Annual report and accounts for the
year ended 30 April 2021
Contents
1 Financial and Operational
Highlights
2 Chairman’s Statement
Strategic Report
4 Chief Executive Officer’s
Review
8 Chief Financial Officer’s
Review
16 Principal Risks, Section 172
Statement and KPIs
Governance
20 Directors’ Biographies
22 Directors’ Report
24 Corporate Governance Report
28 Audit Committee Report
29 Remuneration Committee
Report
Financial Statements
34 Independent Auditor’s Report
41 Consolidated Income
Statement
42 Consolidated Statement of
Comprehensive Income
43 Consolidated Statement of
Financial Position
44 Consolidated Statement of
Changes in Equity
45 Consolidated Statement of
Cash Flows
46 Notes to the Consolidated
Financial Statements
78 Company Financial
Statements
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COVID-19
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System
p12
Introducing the
World’s Smallest
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Our Mission
“To be the preferred suplier of innovative
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enhance the quality of information for our
customers, and allow better desision-making”
Our Vision
“To enhance the quality of life through
detection technology solutions”
KromeK Group plc Annual Report & Accounts 2021
1
Financial Headlines
Revenue
£10.4m
Adjusted
EBITDA
£(1.7m)
2020: £13.1m
2020: £(0.4m)
Cash &
Equivalents
£15.6m
30 April 2020:
£9.4m
Gross
Margin
48.4%
2020: 47.3%
Operational Highlights
“Resumption of orders and shipments across all segments in final two months of the
first half, following the impact of COVID-19, with increased commercial activity in the
second half, resulting in revenue for H2 2021 being 26% higher than H1 2021”
“Significant progress in fast-growing
bio-security market”
Received a $600,000 order
from an OEM customer for
detectors to be used in niche
SPECT applications
Expansion of global footprint
for nuclear security products
with sales commencing in 9
new countries and engagement
of 9 new distributors
24 new customers won in the civil
nuclear segment and widening
interest for drone-based radiation
mapping system, including sales to
the civil emergency services sector
Commenced field trials in schools,
airports and other locations of an
airborne COVID-19 detection system
under £1.25m project funded by
Innovate UK
Launched next-generation D3 PRD
and D5 RIID high-performance
radiation detectors
3 new patents were filed and
10 were granted during the year
Awarded $5.2m contract
extension and further $6m post
period by “DARPA”, (US DoD), to
advance development of mobile
wide-area bio-security system
capable of detecting and
identifying airborne pathogens
Ramp up in delivery under
medical imaging contract
expected to be worth $58.1m as
the customer began installing its
scanner in multiple countries
Progressed development
programme for ultra-low dose
MBI technology and entered new
area of improving outcomes
from cancer surgery
Received first commercial order
from security screening OEM
customer with highest level of
European liquid explosive detection
certification for cabin baggage
for its scanner
2
2
KromeK Group plc Annual Report & Accounts 2021
Chairman’s Statement
Rakesh Sharma
Chairman
“It is a great honour to succeed Sir Peter Williams as Chairman.
I thank him for his valuable contribution, which has enabled
Kromek to truly transform during his tenure”
KromeK Group plc Annual Report & Accounts 2021
3
“We remain excited about the potential for our new market
segment of Biological-Threat Detection”
I am pleased to present my maiden annual report for the
12-month period ended 30 April 2021. It is a great honour
to succeed Sir Peter Williams as Chairman. I thank him for
his valuable contribution, which has enabled Kromek to truly
transform during his tenure. Since I joined as a Non-Executive
Director halfway through the financial year, I have seen what
an ambitious and dynamic company Kromek is, and one that
is developing important products to help save lives and keep
people safe.
The Group’s key addressable markets continue to benefit from
long-term growth drivers. In medical imaging, there remains
a fundamental demand to improve screening for diseases
such as cancer and cardiovascular illnesses as well as other
conditions such as osteoporosis that require early diagnosis and
intervention to improve patient outcomes. Similarly, in nuclear
security, governments remain vigilant to the threat of terrorism
and defence procurement spending is rising, which is leading to
increased demand for Kromek’s technology.
The COVID-19 pandemic started to have an impact on the
last quarter of the previous financial year, which continued
into the first four months of our financial year to 30 April 2021.
The pandemic caused markets to shut down, which materially
impacted our global customer base and supply chain. As I reflect
on the way the business has responded to the situation, it is clear
that the work undertaken over the recent years had put us in a
good position to adapt to the challenges and emerge strongly as
markets opened up and trading activity resumed.
Orders and shipments across all of the Group’s segments
resumed in the final two months of the first half of the year as
normal business patterns began to return and projects that had
been postponed from the previous year started to recommence.
This momentum continued throughout the second half as the
Group delivered on previously awarded contracts and won new
orders.
Arnab Basu, our Chief Executive Officer, provides a detailed
review in his report of our operational achievements for the year.
He details the progress made in the Medical Imaging segment
where Kromek’s customers increasingly rolled out their next-
generation products, based on our technology, such as our
OEM customer that previously awarded a medical imaging
contract expected to be worth $58.1m. The installation of the
customer’s medical imaging scanners, which is occurring in
multiple countries, saw a ramp up in the second half of the year
as planned.
Our Nuclear Detection segment received new orders from
government customers for D3S-related technologies. During the
year, we added new customers and continued to receive repeat
orders from existing customers in this segment. We believe that
US government agencies (DoD and DHS) and the UK security
agencies continue to represent a significant radiation detection
opportunity for Kromek, and we expect to expand our work with
them.
We remain excited about the potential for our new market
segment of Biological-Threat Detection. The Group received a
significant contract extension in the first half of the year from
DARPA to further develop the airborne pathogen detection
system, and we were also awarded a contract from Innovate
UK to develop and pilot a targeted COVID-19 detection system.
Piloting of the airborne COVID-19 detection solution commenced
during the last quarter of the year and is continuing at various
potential user locations, including airports and schools, as
planned.
In March 2021, we raised £13m via a placing with institutions
as well as an open offer that was oversubscribed. These funds,
in the short term, are being used to de-risk and commercialise
bio-security/pathogen detectors and increase the rate of
commercialisation as well as to expand sales and marketing for
our nuclear detection and medical imaging activities.
employees and partners
As we look to the future, I would also like to express my gratitude
to our customers, suppliers, partners and other stakeholders who
have supported us throughout the year. On behalf of the Board, I
would also like to thank the executive team and all of our staff for
their efforts and commitment and our shareholders for their loyal
and continuing support.
Kromek has the market opportunities, the technology and the
products to continue the commercialisation journey positively.
We have a good foundation and with long-term growth drivers
remaining strong, we look forward to delivering significant
shareholder value over the years to come.
“...it is clear that the work undertaken over the recent years had
put us in a good position to adapt to the challenges and emerge
strongly as markets opened up and trading activity resumed.”
Rakesh Sharma
Chairman
KromeK Group plc Annual Report & Accounts 2021
4
4
Strategic Report
Chief Executive Officer’s Review
Arnab Basu
Chief Executive Oficer
“Defence and security spending is on the rise around the world and Kromek’s
products meet a demand for technology-led solutions to some of the most
pressing global security challenges”
KromeK Group plc Annual Report & Accounts 2021
5
“We continued to advance development programmes with
a number of partners in the nuclear security and medical
imaging markets and, in particular, significantly progressed
the development of our biological-threat detection solution”
During a period of significant global uncertainty, Kromek
emerged from the year to 30 April 2021 in a stronger position
than when we entered. Whilst disruption across our markets at
the beginning of the year, due to COVID-19, had a detrimental
impact on full year revenue, the Board was pleased to note
that from the end of the first half and through the second half,
normal trading patterns increasingly resumed with progress
being made with all of our business units delivering on previously
awarded contracts and winning new orders and customers.
As a result, and combined with the contribution from our bio-
security development projects, revenue for the second half was
26% above H1 2021, with the strong momentum continuing
post year end. In addition, and as discussed further in the Chief
Financial Officer’s Review, we successfully maintained tight
cost control, took action to support cash flow and the balance
sheet was significantly strengthened with a fundraise of £13m
(net funds received after costs of £12.2m). Consequently, the
Board believes that Kromek exited the year better positioned to
capitalise on the significant opportunities across the business.
medical Imaging
In recent years, leading OEMs in medical imaging have been
increasingly adopting CZT detector platforms as the enabling
technology for their product roadmaps. CZT detector platforms
enable OEMs to significantly improve the quality of imaging,
which leads to earlier and more reliable diagnosis of diseases
such as cancer. Kromek’s CZT detector solutions are increasingly
being adopted for single photon emission computed tomography
(“SPECT”), molecular breast imaging (“MBI”) and bone mineral
densitometry (“BMD”) applications. These are key target areas for
future growth as they address diseases particularly associated
with an ageing population such as cancer, Parkinson’s,
cardiovascular illnesses and osteoporosis.
While the outbreak of COVID-19 necessitated a temporary
redirection of resources in healthcare settings away from routine
scans and elective surgeries, shipments of our detector modules
for medical imaging began to resume from the final two months
of the first half and business patterns started to normalise.
This momentum was sustained through the second half as our
customers increasingly rolled out their high-performance medical
imaging products based on our technology. In particular, in the
second half of the year we received an order, worth $600,000,
from an existing OEM customer for the supply of detectors to
be used in niche SPECT applications. We commenced delivery
during the period and this will be completed by the end of this
calendar year.
We continued to work with our significant OEM customer that
in H2 2019 awarded Kromek a contract expected to be worth a
minimum of $58.1m over an approximately seven-year period.
The customer began installing its medical imaging scanners
in multiple countries towards the end of the first half, with
installation ramping up in the second half of the year. Delivery to
this customer of our CZT detectors and associated advanced
electronics has continued to increase post year end and we have
full visibility over this contract for the remainder of the current
financial year.
We progressed the development of an ultra-low dose MBI
technology based on CZT-based SPECT detectors under our
project with partners in the Newcastle-upon-Tyne Hospitals NHS
Foundation Trust in the UK and an OEM partner. This technology
can significantly improve the early detection of breast cancer in
women with dense breast tissues, which is particularly prevalent
among younger women. The project entered the prototype, build
and validation stage following a successful proof-of-feasibility for
the target reduction of dose and scan time.
This year we also entered a new area of medical application
for our CZT-based detectors: improving patient outcomes
from cancer surgery. In partnership with Adaptix Ltd and the
University of Manchester, we are developing a new system that
will distinguish between healthy and non-healthy tissue, enabling
surgeons to confidently remove the minimum amount of healthy
tissue and reducing the risks of multiple surgeries and of the
cancer spreading. The system is being developed under a three-
year programme with funding from Innovate UK.
Nuclear Detection
In nuclear detection, our nuclear security platforms – D3S and
newly launched D5 – consist of a family of products designed to
cater for the varying demands of homeland security and defence
markets. In particular, our D3S platform is widely deployed
as a networked solution to protect cities, buildings or critical
infrastructure against the threat of use of ‘nuclear dirty bombs’
by terrorists. Defence and security spending is on the rise around
the world and Kromek’s products meet a demand for technology-
led solutions to some of the most pressing global security
challenges. In November 2020, for example, the UK Government
announced a £329m spend programme on radiation and nuclear
detectors over the next four years and an increase of £24.1bn
in defence spending over the same period as part of the biggest
programme of investment in British defence since the end of the
Cold War. 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.
Nuclear Security
We expanded our commercial footprint with the D3S platform
now having been sold in over 26 countries, and during the year 9
new distributors were appointed across 9 countries. In addition,
we developed online platforms for product training and support
activities for our nuclear detector products, which allowed us
to support our customers globally at a time when travel was
restricted.
Arnab Basu
Chief Executive Oficer
6
Strategic Report (Continued)
KromeK Group plc Annual Report & Accounts 2021
Chief Executive Officer’s Review (Continued)
During 2021, we signed contracts and received orders across
the US, Europe and Asia for our nuclear security products,
reflecting the global nature of demand. This included gaining
a new government agency customer in the US for our D3S-ID
product. We also received and delivered a repeat order from an
existing US-based customer, worth $150,000, for the supply of
specialised CZT detectors for a nuclear security application.
In Europe, we were awarded two contract extensions by a UK
government-related company to provide network solutions of
our D3S-related technologies. The contract extensions, worth a
total of £460,000 and delivered during the year, are a further step
towards providing a full wide-area system rollout for this customer
to protect critical infrastructure and public spaces. We also
supplied further products to the Irish Civil Defence Agency and
received orders from the European Commission’s Directorate-
General for Migration and Home Affairs for our D3S Drone
radiation detectors.
We were awarded a significant contract in Asia, worth a minimum
of $960,000 over the approximate four-year term of the project,
for both nuclear security and civil nuclear applications. The first
phase is to customise our CZT detector platform for integration
into a new radiation detection product that will be available in
Asia. We will receive $260,000 for this development work, which
is due to be completed by the end of this calendar year. We will
then supply the customised platform under a three-year contract,
worth a minimum of $700,000.
During the year, we completed the delivery of a project with the
US Defense Threat Reduction Agency, an agency of the US
Department of Defense, to build out the technicality of our D3S
platform to develop a next-generation, ruggedised small form
factor device for use in the military field. By using advanced
detector materials, the device will generate higher resolution
detection and superior localisation and identification of radioactive
material for use by the US military in combat environments. This
resulted in the development of our D5 product range, which
expands our portfolio to encompass devices specifically designed
for more challenging use cases and harsh environments.
We launched two new nuclear security products this year: the
D3 PRD and the D5 RIID, with orders received from government
agencies in the US and UK for these products. The D3 PRD is
an all-in-one, high-accuracy personal radiation detector (“PRD”)
for first responders, armed forces, border security and CBRNE
experts. This product meets a growing market demand for a
standalone gamma-only device, while offering market-leading
dose accuracy, speed to alarm and an ultra-low false positive
number. The D5 RIID, the world’s smallest high-performance
radioisotope identification device (“RIID”), is a ruggedised device,
with ultra-low false alarm rate that is designed for military,
homeland security and industrial use. The D5 RIID is the first
device to be launched in our new D5 product range and we were
honoured that it was a winner at the R&D 100 Awards, held by
R&D Magazine. In addition, post period, we received our first
major order for our D5 RIID, which was from our UK government-
related customer.
Civil Nuclear
In the civil nuclear segment, the pipeline of enquiries and orders
remained robust throughout the year. We won 24 new customers
and continued to win repeat business from our existing
customers. As noted above, we were awarded a significant
contract in Asia, worth a minimum of $960,000, which is for
both nuclear security and civil nuclear applications. Following
a successful online product demonstration of our drone-based
radiation mapping system, we have also seen widening interest
for this product from a range of new sectors, including sales to a
company operating in the civil emergency services sector.
Security Screening
In security screening, we provide OEM and government
customers with components and systems for cabin and hold
luggage scanning as well as industrial applications. In travel
settings, our technologies enable our customers to meet the
high-performance standards they require, and as demanded by
regulatory bodies, to ensure passenger safety while increasing
the convenience and efficiency of the security process.
There was a slowdown in security screening activity during the
year as a result of the impact of the COVID-19 pandemic on the
travel industry. However, we continued to make some progress
in this segment. In particular, we received our first commercial
order, and subsequent follow up orders, from an OEM customer
whose next-generation scanner, based on Kromek technologies,
achieved the highest level of European liquid explosive detection
certification for cabin baggage. We also expanded our customer
base, receiving orders for CZT modules to be designed into
an advanced baggage screening system of a new US-based
customer.
