remeasurement of certain financial instruments
to fair value. The principal accounting policies adopted are the same as those set out in note 3 to the consolidated financial statements
except as noted below.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
The Company’s financial statements are included in the consolidated financial statements of Kromek Group plc. Accordingly, the
Company has taken advantage of the exemption from publishing an income statement, and the losses for the Company are shown
within the Company Statement of Financial Position.
2.
AuDITor’S remuNerATIoN
The auditor’s remuneration for audit and other services is disclosed in note 7 to the consolidated financial statements.
3.
SuBSIDIArIeS
Details of the Company’s direct and indirect subsidiaries as at 30 April 2019 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)
143 Zehner School Road,
Zelienople, PA 16063,
United States of America
833 Marlborough Avenue,
Riverside CA 92507,
United States of America
143 Zehner School Road,
Zelienople, PA 16063,
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 2018
At 30 April 2019
£,000
4,000
4,000
At 30 April 2019 the Company was owed £46,902k from its immediate subsidiary company, Kromek Limited. This has been classified
as a receivable due in more than one year on the face of the balance sheet as this most accurately reflects the likely repayment
timeframe of the balance outstanding. The loan is unsecured, interest free and repayable on demand. At 30 April 2018 the balance
was £42,968 and was included in trade and other receivables within current assets (see note 5).
Page 82
KromeK Group plc
Notes to the Company financial statements (continued)
For the year ended 30 April 2019
4. STAFF coSTS
The average monthly number of employees (excluding non-executive directors) was:
2019
Number
2018
Number
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
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
3
6
2019
£’000
400
50
22
472
2019
£’000
-
157
157
2019
£’000
326
23
349
2
1
2
5
2018
£’000
354
47
75
476
2018
£’000
42,968
40
43,008
2018
£’000
248
23
271
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.
Annual Report & Accounts 2019
Page 83
Notes to the Company financial statements (continued)
For the year ended 30 April 2019
7. BorroWINGS
Details regarding the borrowings of the Company are disclosed in note 26 to the consolidated financial statements.
8.
FINANcIAl ASSeTS
Intercompany balances
The carrying amount of these assets approximates their fair value. There are no past due or impaired receivable balances.
cash and cash equivalents
These comprise cash held by the Company and short-term bank deposits with an original maturity of three months or less. The
carrying amount of these assets approximates their fair value.
9.
FINANcIAl lIABIlITIeS
Trade and other payables
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for
trade 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 in receivables
Increase/(decrease) in payables
Net cash from operating activities
11. ShAre cApITAl
Allotted, called up and fully paid:
260,435,618 (2018: 259,095,618) Ordinary shares of £0.01 each
84,199,471 (2018: 1,340,000) Ordinary shares issued at £0.01
Total 344,635,089 (2018: 260,435,618) Ordinary shares of £0.01 each
2019
£’000
(679)
68
(611)
(117)
78
(650)
2019
£’000
2,604
842
3,446
2018
£’000
(535)
75
(460)
(36)
(81)
(577)
2018
£’000
2,591
13
2,604
Page 84
KromeK Group plc
Notes to the Company financial statements (continued)
For the year ended 30 April 2019
12. ShAre premIum AccouNT
Balance at 1 May 2018
Premium arising on issue of equity shares
Expenses arising on issue of equity shares
Balance at 30 April 2019
13. AccumulATeD loSSeS
Balance at 1 May 2018
Net loss for the year
Balance at 30 April 2019
2019
£’000
42,625
20,163
(1,188)
61,600
£’000
(1,685)
(679)
(2,364)
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.
Annual Report & Accounts 2019
Page 85
Notes to the Company financial statements (continued)
For the year ended 30 April 2019
credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The
Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate,
as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent
of investment grade and above. This information is supplied by independent rating agencies where available, and if not available, the
Company uses other publicly available financial information and its own trading records to rate its major customers. The Company’s
exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is
spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the
risk management committee annually.
The Company’s management considers that all the above financial assets that are not impaired or past due for each of the reporting
dates under review are of good quality.
liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity
risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management
requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities,
by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment
periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on
which the Group can be required to pay. The table includes both interest and principal cash flows. The contractual maturity is based
on the earliest date on which the Group may be required to pay.
Weighted
average
effective
interest rate
%
3.1
3.1
revolving credit Facility
at 30 April 2018
revolving credit Facility
at 30 April 2019
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
15.
ulTImATe coNTrollING pAreNT AND pArTY
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
No dividends were paid in the period in respect of ordinary shares held by the Company’s Directors.
Page 86
Notes:
KromeK Group plc
Directors, Secretary and Advisers
DIRECTORS
Dr A Basu
Mr D Bulmer
Sir P Williams
Mr L H N Kinet
Mr J H Whittingham
Mr C Wilks
COMPANY SECRETARY
Mr D Bulmer
REGISTERED OFFICE
BANKERS
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
NETPark
Thomas Wright Way
Sedgefield
TS21 3FD
NOMINATED ADVISER AND
BROKER
Cenkos Securities plc
6.7.8. Tokenhouse Yard
London
EC2R 7AS
REGISTRAR
Link Asset Services
34 Beckenham Road
Beckenham
BR3 4TU
PUBLIC RELATIONS ADVISER
Luther Pendragon Ltd
48 Gracechurch Street
London
EC3V 0EJ
Kromek Group plc
NETPark, Thomas Wright Way,
Sedgefield, County Durham, TS21 3FD, UK