In our development work, we completed, post period, a two-
year $1.6m development project funded by the US Department
of Homeland Security for a CZT detector platform for threat
resolution for hold baggage, hand baggage and cargo screening
systems. We expect commercial adoption and integration of this
platform in multiple commercial advanced baggage screening
products.
In security screening for industrial applications, we secured a
development agreement, worth up to $660k, with a US-based,
sector-leading OEM with a global customer base. This contract
was for the customisation of one of our CZT detector platforms
for incorporation into the customer’s systems for identifying
contaminations during production processes. We completed
the delivery of this programme post period, and we expect it
to transition to a multi-year supply contract in due course. In
addition, post period, we were awarded a $250,000 repeat order
from a US-based customer that is a global leader in aerospace
and defence technologies and which has incorporated our
detectors into its system that is used for ammunition scanning.
Biological Threat Detection
The outbreak of COVID-19 has exposed the world to the severity
of biological threats and their potential impact on public health
and the global economy, demonstrating the need to rapidly
KromeK Group plc Annual Report & Accounts 2021
7
evolve bio-security systems and associated technologies. We
had already commenced development work on a biological-
threat detection solution prior to the outbreak of the pandemic
and significantly progressed our activities in this market during
the year. This development has continued post period.
Since H2 2019, we have been working with the Defense
Advanced Research Projects Agency (“DARPA”), an agency of
the US Department of Defense, to develop a biological threat
detection system that senses, analyses and identifies airborne
pathogens under a programme that was established to combat
bioterrorism. This activity was accelerated during the year and we
were awarded a contract extension worth up to $5.2m.
Over the past two years, milestones achieved under this DARPA
programme have included the development of a vehicle-mounted
biological-threat identifier that can be deployed as a mobile
wide-area bio-surveillance system. Post period, we received a
$6m contract from DAPRA for the next phase of the programme
that will seek to deliver a completely automated wide spectrum
airborne pathogen detection system that is fully mobile and runs
autonomously. This system is being designed to be networkable
and provide wide-area monitoring capability in near real time.
With the onset of the pandemic, we also focused on the
development of our technology for applications specifically
related to COVID-19 detection. This included working under a
programme funded by Innovate UK to customise our biological
threat-detection solution to support end-use cases for COVID-19
detection and mitigation, and to then undergo piloting with
those user groups. We engaged with potential customers for the
system to develop deployment models and identify how it can
best fit their needs ahead of customisation. In the second half of
the year, we commenced piloting our system for the detection
of airborne COVID-19 at an airport. Post period, the piloting
has been expanded to include schools, a second airport, being
Teesside International Airport, and other locations. We have also
engaged in validation of the technology in third party laboratories
and the results are very positive on both the detection levels,
sensitivity and false alarm rates, making the technology
performance comparable to existing RT PCR test protocols.
manufacturing
Although the year was defined by the COVID-19 pandemic,
Kromek took that situation as an opportunity and used the time
when demand was lower than expected to substantially improve
its CZT manufacturing capabilities. The CZT growth facility in
the UK has developed a fully trained production group staffed
by skilled production operators supported by key equipment
technicians and experienced engineers. The US operations used
2021 to continue to install and improve the core CZT production
process that ensures Kromek CZT is of the highest quality for
Kromek products shipped to our customers. We continue to
seek opportunities to enhance our product quality through our
people and processes, and we are continuously challenging
ourselves to find better ways to manufacture CZT and non-CZT
products through a culture of continuous improvement where
data speaks and an openness to challenge each other drives us
forward. Both the UK and US manufacturing sites continue to be
certified to ISO9001:2015 with both sites successfully completing
annual audits with exemplary feedback from the audit process.
In our fourth quarter to 30 April 2021, we have seen the demand
for CZT based detectors recovering and growing ever since. The
manufacturing facilities for CZT products are currently running
at about 60% of installed capacity and growing through 2021.
Several capacity expansion projects are ramping their resources
to make ready additional capacity as CZT demand grows through
calendar year 2021 and into 2022. These projects are focused
on increased use of automated methods to improve throughput
and processing quality. It is expected that these automation
and process improvements will further improve products yields,
lowering cost of manufacturing and improving margin.
r&D, product and Ip
Kromek is focused on developing the next generation of products
for commercial application in our core markets. As noted, during
the year we continued to advance development programmes
with a number of partners in the nuclear security and medical
imaging markets and, in particular, significantly progressed the
development of our biological-threat detection solution. We also
launched a number of new products in our D3S portfolio. In
2021, we applied for 3 new patents and had 10 patents granted
across 9 patent families, bringing our total number of patents
held to in excess of 250. The new applications cover innovations
in all our sectors, including biological-threat detection, covering
our specific product developments, but also providing value
beyond these fields. In particular, the biological applications
cover components that the Group believes will have uses beyond
terrorist threat detection.
outlook
The momentum of the second half of 2021 has been sustained
into 2022 with Kromek experiencing a positive start to the
new year. In particular, we are seeing continued traction in the
medical imaging segment as our customers increasingly roll out
their products incorporating our technology. We are extremely
encouraged by the results that we are receiving from the piloting
of our biological-threat detection solution, which we expect
to transition to the commercial phase in due course. We also
believe that we are well-positioned to benefit from the increase in
government defence and security spending globally, including in
the UK.
As a result, Kromek is on track to deliver significant revenue
growth for full year 2022 in line with market expectations, which
would represent our highest ever full year revenue. We currently
have visibility in excess of 75% of expected full year revenue
based on the contracts already won and supported by a strong
and increasing pipeline.
Consequently, and combined with the successful fundraising
completed in the second half of 2021, the Board believes that
we are well-placed to capitalise on the significant opportunities
across our business and the Board continues to look to the
future with increased confidence.
KromeK Group plc Annual Report & Accounts 2021
8
8
Strategic Report (Continued)
Chief Financial Officer’s Review
Paul Farquhar
Chief Financial Officer
“In common with many businesses, 2021 was a challenging period, but we
successfully navigated the year to exit stronger than when we entered”
KromeK Group plc Annual Report & Accounts 2021
9
I am very pleased to present my first Chief Financial Officer’s
report for the 12-month period ended 30 April 2021. I succeeded
Derek Bulmer at the end of October 2020, and I would like to
extend my thanks to him for his contribution to the Group over
the last 10 years.
In common with many businesses, 2021 was a challenging
period, but we successfully navigated the year to exit stronger
than when we entered. The disruption caused by the COVID-19
pandemic, which took hold in Q4 of the 2020 year, significantly
impacted the Group in the first few months of the year with first
half revenue of £4.6m being 13% lower than the same period in
the prior year. However, as noted in the Chief Executive Officer’s
Review, the Group saw normal trading patterns beginning to
return in the latter part of the first half, which continued into
the second half, with revenue being 26% higher in H2 2021
compared with H1 2021.
As a result of the disruption caused by COVID-19, revenue for
the year was £10.4m (2020: £13.1m) and gross profit was £5.0m
(2020: £6.2m). Due to the lower gross profit and a small increase
in administration costs, adjusted EBITDA loss was £1.7m
compared with a loss of £0.4m for the prior year. A reconciliation
between adjusted EBITDA and results from operations is detailed
in the table opposite.
In response to the pandemic, the Board took swift action early
in the 2020 calendar year to protect the business through the
activation of its business continuity plan. This included the
reduction of costs and overheads, the conservation of cash
through curtailing all non-essential spend as well as raising £1.4m
of additional loan funds with HSBC in the UK and £1.4m of loans
via the US Paycheck Protection Program loan scheme.
revenue
half of 2021 with an extensive commercial pipeline and achieved
revenue of £5.8m for the six-month period, an increase of 26%
over the first half revenue.
Gross margin
Gross profit at £5.0m (2020: £6.2m) represented a margin of
48.4% (2020: 47.3%). The increase in gross margin is attributable
to improvements in yields and efficiencies achieved through
production ramp up. This is as a result of the investment in
capital expenditure that was commissioned in the previous year.
Administration costs
Administration costs and operating expenses increased by
£0.3m to £10.9m (2020: £10.6m). This increase is substantially
the net result of:
• £0.3m of depreciation largely relating to the capital
expenditure on furnace and fabrication expansion;
• £0.2m of amortisation due to continued investment in the
technology platform and product applications;
• a £0.7m adverse movement in foreign exchange (in 2020,
there was a large foreign exchange gain due to the settlement
surplus realised on the Group’s US$ overdraft facility);
• a saving of £0.5m on travel and subsistence due to
COVID-19 and the associated travel restrictions; and
• additional savings of £0.3m relating to facility and general
office expenses.
Adjusted eBITDA* and result from operations
Due to the impact of COVID-19 on the operations of the Group
and, consequently, the financial performance, adjusted EBITDA
for 2021 was a loss of £1.7m compared with and a loss of £0.4m
for the prior year as set out in the table below:
The Group generated total revenue of £10.4m (2020: £13.1m).
The split between product sales and revenue from R&D contracts
is detailed in the table below. The significant increase in revenue
from R&D contracts primarily reflects the Group’s biological-threat
detection activities.
revenue mix
2021
2020
Revenue
Gross profit margin
Gross margin (%)
Loss before Tax
£'000 % share
£'000 % share
eBITDA Adjustments:
product
r&D
Total
5,836
4,516
10,352
56%
44%
10,314
2,806
13,120
79%
21%
Revenue in the first four months of the year was disrupted
as a result of the initial impact of COVID-19 and the resultant
lockdown that significantly slowed economic activity, and
particularly impacted the markets in which the Group operates.
However, there was a resumption of orders and shipments
across all segments in the final two months of the first half with
business patterns starting to return to normal and increased
commercial activity. Accordingly, the Group entered the second
Non- COVID-19 Related Items:
Net interest
Depreciation of PPE and Right-of-Use
assets
Amortisation
Share-based payments
COVID-19 Related Items:
Early settlement discount
Exceptional Item
Adjusted eBITDA*
2021
£'000
2020
£'000
10,352
13,120
5,006
48.4%
6,208
47.3%
(6,331)
(18,345)
546
544
1,685
1,185
2,359
106
2,142
225
-
746
(52)
13,062
(1,687)
(441)
Paul Farquhar
Chief Financial Officer
10
Strategic Report (Continued)
KromeK Group plc Annual Report & Accounts 2021
Chief Financial Officer’s Review (Continued)
*Adjusted EBITDA is defined as earnings before interest, taxation,
depreciation, amortisation, exceptional items, early settlement
discounts and share-based payments. In 2020, the impact of
COVID-19 resulted in an exceptional item of £13.1m relating to
receivables and AROC and a specific airport security customer
early settlement discount of £0.7m, as neither were in the normal
course of events and were significant in their size, practice and
nature. Share-based payments are added back when calculating
the Group’s adjusted EBITDA as this is currently an expense
with no direct cash impact on financial performance. Adjusted
EBITDA is considered a key metric to the users of the financial
statements as it represents a useful milestone that is reflective
of the performance of the business resulting from movements in
revenue, gross margin and the costs of the business.
The increase in adjusted EBITDA loss in 2021 compared with
2020 is substantially as a result of the lower gross profit due to
the reduced revenue.
Loss before tax was £6.3m compared with £18.3m for the
prior year, which primarily reflects the impact of the exceptional
£13.1m relating to receivables and AROC in 2020. Loss before
tax for the year before any exceptional items was £6.4m (2020:
£5.3m loss before exceptional items), with the increase largely
due to the reduction in gross profit and additional administration
costs (including distribution) of £0.3m, partially offset by other
operating income of £0.4m.
During 2021, the Group recognised a loss of £2.0m (2020:
£1.0m income) as other comprehensive loss that arose from
foreign exchange rate differences on a net investment in a foreign
operation as described in note 2 to the financial statements.
Unlike the £0.1m loss resulting from foreign exchange on
consolidation and revaluations and realisation of working capital
balances noted above that were expensed to the profit and loss
account, this gain has been treated as a reserve movement,
consistent with the prior year.
Tax
The Group continues to benefit from the UK Research and
Development Tax Credit regime as it invests in developments of
technology. The Group recorded an R&D credit of £1.0m for the
year (2020: £0.9m credit) arising from the option of surrendering
tax losses in the year that qualify for cash credit, rather than
carrying forward the tax losses to set against future taxable
profits. The Group’s deferred tax provision for the year remained
static at £nil (2020: £0.9m credit) due to the distribution of losses
between the UK and US operations, and accordingly there was
a total tax credit to the income statement for the Group of £1.0m
(2020: £1.8m credit).
earnings per Share (“epS”)
Due to the £1.9m increase in loss for the period, the EPS is
recorded in the year on a basic and diluted basis as 1.5p loss
per share (2020: 1.0p loss per share after excluding exceptional
items).
r&D
The Group invested £5.5m in the year (2020: £5.3m) in
technology and product developments that were capitalised on
the balance sheet, reflecting the continuing investment in new
products, applications and platforms for the future growth of
the business. This expenditure was capitalised in accordance
with IAS38 to the extent that it related to projects in the later
stage (development phase) of the project life-cycle. In addition,
the Group expensed £5.5m of R&D in the year (2020: £5.5m) to
the extent that it related to projects at the research phase of the
project life cycle.
During the year, the Group continued to advance its development
roadmap in relation to the automated wide-area detection
of biological and viral pathogens, involving portable DNA
sequencing. It is the Board’s belief that this technology platform,
which enables the identification of COVID-19 and other biological
pathogens, offers significant medium-term opportunities for the
Group in this critical market. This view is endorsed by the US
government with DARPA awarding Kromek a major contract
extension amounting to $6m in May 2021 as part of the
continuing development of this technology platform.
The other key areas of development continue to be the expansion
of the D5 suite of products and the SPECT platforms. All such
investments in research and development are linked to contract
deliverables and, in the Board’s belief, add to the significant
future revenue opportunities that the Group’s technology offers.
The Group continues to undertake this investment to strengthen
its commercial advantage.
During the year, the Group undertook expenditure on patents and
trademarks of £0.2m (2020: £0.2m) with 3 new patents filed and
10 patents granted across 9 patent families.
other Income
Other Income comprises grants of £0.1m (2020: £nil) received
from the Coronavirus Job Retention Scheme (CJRS) provided by
the UK Government in response to COVID-19’s economic impact
on businesses. In addition, the Group received funding of £0.3m
(2020: £nil) from the Innovate UK COVID-19 Continuity Fund.
KromeK Group plc Annual Report & Accounts 2021
11
capital expenditure
Capital expenditure in the year amounted to £0.5m (2020:
£7.0m), which primarily relates to modest capital expenditure
across lab and computer equipment and manufacturing projects.
Financing Activities
During the year, the Group successfully announced a Firm
Placing, Director’s Subscription and Open Offer to raise £13.0m
before expenses. The net proceeds of the transaction will
be used to de-risk and commercialise bio-security/pathogen
detectors and increase the rate of commercialisation, to
expand sales and marketing for the Group’s nuclear detection
and medical imaging activities and to strengthen the balance
sheet. This will provide the Group with flexibility to address and
capitalise on current and emerging opportunities.
In addition to the fundraise completed in March 2021, during
the year, the Group secured a £1.4m Term Loan with HSBC UK
for investment in capital projects. We also secured £1.4m of US
government funding issued through the Paycheck Protection
Program (PPP) Loan scheme. Post year end, the Group applied
for full forgiveness on the first round of PPP loans, equating
to £0.8m, and the Group was successful in its application as
disclosed in note 37.
cash Balance
Cash and cash equivalents were £15.6m as of 30 April 2021
(30 April 2020: £9.4m). The £6.2m increase in cash during 2021
primarily reflects net proceeds raised from the issue of new
equity shares of £12.2m partly offset by investment in product
development and other intangibles, with capitalised development
costs of £5.5m and IP additions of £0.1m.
Working capital increased by £0.8m as a result of a £0.2m
decrease in inventories held on 30 April 2021 to £6.2m (30 April
2020: £6.3m), which is the commencement of an anticipated
unwind of inventory that built up due to the disruption caused
by COVID-19; a £1.6m decrease in trade and other receivables,
reflecting the timing of receipts; and a £2.6m decrease in trade
and other payables to £7.2m (2020: £9.8m) due to the timing of
invoicing around the year end.
12
12
Strategic Report (Continued)
KromeK Group plc Annual Report & Accounts 2021
World’s First
Fully Automated Airborne
COVID-19 Detection System
Pilot schemes were launched in potential customer sites to identify
best-fit and future customisation
Pilot sites situated in international airports, schools and
other public buildings
KromeK Group plc Annual Report & Accounts 2021
13
provides the ability to act, react, and take better
decisions in terms of public health and national
security, helping life return to normality
The speed and accuracy of reporting means you
need no longer wait until someone is symptomatic
in a group of people. Localised monitoring enables
a detailed understanding of the spread of a disease,
allows mitigating actions to be taken such as targeted
testing and decontamination. These actions prevent
the isolation of individuals, groups, businesses and
public areas, thus ensuring minimum disruption to the
economy and assures future preparedness.
Of course, the most effective places for this
equipment to be sited is in high traffic areas such
as airports, schools, hospitals, and supermarkets.
We have engaged with potential customers for the
system to develop future deployment models and
identify how it can best fit their needs ahead of further
customisation.
Pilot schemes for the COVID-19 detection system
have been launched at two international airports and
have been expanded to include schools and other
locations.
We have also engaged in validation of the technology
in third party laboratories and the results are very
positive for all major markers, including detection
levels, sensitivity and false alarm rates, making the
technology performance comparable to existing RT
PCR test protocols.
The current COVID-19 pandemic highlighted that the
UK is ill equipped to monitor and track the evolution
of emergent pathogens, and that we fail to be
proactive in the management of outbreaks.
Long before anyone had even heard the word
‘COVID’, Kromek had been working with the Defense
Advanced Research Projects Agency (“DARPA”), an
agency of the US Department of Defense, to develop
a biological threat detection system that senses,
analyses and identifies airborne pathogens under a
programme established to combat bioterrorism.
The onset of the pandemic allowed us to focus on
adapting our technology for applications specifically
related to COVID-19 detection. This included work
funded under a programme by Innovate UK.
During the year Kromek announced it had developed
the world’s first COVID-19 (including variants)
detection system using a targeted assay to sample air
and confirm if the disease is present.
The COVID-19 detection system is fully autonomous,
unmanned, and combines best-in-class technologies
for air sampling, biological testing, and data
management.
Designed to be used indoors or outdoors, in static
or mobile form factors, the system can be run
continuously or as required and actively reports either
the presence or absence of COVID-19 every 30
minutes.
• Highly accurate
• Highly sensitive
• Ultra-low false positive rates
• Fully automatic
• Runs autonomously for 24/48 samples
• All-in-one, fully autonomous design
High volume of air
sampled
Filtration removes
large particles
Single tube, isothermal
preparation
Accurate identification
in 30 minutes
Results uploaded to
platform and encrypted
14
14
Strategic Report (Continued)
KromeK Group plc Annual Report & Accounts 2021
D5 rIID
KromeK Group plc Annual Report & Accounts 2021
15
Introducing the World’s
Smallest and Lightest
Radioisotope Identification
Device (RIID)
The D5 RIID, one of two new nuclear security products launched this year, is the
world’s smallest high-performance radioisotope identification device (“RIID”).
The D5 RIID forms a key part of the Kromek portable product portfolio for the
Nuclear, Homeland Security and Military markets. The UK has announced spending
of £329m over the next five years on nuclear detection, and portable products
continue to be a key component of the overall capability strategy.
The D5 RIID has unparalleled performance in detecting and identifying isotopes
at very low dose levels meaning that radioactivity will never be missed. The dose
accuracy of the D5 RIID is ±10% and it can identify isotopes at dose rate levels
lower than 0.01 µSv/h. Detection of distant sources is between 40 and 50 times
better than the default global standard of performance criteria for these handheld
instruments: ANSI N42.34. This means measurements can be carried out faster
and safer for the user.
With RIIDs now widely used, portability is essential. The new D5 RIID weighs less
than a third of the weight of comparable legacy instruments, and measuring less
than 7 inches (173mm) in height, the D5 RIID is light and unobtrusive enough to be
both belt and body worn and can be held and operated in one hand. Designed for
high-hazard environments, it is easily usable by someone in full PPE.
As missions get longer, the endurance of portable RIIDs is critical. The D5 RIID’s
enhanced battery life – in excess of 24 hours – is achieved via a dual system:
combining an internal rechargeable battery supplemented with a set of replaceable
AA-sized batteries allowing for speedy in-field replacement. Either option can be
used in isolation, or the two systems in unison, which removes the need for an
external charging station.
Advances in software development mean that the D5 RIID can interface with, or be
integrated into, existing systems, including smartphones, to enable a “reach-back”
capability. High-resolution spectral results obtained in the field can be transmitted
immediately to an offsite laboratory for secondary adjudication. It can also link
to a network of hubs and sensors to give a real-time overview of a radiological
threat. Critically, the connectivity and sensitivity of the D5 RIID allows the building of
customised national or local systems using the same sensor.
KromeK Group plc Annual Report & Accounts 2021
16
Strategic Report (Continued)
Principal Risks, Section 172 Statement and KPIs’
Review of Principal Risks
The Board has carried out a robust assessment of the principal risks to achieving its strategic objectives. Risks are reviewed on a regular basis by the
Board to identify any changes in risk profiles and to consider the optimal range of mitigation strategies.
Risks associated
with COVID-19
Risks associated
with competition
Risks associated
with management of
the Group’s growth
strategy
Description
Description
Description
The Group, in common with many
businesses, continues to face significant
economic and operational risks associated
with the impacts of the COVID-19
pandemic on the business environment
and, at a broader level, in terms of
providing a safe working environment for
its staff.
mitigation
As outlined in the 2020 Annual Report,
the Board activated its business continuity
plan in March 2020 in response to the
COVID-19 pandemic. Management
initiated a number of operational measures
to ensure that the workforce and the
business could continue to operate safely
with additional hygiene measures for staff
continuing to work in Kromek facilities, and
encouraging staff to work from home where
possible. In the first half of 2021, additional
debt funding was secured, and costs were
reduced where practicable, in response to
the sudden economic slowdown caused by
the pandemic. In addition, the Group raised
£13m of equity capital, before expenses, in
March 2021 from a Placing and Open Offer.
The Placing was undertaken with new and
existing institutional investors in the Group.
Management continues to follow and
implement government guidance in each
jurisdiction in which the Group operates
and continually reviews its business
continuity plan and financial forecasts to
ensure that the business can serve its
customers efficiently and safely.
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.
mitigation
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 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.
mitigation
The Group’s experienced management
team is well versed in the current markets
available to the Group and well-positioned
to adapt to any changes in those markets.
The Group also has detailed control
systems including R&D cost control and
extensive project management criteria.
The Group has demonstrated its ability
to identify, execute and integrate M&A
opportunities with its two successful US
acquisitions. The Group has also relocated
one of the US subsidiary companies to a
custom-built facility that specialises in the
production of CZT gamma cameras used
for SPECT.
KromeK Group plc Annual Report & Accounts 2021
17
Risks associated
with product and
technology adoption
rates
Risks associated with
timing of customer or
third-party projects
Risks associated
with exchange rate
fluctuations
Description
Description
Description
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.
mitigation
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.
The Group’s strategy includes co-
development with 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.
mitigation
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.
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.
mitigation
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. 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.
Where this natural hedging strategy
results in exposed foreign currency risk,
management will consider hedging some
or all of that risk through the utilisation of
forward exchange contracts.
18
Strategic Report (Continued)
KromeK Group plc Annual Report & Accounts 2021
Principal Risks, Section 172 Statement and KPIs’ (Continued)
Review of Principal Risks (Continued)
Risks associated with
Brexit
Risks associated
with global electronic
component shortages
Description
Description
There is currently a global shortage of
certain electronic components, and in
particular semiconductors and micro-
chips. This has been caused by a range
of factors, including major factory fires in
key component suppliers in Japan and
Taiwan, and supply chain disruption due
to factories being closed or operating
at much lower capacity as a result of
the COVID-19 pandemic. The supply
side shortages have been exacerbated
by a significant increase in demand for
electronic components in nearly every
industry including computing, automotive,
smartphone, medical and IoT markets
that need increasingly larger numbers of
components for finished products. The
constrained supply is unlikely to improve
until the middle of the 2022 calendar year,
and component prices have increased
as a result of the excess demand in the
market.
mitigation
The Group has taken a range of mitigating
actions in response to the global shortage
of electronic components, including
advance buying and widening the
supply chain from which components
are sourced, to secure future supply
and thereby continuity of supply for the
Group’s customers.
As a consequence of the UK’s decision
to leave the European Union at the end of
2020, there continues to be international
uncertainty around the long-term impact
this will have on business and trade. The
Group will continue to monitor Brexit
and other macroeconomic factors such
as US and China relations. Kromek, as
an export led Group, may be subject
to risks associated with international
trade, including operational impacts on
logistics, potential tariffs and duties (for
example on imports on some categories
of semiconductor material), and export
control matters for some of the Group’s
nuclear products as a result of the final
terms of the UK’s departure from the
European Union. There is unlikely to be an
impact on staff relating to any restriction
on the movement of labour.
mitigation
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 long-term outcomes
of Brexit.
However, management continually
monitors the political environment and
keeps the impact of Brexit under review
and other global economic events such
as the existing relationship between
the US and China. The Group employs
specialist skills within its functions and
applies regular technical update training
to co constantly monitor the changing
environment, latest government guidelines
and industry best practice.
Section 172 Statement
Under s172 of the Companies Act 2006,
the Directors have a duty to act in good
faith in a way that is most likely to promote
the success of the Group. This duty is for
the benefit of its members as a whole,
having regard to the likely consequences
of decisions for the long-term. This
involves having consideration for the
interests of the Group’s employees, the
need to foster relationships with other key
stakeholders and the Group’s impact on
the local community and the environment.
Additionally, the Directors must act in a
way that maintains a reputation for high
standards of business conduct, and takes
into account the need to act fairly as
between members of the Group.
In discharging its Section 172 duties, the
Board has considered the factors set out
above and the views of key stakeholders
as described below.
Investors
The 10 largest investors in the Group
hold, in aggregate, approximately 56%
of the Group’s shares. The Executive
Directors communicate from time-to-
time with these shareholders and have a
good understanding of their interests. The
Executive Directors and other members of
the management team meet regularly with
other shareholders, both institutional and
private, to explain and discuss the Group’s
strategy and objectives and to understand
the interests of smaller shareholders in
the Group. The Board recognises its
responsibility to act fairly between all
shareholders of the Group.
The Group 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
KromeK Group plc Annual Report & Accounts 2021
19
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 Group’s brokers. The
Group 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.
Employees
The Group employed an average of 139
staff during 2021. The management team
interacts daily with all employees and
operate dedicated HR functions at its
key sites in the UK and US. Management
has implemented employee policies
and procedures that are appropriate for
the size of the Group. As noted in the
Directors’ Report, 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.
Customers and suppliers
Apart from its shareholders and
employees, the Group’s main stakeholders
are customers and suppliers. The Group
has several contracts with customers
that relate to longer term technology
development and supply. The Group
has engaged a dedicated Procurement
and Legal function that operates with
the Group’s commercial, project and
production teams and those of the
Group’s key customers and suppliers.
These aims are reflected in each of the
following key areas for our business:
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.
Environmental, Social and
Governance (ESG)
As a relatively small organisation, the
Group’s impact on the community and
the environment is modest, but the Board
endeavours to ensure that the business
acts ethically and in an environmentally
conscious manner.
Kromek is committed to being a
responsible corporate member of society
and our priority both before and during the
pandemic has been to protect our people,
support our customers and stakeholders
and continue to protect the environment
around us. We believe that this approach
supports the Group’s long-term success.
The Group’s ESG strategy embodies two
main aims:
• To continue to make our business
better and more sustainable, by
minimising our environmental impact
and ensuring meaningful diversity in
the workforce and strong governance
• To make a difference beyond the direct
operation of our business, through our
reach and contribution to wider society
The environment. We will work both to
reduce the Group’s carbon footprint and
work towards being a carbon neutral
organisation. In April 2020, the Group
elected to contract its energy supplies in
the UK from clean energy sources.
Our employees. We will work with our
employees to continue to provide an open
and inclusive workplace, with a focus
on well-being to ensure we have a great
place to work.
Our customers. We will continue to
innovate to provide our customers with
products and services that use fewer
resources.
Key performance Indicators
(KpIs)
The Group utilises a range of financial
and non-financial performance indicators
to measure performance of continuing
operations against strategy. Of those
performance indicators, the Group’s
principal KPIs are revenue, adjusted
EBITDA and total cash balances, and
management closely monitors current
year actuals for these metrics against both
budget and prior year figures. The Board
believes that these metrics are valuable
indicators of the Group’s progressing
business model.
Further comments regarding these metrics
are set out in the Chairman’s Statement
and the Chief Executive Officer’s and Chief
Financial Officer’s Reviews.
Dr Arnab Basu mBe
Chief Executive Officer
13 July 2021
20
20
KromeK Group plc Annual Report & Accounts 2021
Directors’ Biographies
Mr Rakesh Sharma OBE, Chairman
Mr Sharma is a former FTSE 250 CEO with 20 years’ experience in running international hi-tech
engineering and manufacturing businesses. He was instrumental in the growth of Ultra Electronics
Holdings plc, the LSE-listed group that specialises in providing engineering solutions for mission-
critical systems in the defence, security, critical detection and control markets, latterly serving
for six years as CEO. He also sits on the Board of LSE-listed PayPoint plc and supports a range
of small businesses and entrepreneurs in a non-executive capacity. Mr Sharma was elected as
a Fellow of the Royal Academy of Engineering in 2016 and was honoured in the 2017 Queen’s
Birthday Honours List with an OBE for services to defence capability. In 2018 he was given
the Freedom of the City of London by redemption and became a Liveryman of the Worshipful
Company of Coachmakers and Coach Harness Makers. He brings extensive expertise in the
security and defence sector, a key market for Kromek.
Dr Arnab Basu MBE, DL, Chief Executive Officer
Dr Basu has a PhD in physics from Durham University, specialising in semiconducting sensor
materials. He held senior management positions in his family business, serving over 250 major
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
in 2014.
Mr Paul Farquhar, Chief Financial Officer
Mr Farquhar is a Fellow of the Institute of Chartered Accountants in England and Wales. He has
30 years’ experience as a finance director and chief financial officer, primarily for international
businesses. He was previously President, Treasurer and Chief Financial Officer of Sevcon Inc, a
NASDAQ-listed designer, manufacturer and supplier of microprocessor controls for electric and
hybrid vehicles. In this position, Mr Farquhar established a global finance team in five countries
with common financial reporting systems to meet the needs of a growing technology business
and also oversaw the raising of equity and debt finance and M&A activity. He began his career as
a chartered accountant, spending 10 years as an auditor at Jennings Johnson in Sunderland and
at PricewaterhouseCoopers in Newcastle and Lisbon, Portugal.
Mr Albertus (“Berry”) Beumer, Chief Operating Officer
Mr Beumer is a technology business executive with extensive experience of delivering revenue
growth in analytical instrument, high-frequency communications equipment, and optoelectronic
and semiconductor materials industries. He has held several senior roles while working both in
Europe and the US with AkzoNobel and Allied Signal and was Division President and General
Manager of Taconic’s US, Europe, and Asia operations. Prior to joining Kromek, he was Vice
President, Sales and Marketing at XOS, Inc., a Danaher Company. During his tenure at XOS, Inc.,
Mr Beumer was responsible for driving the strategic direction of their x-ray elemental technology
business, positioning the company as a global leader in the area of application specific elemental
analysis solutions for the petroleum and consumer products industries.
KromeK Group plc Annual Report & Accounts 2021
21
21
Mr Lawrence Kinet, Non-Executive Director
Mr Kinet has over 40 years’ experience in leadership positions in the medical device and bio-
pharmaceutical industry, 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 several 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. In addition to being a Non-
Executive Director of Kromek, Mr. Kinet is the Chairman of Metrasens Ltd in Malvern, UK (a
company in the healthcare and security fields) and is a board member of Reglagene Inc., a
company in the field of cancer treatment.
Mr Jerel Whittingham, Non-Executive Director, Remuneration Committee Chair
Mr Whittingham has extensive experience in investor, operational and strategy roles with
technology-rich companies, including Incuvest LLC, Generics Group plc, Durlacher plc, Amphion
Innovations plc, INMARSAT and a number of start-ups. He was appointed to the Board of
Kromek Group plc in September 2013. Currently, he manages a portfolio of emerging and existing
University spinouts and a small Seed Fund. He has also served as interim CEO or Executive
Chairman of spinouts from Manchester and Cambridge Universities. He is a graduate of UCL,
Cranfield and ULB.
Mr Christopher Wilks, Non-Executive Director, Audit Committee Chair
Mr Wilks is a Fellow of the Institute of Chartered Accountants in England and Wales. He is
currently Chief Financial Officer at ECO Animal Health Group plc, a leader in the development,
registration and marketing of pharmaceutical products for global animal health markets. He
qualified with Ernst & Young and has over 25 years’ experience as Chief Financial Officer in
technology and science-based companies. For over 10 years, he was the Chief Financial officer
of Sondex plc, which makes advanced instruments used in the Energy Industry. During Mr Wilks’
tenure, Sondex grew from a small sole trader to a fully listed plc and was acquired by GE in 2007.
Immediately prior to joining ECO Animal Health Group, Chris was the CFO at Signum Technology
Limited, a PE-backed buy-out vehicle formed for the acquisition of a number of oilfield technology
businesses. Signum was successfully sold during 2019. His intimate understanding of the physics
and financial worlds adds valuable insight and expertise to Kromek.
22
KromeK Group plc Annual Report & Accounts 2021
Directors’ Report
The Directors present their annual report on the affairs of the
Group, together with the financial statements and auditor’s
report, for the year ended 30 April 2021.
Mr L Kinet
Mr J H Whittingham
Mr C Wilks
principal activities
Kromek Group plc is a leading developer of radiation detectors
based on cadmium zinc telluride (CZT) and associated
technologies, 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, including an emerging
capability in biological-threat detection.
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 2021, principal risks and uncertainties, research
and development, financial KPIs and the outlook for future years,
are set out in the Chairman’s Statement and Chief Executive
Officer’s and Chief Financial Officer’s Reviews on pages 2 - 11.
Future developments
The Group’s development objectives for the year to 30 April 2022
are disclosed in the Strategic Report on pages 4 - 19.
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 2021.
results and dividends
The emoluments and interests of the Directors in the shares of
the Group are set out in the Remuneration Committee Report on
pages 29 - 31.
Details of significant events since the balance sheet date are
contained in note 17 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. In preparing each of the
Group and parent Company financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them
The consolidated income statement is set out on page 41.
consistently;
The Group’s loss after taxation amounted to £5.3m (2020:
£16.5m loss after tax and exceptional items).
The Directors do not recommend the payment of a dividend for
the year ended 30 April 2021 (2020: £nil).
During the year ended 30 April 2021, the Group made political
donations of £nil (2020: £nil) and charitable donations of £nil
(2020: £nil).
Directors
The Directors who served during the year and up to the date of
signing this report (unless otherwise stated) were as follows:
Dr A Basu
Mr R Sharma
Mr D Bulmer
Sir P Williams
Mr P N Farquhar
Mr A Beumer
(appointed 8 October 2020)
(resigned 31 October 2020)
(resigned 1 January 2021)
(appointed 31 October 2020)
(appointed as a Director on 16 December 2020)
• 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
KromeK Group plc Annual Report & Accounts 2021
23
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.
These policies are circulated to staff as part of the employee
manual, and reminders are sent on a regular basis as the manual
is updated and changed.
The Group has several routes in place to reinforce ethical
behaviour, which, depending upon the situation, could be
resolved in a 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
152 and the percentage of this number that is female is 32%.
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.
Substantial shareholders
As at 30 April 2021 and 30 June 2021 (the latter being the latest
date for which this information was available prior to approving
this report), shareholders holding more than 3% of the share
capital of Kromek Group plc were:
Name of shareholder
At 30 April 2021
At 30 June 2021
Number
of shares
% of voting
rights
Number
of shares
% of voting
rights
Hargreaves Lansdown Asset Management
50,381,420
11.67%
52,071,340
12.06%
Interactive Investor
Canaccord Genuity Wealth Management
Polymer Holdings (UK)
Herald Investment Management
Halifax Share Dealing
AJ Bell Securities
Jarvis Investment Management
42,653,287
35,671,234
21,940,142
21,080,059
19,608,897
13,497,634
13,348,892
9.88%
8.26%
5.08%
4.88%
4.54%
3.13%
3.09%
50,634,872
11.73%
35,671,234
21,940,142
21,080,059
20,471,436
14,112,701
8.26%
5.08%
4.88%
4.74%
3.27%
11,488,421
<3.00%
Barclays Wealth
12,275,699
<3.00%
13,296,690
3.08%
By order of the Board
Dr Arnab Basu mBe
Chief Executive Officer
13 July 2021
24
KromeK Group plc Annual Report & Accounts 2021
Corporate Governance Report
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.
principle
compliance
1. Establish a strategy and business
model which promote long-term
value for shareholders
• Kromek is a leading supplier of radiation detection components and devices.
• The Group strategy is set out in the Strategic Report section on pages 4 to 19 of this Annual Report.
• The Board normally meets formally at least four times per year in person and four times per year
telephonically. One of the Board’s direct responsibilities is setting and monitoring strategy.
2. Seek to understand and
meet shareholder needs and
expectations
•
Investor roadshow meetings are held at least twice per year immediately following the full year and interim
announcements.
• Under normal circumstances, shareholders are invited to the AGM held in Sedgefield where all Board
members have the opportunity to interact with shareholders and are available to answer questions raised.
• Shareholder feedback is received from our Nomad and all shareholder feedback is discussed at Board
meetings.
• For further information, see Section 172 statement on page 18 of this Annual Report.
3. Consider wider stakeholder
and social responsibilities and
their implications for long-term
success
•
In terms of employees, regular meetings are held with management tiers to discuss strategy, keep
employees updated, seek feedback and promote employee engagement.
• The Group engages in continuous communication and engagement with customers in order to
understand their needs and requirements.
• The procurement team maintains strong relationships with existing suppliers whilst promoting new
partnerships with new suppliers.
• For further information, see Section 172 statement on page 18 of this Annual Report.
4. Embedded effective risk
• The Board has overall responsibility for risk management and is assisted by the Audit Committee in
management, considering
both opportunities and threats
throughout the organisation
monitoring the principal risks and uncertainties facing the Group as well as the actions taken to mitigate
those risks.
• The Group’s significant risks are reviewed and assessed throughout the year.
• The significant risks are disclosed on pages 16 – 18 of the Strategic Report within this Annual Report.
5. Maintain the Board as a well-
functioning, balanced team led by
the Chairman
• The Board is led by the Non-Executive Chairman, Mr Rakesh Sharma.
• The members of the Board maintain the appropriate balance of experience, independence and
knowledge of the Group.
• For further information, please see pages 20 - 21 of this Annual Report.
6. Ensure that between them the
Directors have the necessary
up-to-date experience, skills and
capabilities
7. Evaluate Board performance
based on clear and relevant
objectives, seeking continuous
improvements
8. Promote a corporate culture that
is based on ethical values and
behaviours
• Between the four Non-Executive Directors and the three Executive Directors, the Board has an effective
balance of skills, experience and capabilities including finance, technology, law and knowledge of the
medical sector.
• Biographies of each Director can be found on pages 20 - 21 of this Annual Report.
• The Remuneration Committee evaluates Executive Director performance alongside remuneration and
reward.
• With regards to financial performance, the Audit Committee meets with the Auditors to plan the year-end
audit, followed up by a meeting to review the results of the audit.
• The Group’s ethical values are outlined on page 23 of this Annual Report.
• 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.
9. Maintain governance structures
• As noted in principle 1, the Board normally meets formally at least four times per year in person and four
and processes and support good
decision making by the Board
10. Communicate how the Group
is governed and is performing
by maintaining a dialogue with
shareholders and other relevant
stakeholders
times per year telephonically.
• The Audit Committee also meets two times per year and one of its key responsibilities is to review the
effectiveness of the Group’s internal control over financial reporting and consider key financial judgements
made in the financial statements.
• The Group’s financial results and internal controls are also audited by external Auditors to ensure they are
consistent with the Audit Committee’s understanding.
• Communication with shareholders is explained in principle 2 above.
• The Group’s website details RNS announcements and copies of the Annual and Interim reports.
This information is available on the Group’s website. Please visit www.kromek.com.
KromeK Group plc Annual Report & Accounts 2021
25
The Board
Board effectiveness
The Board normally meets formally 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 seven times during the year ended 30 April
2021, including one AGM. Due to the restrictions caused by the
COVID-19 pandemic, meetings were largely held telephonically
or by videoconference. The following details the Board meetings
during 2021, and the attendees:
Date
10/07/2020
06/10/2020
16/10/2020
17/11/2020
08/12/2020
19/01/2021
30/03/2021
Attendees
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
Rakesh Sharma
Arnab Basu
Derek Bulmer
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
Sir Peter Williams
Rakesh Sharma
Arnab Basu
Derek Bulmer
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
Sir Peter Williams
Rakesh Sharma
Arnab Basu
Derek Bulmer
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
Rakesh Sharma
Arnab Basu
Paul Farquhar
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
Berry Beumer
Rakesh Sharma
Arnab Basu
Paul Farquhar
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
Berry Beumer
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 five
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. 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
Group’s independent Non-Executive Directors, before accepting
additional commitments that might affect their time to devote to
the role as a Non-Executive Director of the Group.
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 Chairman conducts half yearly reviews of the effectiveness of
the Board’s performance as a unit and of the individual members,
meeting with Board members to discuss their involvement with
the Group 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.
3. Impact
• Contributes to the Group’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.
26
Corporate Governance Report (Continued)
KromeK Group plc Annual Report & Accounts 2021
Relations with stakeholders
remuneration committee
The Group considers its key stakeholders to be its shareholders,
employees and customers and suppliers. How the Group
engages with these, and broader, stakeholders is described in
the Strategic Report on pages 18 - 19.
Audit committee
The Audit Committee is chaired by Christopher Wilks, an
Independent Non-Executive Director. The other members are
Rakesh Sharma, Lawrence Kinet and Jerel Whittingham, each
of whom are Independent Non-Executive Directors. During the
year, Peter Williams stepped down from the committee when he
resigned from the board on 1 January 2021; he was replaced
by Rakesh Sharma who was appointed to the committee at the
meeting held on 12 January 2021. 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. There is also meeting time provided
outside the committee schedule to ensure there is full opportunity
for discussion.
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 following details the Audit Committee meetings and
attendees during the year ended 30 April 2021:
Date
26/08/2020
12/01/2021
Attendees
Christopher Wilks
Peter Williams
Lawrence Kinet
Jerel Whittingham
Derek Bulmer
Christopher Wilks
Rakesh Sharma
Lawrence Kinet
Jerel Whittingham
Paul Farquhar
The Remuneration Committee is chaired by Jerel Whittingham,
an Independent Non-Executive Director. The other members
are Christopher Wilks and Lawrence Kinet, Independent Non-
Executive Directors. The committee is responsible for making
recommendations to the Board, within agreed terms of reference,
on the Group’s framework of executive remuneration and its cost.
The committee determines the contract terms, remuneration
and other benefits for each of the Executive Directors, including
performance-related bonus schemes and pension rights. In
addition, in all matters of significant remuneration change, the
Remuneration Committee consults with the wider Board. 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.
A 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 and relevant action is taken throughout the year
and updated forecasts are prepared as appropriate.
Capital and development expenditure is regulated by a budgetary
process and authorisation levels. For expenditure beyond
specified levels, detailed written proposals have to be submitted
to the Board for approval. Reviews are carried out after the
purchase is complete. The Board requires management to
explain any major deviations from authorised capital proposals
and to seek further sanction from the Board.
The Board has reviewed the need for an internal audit function
and concluded that this is not currently necessary in view of the
small size of the Group and the close supervision by the senior
leadership team of its day-to-day operations. The Board will
continue to keep this under review.
The Group has a whistle-blowing policy and procedures to
encourage staff to contact the Audit Committee if they need to
raise matters of concern other than via the Executive Directors
and senior leadership team.
KromeK Group plc Annual Report & Accounts 2021
27
Going concern
As at 30 April 2021, the Group had net current assets of £17.5m
(30 April 2020: £12.3m) and cash and cash equivalents of
£15.6m (30 April 2020: £9.4m) 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 two years. As a result of COVID-19, a revised base
case scenario was assessed along with a severe but plausible
downside less likely scenario. In the revised base case scenario,
with continued support from HSBC, the Group has adequate
resources to operate for at least the next 12 months. In the
severe but plausible downside, stress test scenario beyond the
Board’s estimate of revised base case, it is possible that the
Group may breach one of the bank’s five covenants during the
12-month going concern review period. It should be noted that
the Board has specifically excluded any significant upsides from
these scenarios or mitigating cost reductions, despite COVID-19
representing potential major opportunities for the Group in terms
of its biological detection capabilities. 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 its 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. For
further reference, please refer to the basis of preparation note on
page 46.
28
KromeK Group plc Annual Report & Accounts 2021
Audit Committee Report
On behalf of the Board, I am pleased to present the Audit
Committee report for the year ended 30 April 2021.
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. There is also meeting time provided 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), Lawrence Kinet, Jerel Whittingham and
Rakesh Sharma.
The Board is satisfied that I, as Chairman of the Committee,
have recent and relevant financial experience. I am currently
Chief Financial Officer at ECO Animal Health Group plc and 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 Group’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;
• overseeing the process in early 2021 of selecting and
assessing the suitability of the external auditors following the
decision to change the Group’s external audit firm;
•
review of the 2021 audit plan and audit engagement letter;
• assessment of the auditor’s independence and performance;
•
•
review of the risk management and internal control systems;
review and approval of the interim results;
• assessment of the need for an internal audit function; and
• meeting with the external auditor without management
present.
role of the external auditor
The Audit Committee monitors the relationship with the external
auditor, Haysmacintyre 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 in the two years ended 30 April 2021 is provided
in note 7 of the Group’s financial statements. There were no
non-audit services provided by the current external auditor to the
Group during the 2021 year.
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, during the audit period, areas
of significant risk, audit differences and other matters of audit
relevance are regularly communicated. The auditor calculates
materiality for the purposes of their audit using an average of
the Group’s last three years normalised loss before tax and
exceptional items. The materiality of the Group for the 2021 audit
was £193k (2020: £167k). There were no unadjusted material
differences reported by the auditor to the Audit Committee.
Internal audit
At present the Group does not have an internal audit function,
and the Audit Committee believes that management and
the Board are 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 26 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 any employee of the Group may,
in confidence, raise concerns about possible improprieties in
financial reporting or other matters. No matters were reported
through this mechanism during the year.
christopher Wilks
Audit Committee Chairman
13 July 2021
KromeK Group plc Annual Report & Accounts 2021
29
Remuneration Committee Report (Unaudited)
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.
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.
Service contracts
The Remuneration Committee is responsible for recommending
the remuneration and other terms of employment for the
Executive Directors of Kromek Group plc.
Arnab Basu (CEO), Paul Farquhar (CFO) and Berry Beumer
(COO) have service contracts with notice periods (to the
Company) of nine, six and three months, respectively.
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
40%–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 value creation share plan (“VC”) introduced following a 2018
review of remuneration was terminated with the agreement of the
participants on 29 April 2021, and all share options previously
issued under the plan were cancelled.
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 or share options. Due to the economic
uncertainty caused by the COVID-19 pandemic, the Non-
Executive Directors surrendered their salaries for the 4-month
period May to August 2020, during the year ended 30 April 2021.
Directors’ emoluments (Audited)
Emoluments of the Directors for the year ended 30 April 2021 are
shown below.
pension contributions
During the year, the Group made pension contributions to
personal pension schemes (i.e. defined contribution schemes)
for the following executive directors. Neither benefits in kind nor
bonuses are pensionable.
Details of contributions payable by the Group are:
Year ended
Director
Arnab Basu
Derek Bulmer1
Paul Farquhar2
Berry Beumer3
30 April 2021
£’000
30 April 2020
£’000
15
6
5
5
10
10
-
5
1 Derek Bulmer resigned on 31 October 2020
2 Paul Farquhar was appointed a Director on 31 October 2020
3 Berry Beumer was appointed a Director on 16 December 2020
(having previously been a senior manager at Kromek) and of the above
contributions payable by the Group in the year ended 30 April 2021,
£2,000 was paid by the Group for the period from his appointment as a
Director to 30 April 2021
30
Remuneration Committee Report (Continued)
KromeK Group plc Annual Report & Accounts 2021
Directors’ shareholdings
Beneficial interests of the Directors in the shares of the Group are
shown below:
Arnab Basu
Rakesh Sharma1
Sir Peter Williams2
Paul Farquhar3
Derek Bulmer4
Berry Beumer
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
30 April 2021
30 April 2020
Number
2,988,750
311,704
300,000
66,500
132,292
80,000
350,000
364,890
177,941
%
0.7
0.1
0.0
0.0
0.0
0.0
0.1
0.1
0.0
Number
2,972,000
-
200,000
-
132,292
-
300,000
364,890
175,000
%
0.9
-
0.1
-
0.0
-
0.1
0.1
0.1
1 Rakesh Sharma was appointed as a Director on 8 October 2020
2 Sir Peter Williams resigned as a Director on 1 January 2021
3 Includes shares owned by family
4 Derek Bulmer resigned as a Director on 31 October 2020
After 10 years as Chief Financial Officer of the Group, Mr Bulmer
advised the Board in the third quarter of 2021 of his wish to
resign in order to pursue alternative opportunities. The Group
entered into a settlement agreement with Mr Bulmer on 28
October 2020, and he left the Company at the conclusion of the
Annual General Meeting on 31 October 2020. The terms of the
agreement provided for the following:
•
in lieu of notice, a sum equivalent to 12 months remuneration,
defined as basic salary, pension contributions and car
allowance, was paid to Mr Bulmer totalling £192,250;
• no bonus element was paid in respective of the 2020 year;
• all rights to existing LTIPs and Value Shares were
surrendered;
• existing options over 875,000 shares at 20 pence were
surrendered;
• new options over 875,000 shares at 20 pence were put in its
•
•
place with revised exercise dates;
in recognition of Mr Bulmer’s contribution to the Group’s
development over more than a decade, further options over
1,125,000 shares were granted ex gratia, priced at 12 pence
per share, being the average of the middle market price over
30 days prior to and 30 days following the announcement of
the Group’s results for 2020; and
in recognition of the challenge in finalising the annual audit
at the height of the COVID-19 pandemic, additional options
over 300,000 shares were granted on the same terms as the
1,125,000 share options described above.
Directors’ emoluments for the year ended 30 April 2021
The table below forms part of the audited financial statements:
Non-executive chairman
Sir Peter Williams1
Rakesh Sharma2
executive
Arnab Basu
Paul Farquhar3
Derek Bulmer4
Berry Beumer5
Non-executive
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
Total
Salary
£’000
Benefits
£’000
Bonus
paid
£’000
Pension
contributions
£’000
Total
emoluments
2020/21
£’000
Total
emoluments
2019/20
£’000
25
45
210
85
87
64
26
28
28
-
-
6
4
4
-
-
-
-
598
14
-
-
-
-
-
-
-
-
-
-
-
15
5
6
2
-
-
-
25
45
231
94
97
66
26
28
28
28
640
69
-
231
-
186
-
36
39
40
601
1 Sir Peter Williams resigned as a Director on 1 January 2021
2 Rakesh Sharma was appointed as a Director on 8 October 2020 and assumed the role of Chairman on 1 January 2021
3 Paul Farquhar was appointed a Director on 31 October 2020; his salary was £155,000 p.a. in 2021
4 Derek Bulmer resigned as a Director on 31 October 2020; his salary was £174,250 p.a. in 2021
5 Berry Beumer was appointed as a Director on 16 December 2020, having previously been a senior manager at Kromek
KromeK Group plc Annual Report & Accounts 2021
31
In common with many other companies, the Remuneration
Committee gave additional consideration this year to the
exceptional circumstances and challenges of the COVID-19
pandemic for the business and for the executive directors, when
reviewing remuneration matters.
As Berry Beumer joined the Board during 2021, all aspects of his
emoluments came under the direct purview of the Remuneration
Committee from the date of his appointment to the Board.
None of the executive or non-executive directors exercised any
share options in the year ended 30 April 2021 (2020: nil).
executive Directors’ share incentive scheme
(lTIp)
Share incentive scheme for executive directors
The Remuneration Committee agreed, in April 2021, an incentive
award scheme for Arnab Basu and Berry Beumer, to offer them
up to 1,000,000 and 751,007 shares respectively, at a price of
21p per share, to vest based on specified performance criteria.
The Remuneration Committee agreed, in October 2019, an
incentive award scheme for Arnab Basu and Derek Bulmer, to
offer them up to 443,038 and 358,650 shares respectively, at a
price of 1p per share, to vest based on specified performance
criteria.
The Remuneration Committee agreed, in January 2019, an
incentive award scheme for Arnab Basu and Derek Bulmer, to
offer them up to 411,765 and 333,333 shares respectively, at a
price of 1p per share, to vest based on specified performance
criteria.
The share incentives noted above are measured by a Total
Shareholder Return condition, calculated as the average total
return in comparison to a peer group. The incentive awards
offered to Mr Bulmer in January and October 2019 lapsed on 31
October 2020 when Mr Bulmer’s employment with the Company
ended.
As at 30 April 2021, other than the shares offered to Mr Bulmer in
2019 and 2020, the LTIP incentive option shares issued in fiscal
years 2019, 2020 and 2021, remained unvested.
As noted above, the VC share plan introduced in the year ended
30 April 2018 was terminated during the year ended 30 April
2021, and all previous awards were cancelled.
Share price during the year
During the year to 30 April 2021, the highest share price was
23.47p (2020: 27.00p) and the lowest share price was 10.07p
(2020: 10.50p). The market price of the Group’s shares at 30
April 2021 was 15.15p (30 April 2020: 19.39p).
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
Whilst the issue of equity incentives for executive directors is
primarily focused on the LTIP scheme as detailed on the previous
page, the Group does make occasional and targeted use of
market price options for executive directors outside the LTIP.
The following table shows the movement in the total share
options that have been granted to executive directors outside the
LTIP; these options are not linked to any specified performance
criteria:
Director
Date of grant
exercise
price p
At 1 may
2020
Number
Awarded
during
the year -
Number
cancelled
during
the year -
Number
exercised
during
the year -
Number
At 30 April
2020
Number
expiry date
Arnab Basu
20 November 2011
20.0
1,000,000
-
Arnab Basu
14 December 2020
Arnab Basu
29 April 2021
Paul Farquhar
15 October 2020
Berry Beumer1
1 January 2016
Berry Beumer1
14 December 2020
Berry Beumer
29 April 2021
Derek Bulmer2
13 September 2010
Derek Bulmer2
15 October 2012
Derek Bulmer2
31 May 2013
Derek Bulmer2
28 October 2020
Derek Bulmer2
28 October 2020
12.0
1.0
12.0
27.0
12.0
1.0
20.0
20.0
20.0
20.0
12.0
-
-
-
-
-
-
-
-
-
-
1,250,000
110,000
1,000,000
180,000
-
-
-
1,250,000
150,000
500,000
125,000
250,000
-
-
-
500,000
125,000
250,000
-
-
875,000
1,425,000
-
-
1 Awarded to Mr Beumer prior to him being appointed as a Director
2 Mr Bulmer resigned as a Director on 31 October 2020
-
-
-
-
-
-
-
-
-
-
-
-
1,000,000
20 November 2021
1,250,000
14 December 2030
110,000
29 April 2031
1,000,000
15 October 2030
180,000
1 January 2026
1,250,000
14 December 2030
150,000
29 April 2031
-
-
-
-
-
-
875,000
28 October 2025
1,425,000
28 October 2025
Jerel Whittingham
Remuneration Committee Chairman
13 July 2021
32
KromeK Group plc Annual Report & Accounts 2021
This page is left intentionally blank
Annual report and accounts for the
Annual report and accounts for the
year ended 30 April 2021
year ended 30 April 2021
Financial Statements
KromeK Group plc Annual Report & Accounts 2021
33
Annual report and accounts for the
Annual report and accounts for the
year ended 30 April 2021
year ended 30 April 2021
Financial Statements
34
KromeK Group plc Annual Report & Accounts 2021
Independent Auditor’s Report To The Members of Kromek Group plc
opinion
We have audited the financial statements of Kromek Group PLC
(the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the
year ended 30 April 2021 which comprise the Consolidated
Statement of Comprehensive Income, the Consolidated
and Parent Company Statement of Financial Position, the
Consolidated and Parent Company Statements of Cash Flows,
the Consolidated and Parent Company Statements of Changes
in Equity and notes to the financial statements, including a
summary of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as
adopted by the European Union.
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 2021 and of the
group’s loss for the year then ended;
• have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
• 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 under those standards are further described in the
Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the Group in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
conclusions relating to going concern
In auditing the financial statements, we have concluded that the
director’s use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our audit procedures to evaluate the director’s assessment of the
Group’s and the Parent’s ability to continue to adopt the going
concern basis of accounting included, but were not limited to:
• Undertaking an initial assessment at the planning stage of the
audit to identify events or conditions that may cast significant
doubt on the Group and the Parent’s ability to continue as a
going concern;
• Evaluating the methodology used by the directors to assess
the Group and the Parent’s ability to continue as a going
concern;
• Reviewing the director’s going concern assessment and
evaluating the key assumptions used and judgements
applied;
• Reviewing the liquidity headroom and applying a number of
sensitivities to the base forecast and plausible worst case
forecast, prepared by management, to provide comfort over
there being sufficient headroom to adopt the going concern
basis of accounting;
• Reviewing and recalculating banking covenant requirements
during the year and for the period of the forecasts;
• Reviewing the appropriateness of the director’s disclosures in
the financial statements.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company’s or Group’s ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections
of this report.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified. These matters included those which had
the greatest effect on the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion
on these matters.
KromeK Group plc Annual Report & Accounts 2021
35
Key Audit Matter Description
How the matter was addressed in the audit
presumed risk in revenue recognition
Included in the Group Statement of Comprehensive Income is
revenue of £10.35m.
Revenue is derived from contracts with customers as well as the
sale of goods and services.
See revenue and profit recognition accounting policy note
and note 3 critical accounting estimates and judgements,
performance obligations arising from customer contracts for
further details regarding revenue recognition.
There is a risk that revenue has not been recognised in line with
IFRS 15 during the year, for revenue recognised at a point in time
as well as for contracts where revenue is recognised over time.
Our audit work has constituted a review of all revenue in
relation to contracts with customers and revenue derived from
government grants, and a critical assessment of managements’
revenue recognition policies for these revenues streams, against
the recognition criteria detailed in IFRS 15.
For all contracts which were considered to be recognised at
a point in time, our review concluded that revenue has been
recorded in line with the stipulations of IFRS 15, and recognised
using the input method with reference to milestones detailed in
the contract.
For all contracts which were considered to be recognised over
time, we assessed the input method used and considered this
to be in line with the stipulations of IFRS 15 regarding revenue
recognised from contracts over time.
We performed tests of contract revenue on a substantive basis,
ensuring that revenue recorded during the year was in line with
our expectations based on the information available, such as
contracts, invoices and proof of milestones being achieved.
For product sales, we performed a test in total of all sales in the
year.
For all revenue streams, we performed testing of revenue around
the year end to ensure that revenue was recorded in the correct
period. We also conducted a review of a sample of case notes
to review management’s assessment of the debtor and for any
indications of potential impairment.
Our work performed on revenue highlighted no material errors, or
departures from IFRS 15, the applicable accounting standard.
36
Independent Auditor’s Report (Continued)
KromeK Group plc Annual Report & Accounts 2021
Key Audit Matter Description
How the matter was addressed in the audit
recoverability of development costs and application of IAS
38 Intangible assets
Included in the Group Statement of Financial Position are
capitalised development costs of £22.1m.
The estimated recoverable amount of capitalised developments
costs is highly material on a group level. There is a risk that these
are materially overstated and that an impairment should be
recognised in addition to any amortisation charged in the year.
The impairment review of these balances is subjective due to
the inherent uncertainty involved in forecasting and discounting
future cash flows and assumptions made in relation to future
market demand, production capacity and yield, gross margin and
overhead rates.
The effect of this is that the recoverable amount of capitalised
development costs has a high degree of estimation uncertainty
and a potential range of reasonable outcomes greater than
materiality for the financial statements. Therefore, there is a risk
that they require impairment.
There is a further risk that additions in the year are not correctly
capitalised on the basis that they do not fulfil the development
criteria as they constitute research phase expenditure.
Our audit work focused on assessing the forecasts presented
by management to support the valuation of the capitalised
development costs.
This included but was not limited to:
- Agreeing future revenues included in the forecast to
committed contracts;
- Agreeing pipeline sales to supporting documentation to
support the inclusion of non-committed revenue;
- An assessment of the appropriateness of the discount factor
used in the preparation of the forecasts;
- Comparisons between actuals and historical forecasts in
assessing the reasonableness forecasts used to support the
year end balances;
- Assessments of the sensitivity analysis presented by
management to detail the headroom for each category of
intangible asset;
- Performance of our own sensitivity analysis to assess the
level of headroom regarding the capitalised intangible assets;
- A review of the disclosures made in the financial statements
which reference the impairment review that has taken place,
and the key assumptions made as part of this assessment;
- A review of the sensitivity analysis disclosure in the
financial statements in line with the forecasting provided by
management as part of their impairment review.
For the recognition of all intangible additions in the year, we
obtained and assessed in line with the stipulations of IAS
38 intangible assets, managements inclusion of capitalised
development costs to ensure that these met the definition criteria
of development costs and were not incorrectly capitalised
research costs.
Our audit work did not identify any material issues or incorrect
additions to capitalised development costs in the year.
KromeK Group plc Annual Report & Accounts 2021
37
Key Audit Matter Description
How the matter was addressed in the audit
Recoverability of goodwill
Included in the Group Statement of Financial Position is goodwill
of £1.25m.
On the basis that the Group and the subsidiaries of the group
are loss making there is a risk that the goodwill recognised in the
Statement of Financial Position should be impaired.
The impairment review of this balance is subjective due to the
inherent uncertainty involved in forecasting and discounting
future cash flows and assumptions made in relation to the CGU
to which goodwill has been allocated, due to these containing
estimates of future market demand, production capacity and
yield, gross margin and overhead rates.
The effect of this is that the recoverable amount of Goodwill
has a high degree of estimation uncertainty and a potential
range of reasonable outcomes greater than materiality for the
financial statements. Therefore, there is a risk that they require
impairment.
Our audit work consisted of an assessment of the judgements
that management have made in determining the CGU to which
goodwill has been allocated to ensure that this is reasonable.
We have then obtained and assessed forecasts of the relevant
CGU to ensure that managements’ assessment that there is no
impairment required is appropriate. This consisted of, but was
not limited to:
- Agreeing future revenues included in the forecast to
committed contracts;
- Agreeing pipeline sales to supporting documentation to
support the inclusion of non-committed revenue;
- An assessment of the appropriateness of the discount factor
used in the preparation of the forecasts;
- Comparisons between actuals and historical forecasts in
assessing the reasonableness forecasts used to support the
year end balances;
- Assessments of managements’ sensitivity analysis;
- Performance of our own sensitivity analysis to assess the
level of headroom regarding the goodwill applied to the US
CGU;
- A review of the disclosures made in the financial statements
(note 15) in relation to goodwill to ensure that the key inputs
in determining this asset showed no sign of impairment, and
that the key assumptions and forecasting methods applied by
management were detailed appropriately;
- A review of the sensitivity analysis disclosure in the
financial statements in line with the forecasting provided by
management as part of their impairment review.
Our audit work did not identify any material issues with regards
to the assessment made that no impairment of goodwill was
required.
38
Independent Auditor’s Report (Continued)
KromeK Group plc Annual Report & Accounts 2021
Key Audit Matter Description
How the matter was addressed in the audit
Valuation of investments in subsidiaries and intercompany
receivables
Included in the Parent Company’s Statement of Financial
Position, are investments in subsidiaries of £5.5m and
intercompany receivables of £64.7m.
Given the subsidiaries of the parent and the group as a whole is
loss making, there is a risk that the investment and intercompany
receivable should be impaired.
The impairment review of these balances is subjective due to
the inherent uncertainty involved in forecasting and discounting
future cash flows and the assumptions made in relation to
the forecasted performance of the subsidiaries to which the
investment balance relates, and from whom the receivable is due.
The effect of this is that the recoverable amount of investment
in subsidiaries and intercompany receivables has a high degree
of estimation uncertainty and a potential range of reasonable
outcomes greater than materiality for the financial statements.
Therefore, there is a risk that they require impairment.
We obtained and assessed forecasts of the subsidiaries
in the group to which these balances relate to ensure that
managements’ assessment that there is no impairment required
is appropriate. This consisted of, but was not limited to:
- Agreeing future revenues included in the forecast to
committed contracts;
- Agreeing pipeline sales to supporting documentation to
support the inclusion of non-committed revenue;
- An assessment of the appropriateness of the discount factor
used in the preparation of the forecasts;
- Comparisons between actuals and historical forecasts in
assessing the reasonableness forecasts used to support the
year end balances;
- Assessments of managements’ sensitivity analysis;
- Performance of our own sensitivity analysis to assess the
level of headroom regarding the balance of investments and
intercompany receivables.
Our audit work did not identify any material issues with regards
to the assessment made that no impairment of investments or
intercompany receivables is required.
KromeK Group plc Annual Report & Accounts 2021
39
our application of materiality
We apply the concept of materiality both in planning and
performing our audit, in evaluating the effect of misstatements
and in forming an option. For the purpose of determining whether
the financial statements are free from material misstatement,
we define materiality as the magnitude of a misstatement or an
omission from the financial statements, or related disclosures,
that would make it probable that the judgement of a reasonable
person, relying on the information would have been changed or
influenced by the misstatement or omission. We also determine
a level of performance materiality, which we used to determine
the extent of testing need, to reduce to an appropriately low
level the risk that the aggregate of uncorrected and undetected
misstatement exceeds materiality for the financial statements as
a whole.
The materiality for the Group financial statements as a whole
was set at £193,000. This was determined with reference to 5%
of the average normalised loss for the past 5 years. This was
selected as an appropriate measure of materiality on the basis
that this is one of the main KPI’s for the Group.
On the basis of our risk assessment and review of the Group’s
control environment, performance materiality was set at 75% of
materiality, being £145,000.
The reporting threshold to the Audit and Risk Committee was set
as 5% of materiality, being £9,650. If in our opinion differences
below this level warranted reporting on qualitative grounds, these
would also be reported.
The materiality for the Parent Company financial statements was
set at £145,000. This was determined with reference to 0.2% of
gross assets, based on the company being a holding entity with
no trading activity outside of the group. This was caped at 0.2%
of gross assets to ensure that the Parent entity materiality did not
exceed component materiality, which was set at 75% of Group
materiality.
On the basis of our risk assessment and review of the Parent
Company’s control environment, performance materiality was set
at 75% of materiality, being £105,750.
The reporting threshold to the Audit and Risk Committee was set
as 5% of materiality, being £7,250. If in our opinion in differences
below this level warranted reporting on qualitative grounds, these
would also be reported.
An overview of the scope of our audit
Our audit scope included all components of the Group which are
all registered companies in the United Kingdom, as well as those
which are registered companies in the United States of America.
For all companies that are resident in the United Kingdom (3 out
of the 6 entities that make up the group), we have performed full
scope statutory audits.
For the entities in the United States of America that are not
subject to an audit in their own right, we have performed audit
procedures on each entity to varying degrees of detail, with
the work performed on the most significant component being
equivalent to that of a full scope statutory audit performed to
component materiality. For the 2 non-significant components,
analytical reviews and enquiries of management were performed
to gain comfort over the inclusion of financial information within
the Group financial statements.
Component materiality has been based on 75% of overall Group
materiality, and has been considered to be appropriate as this
materiality is based on a trading measure.
For statutory audits of the trading subsidiaries of the group
situated in the UK, we have performed our audit using a turnover
based materiality, using 1.5% of turnover.
We communicated with both the directors and the audit
committee our planned audit work via our audit planning report
and our audit planning call.
We communicated audit progress with the directors through
interim progress meetings. We have communicated all significant
areas of our audit work with the audit committee and directors
at the completion call with the audit committee, and through the
issue of our audit findings report for review at this meeting.
other information
The directors are responsible for the other information. The other
information comprises the information included in the annual
report, other than the financial statements and our auditor’s
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
opinions on other matters prescribed by the
companies Act 2006
In our opinion, based on the work undertaken in the course of
the audit:
• the information given in the strategic report and the directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by
exception
In the light of the knowledge and understanding of the Group and
the Parent Company and its environment obtained in the course
of the audit, we have not identified material misstatements in the
strategic report or the directors’ report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us 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
40
Independent Auditor’s Report (Continued)
KromeK Group plc Annual Report & Accounts 2021
• the Parent Company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law
that have a direct impact on the preparation of the financial
statements such as the Companies Act 2006, income tax, payroll
tax and sales tax.
are not made; or
• we have not received all the information and explanations we
require for our audit.
responsibilities of directors
As explained more fully in the directors’ responsibilities statement
set out on pages 22 - 23, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group’s and the 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 the directors 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 for the audit of the
financial statements
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 an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a 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 the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
Explanation as to what extent the audit was
considered capable of detecting irregularities,
including fraud
Based on our understanding of the Group and industry, we
identified that the principal risks of non-compliance with
laws and regulations, and we considered the extent to which
non-compliance might have a material effect on the financial
statements. We also considered those laws and regulations
− Inspecting correspondence with regulators and tax
authorities;
− Discussions with management including consideration of
known or suspected instances of non-compliance with laws
and regulation and fraud;
− Evaluating management’s controls designed to prevent and
detect irregularities;
− Discussions with management regarding any adverse AIM
complaints, as well as discussing this with the Company’s
NOMAD;
− Identifying and testing journals, in particular journal entries
posted with unusual account combinations, postings by
unusual users or with unusual descriptions; and
– Challenging assumptions and judgements made by
management in their critical accounting estimates.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
use of our report
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.
Jon Dawson
(Senior Statutory Auditor)
For and on behalf of Haysmacintyre LLP
Statutory Auditors
10 Queen Street Place
London
EC4R 1AG13
13 July 2021
KromeK Group plc Annual Report & Accounts 2021
41
Consolidated income statement
For the year ended 30 April 2021
continuing operations
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Note
4
5
2021
£’000
10,352
(5,346)
5,006
379
(287)
2020
£’000
13,120
(6,912)
6,208
-
(336)
(10,935)
(10,611)
operating loss (before exceptional items)
(5,837)
(4,739)
Exceptional impairment reversal/(losses) on trade
receivables and amounts recoverable on contract
operating results (post exceptional items)
Finance income
Finance costs
loss before tax
Tax
loss for the year from continuing operations
loss for the year from continuing operations
(before exceptional items)
Loss per share
- basic (p)
- diluted (p)
9
10
11
6
12
14
52
(13,062)
(5,785)
(17,801)
2
(548)
60
(604)
(6,331)
(18,345)
978
1,805
(5,353)
(16,540)
(5,405)
(3,478)
(1.5)
(1.5)
(4.8)
(4.8)
42
Consolidated statement of comprehensive income
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
loss for the year
Items that are or may be subsequently reclassified to profit or loss:
2021
£’000
2020
£’000
(5,353)
(16,540)
Exchange differences on translation of foreign operations
(1,981)
1,047
Total comprehensive loss for the year
(7,334)
(15,493)
KromeK Group plc Annual Report & Accounts 2021
43
Consolidated statement of financial position
As at 30 April 2021
Non-current assets
Goodwill
Other intangible assets
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
Lease obligation
Net current assets
Non-current liabilities
Deferred income
Lease obligation
Borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium account
Merger reserve
Translation reserve
Accumulated losses
Total equity
Note
15
16
17
18
20
21
21
23
25
24
23
24
25
27
28
29
30
2021
£’000
1,275
24,144
11,200
4,076
40,695
6,202
6,644
1,015
15,602
29,463
70,158
(6,174)
(5,387)
(399)
(11,960)
17,503
(1,071)
(4,256)
(2,816)
(8,143)
(20,103)
50,055
4,319
72,943
21,853
-
(49,060)
50,055
2020
£’000
1,275
21,878
12,551
3,852
39,556
6,416
8,210
1,031
9,444
25,101
64,657
(8,795)
(3,669)
(324)
(12,788)
12,313
(1,021)
(3,844)
(1,937)
(6,802)
(19,590)
45,067
3,446
61,600
21,853
1,981
(43,813)
45,067
The financial statements of Kromek Group plc (registered number 08661469) were approved by the Board of Directors and authorised
for issue on 13 July 2021. They were signed on its behalf by:
Dr Arnab Basu mBe
Chief Executive Officer
44
Consolidated statement of changes in equity
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
Share capital
£’000
Share
premium
account
£’000
merger
reserve
£’000
Translation
reserve
£’000
Accumulated
income/
(losses)
£’000
Total
equity
£’000
Balance at 1 may 2019 restated
3,446
61,600
21,853
934
(27,498)
60,335
Loss for the year
Exchange difference on translation of foreign
operations
Total comprehensive income for the year
Credit to equity for equity-settled share-based
payments
-
-
-
-
-
-
-
-
-
-
-
-
-
(16,540)
(16,540)
1,047
-
1,047
1,047
(16,540)
(15,494)
-
225
225
Balance at 30 April 2020
3,446
61,600
21,853
1,981
(43,813)
45,067
Loss for the year
Exchange difference on translation of foreign
operations
Total comprehensive income for the year
Issue of share capital
Premium on shares issued less expenses
Credit to equity for equity-settled share-based
payments
-
-
-
873
-
-
-
-
-
-
11,343
-
-
-
-
-
-
-
Balance at 30 April 2021
4,319
72,943
21,853
-
(5,353)
(5,353)
(1,981)
-
(1,981)
(1,981)
(5,353)
(7,334)
-
-
-
-
-
-
873
11,343
106
106
(49,060)
50,055
KromeK Group plc Annual Report & Accounts 2021
45
Consolidated statement of cash flows
For the year ended 30 April 2021
Net cash (used in)/generated from operating activities
Note
31
Investing activities
Investment receipts from money market account
Interest received
Purchases of property, plant and equipment
Purchases of patents and trademarks
Capitalisation of development costs
2021
£’000
(1,309)
-
2
(454)
(156)
(5,463)
2020
£’000
179
1,250
60
(6,965)
(243)
(5,256)
Net cash used in investing activities
(6,071)
(11,154)
Financing activities
Net proceeds on issue of shares
New borrowings
Payment of 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
12,216
3,215
(595)
(395)
(309)
14,132
6,752
9,444
(594)
15,602
-
2,100
(2,105)
(539)
(365)
(909)
(11,884)
20,616
712
9,444
46
Notes to the consolidated financial statements
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
1.
GeNerAl INFormATIoN
Kromek Group plc is a company incorporated and domiciled in the United Kingdom under the Companies Act 2006. 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 2.
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.
New standards that have been adopted in the annual financial statements for the year ended 30 April 2021, but have not had a significant
effect on the Group are:
•
IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
(Amendment – Definition of Material)
IFRS 3 Business Combinations (Amendment – Definition of Business)
•
• Revised Conceptual Framework for Financial Reporting
The Board are currently evaluating the impact of the adoption of all other standards, amendments and interpretations but do not expect
them to have a material impact on the Group operation or results.
2.
SIGNIFIcANT AccouNTING polIcIeS
Basis of preparation
The Group’s financial statements have been prepared in accordance with IFRS and International Financial Reporting Interpretations
Committee (“IFRIC”).
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
In determining the basis for preparing the consolidated financial statements, management are required to consider whether the Group can
continue in operational existence for the foreseeable future, being a period of not less than twelve months from the date of the approval
of the consolidated financial statements. Management prepare detailed cash flow forecasts that are reviewed by the Board on a regular
basis. The forecasts include assumptions regarding the opportunity funnel from both existing and new customers, growth plans, risks and
mitigating actions. In particular, operating cash flow is highly sensitive to revenue mix and the positive contribution of continuing growth
in the markets the Group operates within. In reaching their going concern conclusion, the Directors have considered that the Group
had cash and cash equivalents of £15.6m (30 April 2020: £9.4m), including £4.9m (30 April 2020: £4.9m) draw down on the Group’s
Revolving Credit Facility and therefore sufficient working capital to continue operations. The Group’s forecasts and projections, taking
account of sensitivities including a severe but plausible downside less likely scenario, support the conclusion that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future, a period of not less than twelve months
from the date of this report. The Group, therefore, continues to adopt the going concern basis in preparing the consolidated financial
statements.
Business combinations
The Group financial statements consolidate those of the Company and its subsidiary undertakings. Subsidiaries are entities controlled by
the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so
as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken
into account. The financial information of subsidiaries is included from the date that control commences until the date that control ceases.
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in
preparing the consolidated financial information.
Acquisitions on or after 1 May 2010
For acquisitions on or after 1 May 2010, the Group measures goodwill at the acquisition date as:
•
•
•
•
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.
KromeK Group plc Annual Report & Accounts 2021
47
2.
SIGNIFIcANT AccouNTING polIcIeS (CONTINuED)
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
The Group recognises revenue in line with IFRS 15 ‘Revenue from contracts with customers’. 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.
The Board disaggregates revenue by sales of goods or services, grants and contract customers. Sales of goods and services typically
include the sale of product on a run rate or ad-hoc basis. Grants include technology development with parties such as Innovate UK as
detailed above. Customer contracts represents agreements that the Group has entered into that typically span a period of more than 12
months.
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 and early settlements, 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 contract. The total transaction price is allocated to the performance obligations identified in the contract in proportion to their
relative standalone 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 standalone selling prices.
Instead, standalone selling prices are typically estimated based on expected costs plus contract margin consistent with the Group’s
pricing principles or based on market knowledge of selling prices relating to similar product.
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. Kromek’s standard terms
of delivery are Ex works sellers’ site (Incoterms 2020), unless otherwise stated.
The Group’s contracts that satisfy the over-time criteria are typically product development contracts where the customer simultaneously
receives and consumes the benefit provided by the Group’s performance. In some specific arrangements, due to the highly specific nature
of the contract deliverables tailored to the customer requirements and the breakthrough technology solutions that Kromek provides, the
48
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
2.
SIGNIFIcANT AccouNTING polIcIeS (CONTINuED)
Revenue and profit recognition (continued)
Group does not create an asset with an alternative use but retains an enforceable right to payment and recognises revenue over time on
that basis.
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 (b) (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 that 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 the year under
review or in 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 that have been determined to fulfil the criteria for point-in-time revenue recognition under IFRS 15. Also included are 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
and net realisable value.
During the year, the Group adopted the policy of valuing its recyclable material. In accordance with the standard, this is valued at the lower
of cost and net realisable value, less the cost to bring the material back into use.
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.
The Group does not plan, anticipate or offer extended payment terms within its contractual arrangements unless express payment interest
charges are applied and represent a value over and above that contracted or invoiced with the customer.
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 recognises a Right-of-Use (“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 losses, 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.
KromeK Group plc Annual Report & Accounts 2021
49
2.
SIGNIFIcANT AccouNTING polIcIeS (CONTINuED)
leases (continued)
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 pounds 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 concluded that the
inter-company loans held by Kromek Limited substantially form part of the net investment in Kromek USA (Kromek Inc, eV Products, Inc.
and Nova R&D, Inc.), 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 pounds sterling at rates approximating to those ruling when the
transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations,
are translated at the rate ruling at the statement of financial position date. Exchange differences arising on translating the opening net
assets at opening rate and the results of overseas operations at actual rate are recognised directly in other comprehensive income and
are credited/(debited) to the retranslation reserve.
Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to
them and that the grants will be received.
Government grants towards job creation and growth are normally recognised as income over the useful economic life of the capital
expenditure to which they relate.
Government grants are recognised in the income statement so as to match them with the related expenses that they are intended to
compensate. Grants that relate to capital expenditure are offset against related depreciation costs. Where grants are received in advance
of the related expenses, they are initially recognised in the balance sheet and released to match the related expenditure. Non-monetary
grants are recognised at fair value.
The Group has received Government grants in relation to the Coronavirus Job Retention Scheme (CJRS) provided by the UK Government
in response to COVID-19’s impact on business. The Group has elected to account for these grants as other operating income, rather than
to off-set the Government grants within administrative expenses; accordingly, the gross impact is disclosed on the face of the Statement
of Comprehensive Income. Total Government grants included as other operating income total £379k (2020: £nil).
operating result
Operating loss is stated as loss before tax, finance income and costs.
exceptional items
Exceptional items are those items that, in the judgement of management, need to be disclosed separately by virtue of their nature, size
or incidence. Exceptional items have been classified separately in order to draw them to the attention of the reader of the accounts and,
in the opinion of the Board, to show more accurately the underlying results of the Group.
retirement benefit costs
The Group operates two defined contribution pension schemes for UK employees, one of which is an auto-enrolment workplace pension
scheme established following the UK Pensions Act 2008. The employees of the Group’s subsidiaries in the US are members of a state-
managed retirement benefit scheme operated by the US government.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. For these schemes, the assets
are held separately from those of the Group in independently administered funds. Payments made to US 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.
50
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
2.
SIGNIFIcANT AccouNTING polIcIeS (CONTINuED)
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. Tax is recognised in the income statement except to
the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. 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)
The tax credit is based on the 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 at the date of the statement of financial position.
current tax
Deferred tax
ii)
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the Consolidated Statement of Financial Position and the corresponding tax bases used in the computation of taxable profit
and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised
for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised
if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and
interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that
the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is
realised, based on tax laws and rates that have been enacted or substantively enacted at the date of the statement of financial
position. 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
Property, plant and equipment is 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
Lab equipment
6% to 25%
15%
25%
6% to 25%
The gain or loss arising on the disposal or scrappage of an asset is determined as the difference between the sales proceeds and the
carrying amount of the asset, and is recognised in income.
Internally-generated intangible assets – research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from the Group’s product development is recognised only if all of the following conditions
are met:
• the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• its intention to complete the intangible asset and use or sell it;
• its ability to use or sell the intangible asset;
• how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate
the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the
usefulness of the intangible asset;
• the availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset; and
• its ability to measure reliably the expenditure attributable to the intangible asset during its development.
Research expenditure is written off as incurred. Development expenditure is also written off, except where the Directors are satisfied
as to the technical, commercial and financial viability of individual projects. In such cases, the identifiable expenditure is deferred and
amortised over the period during which the Group is expected to benefit. This period normally equates to the life of the products to which
the development expenditure relates. 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.
KromeK Group plc Annual Report & Accounts 2021
51
2.
SIGNIFIcANT AccouNTING polIcIeS (CONTINuED)
Internally-generated intangible assets – research and development expenditure (continued)
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 pre-tax discount rate of 9.47% (2020: 14.86%) 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. See note
15 for further detail.
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. During the year, the Group adopted a policy of valuing recyclable
material. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in
bringing the inventories to their present location and condition. Cost is calculated in the statement of financial position at standard cost,
which approximates to historical cost determined on a first in, first out basis. Net realisable value represents the estimated selling price
less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Work in progress costs are taken as
production costs, which include an appropriate proportion of attributable overheads.
Provision is made for obsolete, slow moving or defective items where appropriate. This is reviewed by operational finance at least every 6
months. 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
recognition and initial measurement
(i)
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.
52
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
2.
SIGNIFIcANT AccouNTING polIcIeS (CONTINuED)
Financial assets (continued)
a) Classification (continued)
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.
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.
Impairment
(iii)
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 may have increased if it is more than 60 days past due. This is
assessed on a case-by-case basis, taking into consideration the commercial relationship and historical pattern of payments.
The Group considers a financial asset to be at risk of 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
KromeK Group plc Annual Report & Accounts 2021
53
2.
SIGNIFIcANT AccouNTING polIcIeS (CONTINuED)
Financial assets (continued)
Impairment (continued)
(iii)
• The financial asset is more than 120 days past due, subject to management discretion and commercial relationships.
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 12 months after the reporting
date (or a shorter period if the expected life of the instrument is less than 12 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 entitled to the options,
which is based on a period of employment of three years from grant date. In accordance with IFRS 2, from a single entity perspective,
Kromek Group plc recognises an increase in investment and corresponding increase in equity to represent the settlement. Details
regarding the determination of the fair value of equity-settled share-based transactions are set out in note 33.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of equity instruments that will eventually vest. The vesting date is determined based on
the date an employee is granted options, usually three years from date of grant. At each statement of financial position date, the Group
revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions
and taking into account the average time in employment across the year. 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 term deposits repayable between one and twelve
months from balance sheet date, less overdrafts repayable on demand.
3.
crITIcAl AccouNTING JuDGemeNTS AND KeY SourceS oF eSTImATIoN uNcerTAINTY
In the application of the Group’s accounting policies, which are described in note 2, 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 2, Group expenditure on development activities is capitalised if it meets the criteria as per IAS 38. Management have
exercised and applied judgement when determining whether the criteria of IAS 38 is satisfied in relation to development costs. As part
of this judgement process, management establish the future Total Addressable Market relating to the product or process, evaluate the
operational plans to complete the product or process and establish where the development is positioned on the Group’s technology road
map and asses the costs against IAS 38 criteria. This process involves input from the Group’s Chief Technical Officer plus the operational,
financial and commercial functions and is based upon detailed project cost analysis of both time and materials.
performance obligations arising from customer contracts
As described in note 2, 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 obligations are
and whether they are satisfied over time or at a point in time. In applying this judgement, management considers the nature of the overall
contract deliverable, legal form of the contract and economic resources required for the performance obligation to be satisfied.
54
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
3.
crITIcAl AccouNTING JuDGemeNTS AND KeY SourceS oF eSTImATIoN uNcerTAINTY (CONTINuED)
performance obligations arising from customer contracts (continued)
Management disaggregate revenues by sales of goods and services, revenue from development grants (such as Innovate UK) and
revenue from contract customers. Typically, revenue from the sales of goods and services is recognised at a point in time. Revenue from
development grants and contract customers are recognised either over time or at a point in time depending on the characteristics of the
specific contract when applying IFRS15.
cash Generating units
Management have exercised judgement in determining the number of cash generating units (CGUs). As set out in note 15, management
have determined that there are two CGUs – the US and UK. This is on the basis that management believe this is the lowest level that
cash inflows and the asset base can be separated. Whilst cash inflows can be separate at a lower level, management do not believe that
the asset base can be separated at a lower level. The identification of two CGUs is also the way management oversees and monitors the
Group’s performance.
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.
Development costs
i)
The key source of estimation uncertainty relates to the estimation of the asset’s recoverable amount, which involves assumptions
in relation to future uncertainties including discount rates and growth rates. For further details, see note 15.
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.
ii) contract revenue
This policy requires forecasts to be made of the outcomes of long-term contracts, which include assessments and judgements
on changes in expected costs. A change in the estimate of total forecast contract costs would impact the stage of completion
of those contracts and the level of revenue recognised thereon, which could have a material impact on the results of the Group.
iii) r&D Tax credit
The R&D tax credit is calculated using the current rules as prescribed by HMRC. The estimation is based on the actual UK R&D
projects that qualify for the scheme that have been carried out in the period. Management estimate the tax credit on a prudent
basis and then obtain additional professional input from the Company’s 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 £51k to £964k.
iv) recoverability of receivables and amounts recoverable on contract (“Aroc”)
Management judges the recoverability at the balance sheet date and makes a provision for impairment where appropriate. The
resultant provision for impairment represents management’s best estimate of losses incurred in the portfolio at the balance sheet
date, assessed on the customer risk scoring and commercial discussions. Further, management estimate the recoverability of any
AROC balances relating to customer contracts. This estimate includes an assessment of the probability of receipt, exposure to
credit loss and the value of any potential recovery. Management base this estimate using the most recent and reliable information
that can be reasonably obtained at any point of review. A material change in the facts and circumstances could lead to a reversal
of impairment proportional to the expected cash inflows supported by this information.
Impairment reviews
v)
Management conducts annual impairment reviews of the Group’s non-current assets on the consolidated statement of financial
position. This includes goodwill annually, development costs where IAS 36 requires it, and other assets as the appropriate
standards prescribe. Any impairment review is conducted using the Group’s future growth targets regarding its key markets of
nuclear detection, medical imaging and security screening. The current carrying value of this class of assets is £41m as set out
on the Group’s consolidated statement of financial position. Sensitivities are applied to the growth assumptions to consider any
potential long-term impact of current economic conditions, such as the impact caused by the COVID-19 pandemic. Provision
is made where the recoverable amount is less than the current carrying value of the asset. Further details as to the estimation
uncertainty and the key assumptions are set out in note 15.
KromeK Group plc Annual Report & Accounts 2021
55
4.
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 (US
and UK) and it is these operating segments for which the Group is providing disclosure. Both business units serve the three principal key
markets in which the Group operates (nuclear detection, medical imaging and security screening). However, typically, the US business
unit focuses principally on medical imaging and the UK focuses on nuclear detection and security screening. However, this arrangement is
flexible and can vary based on the geographical location of the Group’s customer. In addition to the three principal key markets described
above, the Group’s UK operations are developing a biological-threat detection technology, which the Board believes will be a key market
for the Group in the near future.
The chief operating decision maker is the Board of Directors, which assesses the performance of the operating 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 two business segments. The first segment relates
to 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. The second segment relates to the development of a technology platform, as described
above, which aims to identify airborne pathogens.
Analysis by geographical area
A geographical analysis of the revenue from the Group’s customers, by destination, is as follows:
United Kingdom
North America
Asia
Europe
Australasia
Africa
Total revenue
2021
£’000
1,627
5,693
610
2,387
3
32
2020
£’000
2,541
7,606
893
2,075
5
-
10,352
13,120
Total revenue from the sale of goods and services and from contracts with customers was £9,878k (2020: £12,835k).
The Group has aggregated its market sectors into two reporting segments being the operational business units in the UK and US. The
UK operations comprise Kromek Group plc and Kromek Limited and the US operations comprise Kromek Inc, eV Products Inc, and Nova
R&D Inc. The Board currently considers this to be the most appropriate aggregation due to the main markets that are typically addressed
by the UK and US business units and the necessary skillsets and expertise.
56
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
4.
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 2021
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 before exceptional items
Interest received
Interest expense
Exceptional items
loss before tax
Tax credit
loss for the year
Reconciliation to adjusted EBITDA:
Net interest
Tax
Depreciation of PPE and right-of-use asset
Amortisation
Share-based payment charge
Reversal of exceptional
Adjusted eBITDA
other segment information
Property, plant and equipment additions
Right-of-use assets
Depreciation of PPE and right-of-use asset
Release of capital grant
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
5,346
474
3,346
9,166
(3,526)
5,640
(1,594)
2
(324)
-
(1,916)
989
(927)
322
(989)
997
1,370
106
-
879
354
2,048
997
(44)
4,576
1,370
47,466
(13,638)
5,395
-
894
6,289
(1,577)
4,712
(4,243)
-
(224)
52
(4,415)
(11)
(4,426)
224
11
688
989
-
(52)
10,741
474
4,240
15,455
(5,103)
10,352
(5,837)
2
(548)
52
(6,331)
978
(5,353)
546
(978)
1,685
2,359
106
(52)
(2,566)
(1,687)
100
3,131
688
-
1,043
989
22,692
(6,465)
454
5,179
1,685
(44)
5,619
2,359
70,158
(20,103)
KromeK Group plc Annual Report & Accounts 2021
57
4.
operATING SeGmeNTS (CONTINuED)
Analysis by geographical area (continued)
Year ended 30 April 2020
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 before exceptional items
Interest received
Interest expense
Exceptional items
(Loss)/profit before tax
Tax credit
(loss)profit for the year
Reconciliation to adjusted EBITDA:
Net interest
Tax
Depreciation of PPE and right-of-use asset
Amortisation
Share-based payment charge
One-off customer financing discount
Exceptional items
Adjusted eBITDA
other segment information
Property, plant and equipment additions
Right-of-use assets
Depreciation of PPE and right-of-use asset
Release of capital grant
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
8,312
285
811
9,408
(2,600)
6,808
(1,906)
60
(326)
-
(2,172)
904
(1,268)
266
(904)
545
1,148
225
-
-
12
5,888
1,136
545
(33)
3,973
1,148
40,997
(13,925)
7,205
-
342
7,547
(1,235)
6,312
(2,833)
-
(278)
(13,062)
(16,173)
901
(15,272)
278
(901)
640
994
-
746
13,062
(453)
1,077
3,429
640
-
1,526
994
23,660
(5,665)
15,517
285
1,153
16,955
(3,835)
13,120
(4,739)
60
(604)
(13,062)
(18,345)
1,805
(16,540)
544
(1,805)
1,185
2,142
225
746
13,062
(441)
6,965
4,565
1,185
(33)
5,499
2,142
64,657
(19,590)
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 2. Segment loss
represents the loss reported 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.
58
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
4.
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
2021
£’000
5,836
4,516
10,352
2020
£’000
10,314
2,806
13,120
Information about major customers
Included in revenues arising from US operations are revenues of approximately £1,934k (2020: £2,234k) that arose from the Group’s
largest commercial customer. Included in revenues arising from UK operations are revenues of approximately £2,784k (2020: £1,542k)
that arose from a major Governmental organisation customer.
5.
OTHER OPERATING INCOME
During the year, the Group received Government grants for the first time, which were provided by the UK Government in response to
COVID-19. Further analysis of other operating income is set out below:
Coronavirus Job Retention Scheme
Other government grants
Total other operating income
6.
LOSS BEFORE TAx FOR THE yEAR
Loss before tax for the year has been arrived at after charging/(crediting):
Net foreign exchange losses/(gains)
Research and development costs recognised as an expense*
Depreciation of property, plant and equipment
Release of capital grant
Amortisation of internally-generated intangible assets
Cost of inventories recognised as expense
Exceptional items – (reversal)/impairment of trade receivables and AROC (see note 9)
Early settlement costs
Staff costs (see note 8)
2021
£’000
129
250
379
2021
£’000
80
5,483
1,685
(44)
2,359
3,899
(52)
-
8,806
2020
£’000
-
-
-
2020
£’000
(653)
5,457
1,185
(33)
2,142
4,654
13,062
746
8,791
* Of the total research and development cost recognised as an expense in the period, £3,196k (2020: £4,053k) is included within cost of
sales and £2,287k (2020: £1,404k) within administrative expenses.
KromeK Group plc Annual Report & Accounts 2021
59
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
- Interim assurance
- Taxation and other services
Total non-audit fees
Total
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
2021
£’000
2020
£’000
99
99
-
-
-
99
110
110
12
70
82
192
2021
Number
2020
Number
2
118
8
12
139
2021
£’000
7,618
682
400
106
8,806
2
116
8
13
139
2020
£’000
7,437
754
375
225
8,791
The current period classification of certain wage and salary expenses has been revised and comparatives have been represented on
a consistent basis. There is no impact to the statement of profit and loss as all of the reclassifications occur within the administrative
expense line item on the income statement.
The total Directors’ emoluments (including non-executive directors) was £612k (2020: £580k). The aggregate value of contributions
paid to money purchase pension schemes was £28k (2020: £21k) in respect of four directors (2020: three directors). For a breakdown
of remuneration by director, refer to the Directors’ emoluments table on page 30. There has been no exercise of share options by the
Directors in the period and therefore no gain recognised in the year (2020: nil).
The highest paid director received emoluments of £216k (2020: £221k) and amounts paid to money purchase pension schemes was
£15k (2020: £10k).
After 10 years as Chief Financial Officer of the Group, Mr Bulmer advised the Board in the third quarter of 2021 of his wish to resign in
order to pursue alternative opportunities. The Group entered into a settlement agreement with Mr Bulmer on 28 October 2020, and he
left the Company at the conclusion of the Annual General Meeting on 31 October 2020. In lieu of notice, a sum equivalent to 12 months
remuneration, defined as basic salary, pension contributions and car allowance was paid to Mr Bulmer totalling £192,250. For further
information, please refer to page 30.
60
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
8.
STAFF coSTS (CONTINuED)
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.
9.
excepTIoNAl ITemS
Exceptional items, booked to operating costs, comprised the following:
(Reversal)/impairment of trade receivables and AROC
Total exceptional items
2021
£’000
888
125
29
106
2020
£’000
980
130
28
185
1,148
1,323
2021
£’000
(52)
(52)
2020
£’000
13,062
13,062
The immediate and ongoing impact of the COVID-19 pandemic has created significant economic uncertainty on a global scale. The
expected credit losses are reviewed annually, or when there is a significant change in external factors potentially impacting credit risk,
such as COVID-19, and are updated where management’s expectations of credit losses change.
Management group and measure the expected credit losses of trade receivables based on operational market and geographical region.
As illustrated in note 4, the Group operates across a number of geographical areas.
The Group has reversed £52k in 2021 in relation to items impaired in the prior year. The 2020 impairment related to two separate
contracts with specific customers in Asia who were identified as having a significantly elevated credit risk. The assessment carried out
by management suggested delays in delivery due to travel restriction and subsequent doubt over expected future cash flow, increasing
the likelihood of credit default by these specific debtors in the next 12 months due. This charge of £13,062k was presented in the prior
year as an exceptional item arising as a result of COVID-19 in accordance with the Group’s accounting policy, as it was considered to be
one-off in nature, size and incidence. It represented a full write down of invoiced debtors and AROC. The amounts have been fully written
down as management have concluded that any collateral is not considered to be material. No adjustment or reversal to the impairment
calculated in 2020, specific to one of the contracts, has been included in 2021 on the basis that the recoverability of this receivable
remains uncertain.
From a tax perspective, this impairment has increased the taxable losses in the prior year period, however no deferred tax asset has been
recognised as it is not yet certain that there will be future taxable profits available.
Asia still represents a significant technology opportunity for the Group; however, the Group is currently uncertain of timescales to full
market traction. Any subsequent reversal of the amount recognised in future years would also be recognised as an exceptional item.
10.
FINANce INcome
Bank deposits
Total finance income
2021
£’000
2
2
2020
£’000
60
60
KromeK Group plc Annual Report & Accounts 2021
11.
FINANce coSTS
Interest on bank overdrafts, loans and borrowings
Interest expense for lease arrangements
Total interest expense
12. 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
61
2020
£’000
365
239
604
2020
£’000
1,030
(129)
-
901
904
-
904
2021
£’000
309
248
548
2021
£’000
1,014
(25)
(11)
978
-
-
-
Total tax credit in income statement
978
1,805
A UK corporation rate of 19% (effective 1 April 2020) was substantively enacted on 17 March 2020, reversing the previously enacted
reduction in the rate from 19% to 17%. This will increase the Company’s future current tax charge accordingly. The deferred tax asset at
30 April 2021 has been calculated at 19% (2020: 19%). The corporate tax rate will increase from increase to 25% from 19% with effect
from April 2023.
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% (2020: 19.0%)
Non-taxable income/expenses not deductible
Effect of R&D
Rate differences effect of R&D
Share scheme deduction under Part 12 CTA 2009
Unrecognised movement on deferred tax
Adjustment in respect of previous periods
Effects of overseas tax rates
Total tax credit for the year
2021
£’000
(6,331)
1,203
614
451
-
5
(1,648)
(26)
379
978
2020
£’000
(18,345)
3,486
(3,754)
553
(255)
1
239
(129)
1,664
1,805
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.
62
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
12. Tax (CONTINuED)
reconciliation of tax credit (continued)
The rate of corporation tax for the year is 19% (2020: 19%). A UK corporation rate of 19% (effective 1 April 2020) was substantively
enacted on 17 March 2020, reversing the previously enacted reduction in the rate from 19% to 17%. Accordingly, deferred tax has been
provided in line with the rates at which temporary differences are expected to reverse.
The other tax jurisdiction that the Group currently operates in is the US. Any deferred tax arising from the US operations is calculated at
27.85% which represents the federal plus state tax rate.
13. DIVIDeNDS
The Directors do not recommend the payment of a dividend (2020: £nil).
14.
LOSSES PER SHARE
As the Group is loss making, dilution has the effect of reducing the loss 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
2021
£’000
(5,353)
2021
Number
2020
£’000
(16,540)
2020
Number
Weighted average number of ordinary shares for the purposes of basic losses per share
358,912,092
344,644,492
Effect of dilutive potential ordinary shares:
Share options
372,638
1,084,826
Weighted average number of ordinary shares for the purposes of diluted losses per share
359,284,730
345,729,318
Basic (p)
Diluted (p)
2021
(1.5)
(1.5)
2020
(4.8)
(4.8)
Due to the Group having losses in each of the years, the fully diluted loss per share for disclosure purposes, as shown in the income
statement, is the same as for the basic loss per share.
15.
INTANGIBle ASSeTS INcluDING GooDWIll
cost
At 1 May 2020
At 30 April 2021
Accumulated impairment losses
At 1 May 2020
At 30 April 2021
carrying amount
At 30 April 2021
At 30 April 2020
£’000
1,275
1,275
-
-
1,275
1,275
KromeK Group plc Annual Report & Accounts 2021
63
15.
INTANGIBle ASSeTS INcluDING GooDWIll (CONTINuED)
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:
cGu
US
UK
Total
Goodwill
£’000
1,275
-
1,275
Intangibles
£’000
9,248
14,917
24,165
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 4 within the segmental analysis of the US operations.
Impairment tests
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired, by comparing
the carrying value of the goodwill to its value in use on a discounted cash flow basis.
The Group tests intangible assets with finite lives for impairment if an indicator exists. The Board considers the potential impact of
COVID-19 on the future prospects of the business to be an indicator of impairment and has carried out an impairment test by comparing
the carrying value of each CGU to its value in use on a discounted cash flow basis.
In undertaking the impairment test, management considered both internal and external sources of information. The impairment testing
did not identify any impairments in either CGU.
Forecast cash flows
Management has prepared cash flow forecasts for 10 years plus a perpetuity. This exceeds the five years as set out in the standard
but has been used on the basis that the entity is in the early stage of its maturity and will not have reached steady state after five years.
Management have visibility over contracts in place and in the pipeline that enable it to forecast accurately for 10 years and the cash flows
are based on the useful economic life of the ‘know how’, which is considered to be the essential asset.
uS
The key assumptions to the value in use calculations are set out below:
- Growth rate. The 2021 model does not include any revenue growth in years 1 and 2 (see below for comparatives). This
growth rate comprises both capacity increases as a result of increases in raw material to finished product efficiencies and price
increases, factoring in existing contracts and those in the pipeline and is reflective of historical growth rates as well as and the
Company’s share of the overall markets the US CGU operates in. No growth is assumed after 10 years.
- Discount rates. Management have derived a pre-tax discount rate of 9.47% (2020: 14.86%) using the latest market
assumptions for the risk-free rate, the equity premium and the net cost of debt, which are all based on publicly available
sources, as well as adjustments for forecasting risk for which management considered the historical growth of the entity as well
as the visibility of cash flows from a contracted perspective, which are all based on publicly available sources. The discount
rate is lower than that used in 2020. The key drivers of this change are the changes in market assumptions for US corporate
bond yields and risk-free rates.
The Challenge Model Base Case incorporates the following into the US forecast:
• Revised year 1 and year 2 cashflows to match the severe but plausible budget conducted as part of the Going Concern
review.
• Extended the forecast period to 15 years (plus perpetuity), on the basis that the asset base is expected to generate revenues
over a much longer period of time than modelled by management.
• Modelled a smoother increase in revenues from the year 1 and year 2 budgets to year 15.
uK
- Growth rate. The model does not include any growth in years 1 and 2 (see below for comparatives). The CAGR (compound
annual growth rate) in the 10-year model is 26%. This growth rate comprises both capacity increases as a result of increases
in raw material to finished product efficiencies and price increases, factoring in existing contracts and those in the pipeline and
is reflective of historical growth rates as well as and the Company’s share of the overall markets the UK CGU operates in. No
growth is assumed after 10 years.
- Discount rates. Management have derived a pre-tax discount rate of 9.13% (2020: 13.14%) using the latest market
assumptions for the risk-free rate, the equity premium and the net cost of debt, which are all based on publicly available
sources, as well as adjustments for forecasting risk for which management considered the historical growth of the entity as
64
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
15.
INTANGIBle ASSeTS INcluDING GooDWIll (CONTINuED)
uK (continued)
- Discount rates (continued).
well as the visibility of cash flows from a contracted perspective. The discount rate is lower than that used in 2020. The key
drivers of this change are the changes in market assumptions for UK corporate bond yields and risk-free rates.
The Challenge Model Base Case incorporates the following into the UK forecast:
• Revised year 1 and year 2 cashflows to match the severe but plausible budget conducted as part of the Going Concern
review.
• Extended the forecast period to 15 years (plus perpetuity), on the basis that the asset base is expected to generate
revenues over a much longer period of time than modelled by management.
• Modelled a smoother increase in revenues from the year 1 and year 2 budgets to year 10.
Sensitivities
The headrooms in the base case models are £21,070k (US CGU) and £15,401k (UK CGU). The table below sets out the impact of the
following reasonable changes in assumption on the headroom of each CGU:
Challenge model
Combination of Discount Rate +2% and Challenge model
US Headroom
UK Headroom
£143,319k
£99,082k
£93,356k
£55,230k
The Directors have reviewed the recoverable amount of the CGU and do not consider there to be any impairment in 2021 or 2020.
16. OTHER INTANGIBLE ASSETS
Development
costs
£’000
patents,
trademarks &
other intangibles
£’000
cost
At 1 May 2020
Additions
Impairment
Exchange differences
At 30 April 2021
Amortisation
At 1 May 2020
Charge for the year
Exchange differences
At 30 April 2021
carrying amount
--
At 30 April 2021
At 30 April 2020
24,687
5,463
(30)
(1,065)
29,055
5,347
1,820
(223)
6,944
22,111
19,340
Total
£’000
32,276
5,619
(30)
(1,466)
36,399
10,398
2,359
(502)
7,589
156
-
(401)
7,344
5,051
539
(279)
5,311
12,255
2,033
2,538
24,144
21,878
The Group amortises 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 amount of acquired intangible assets arising on the acquisitions of Nova R&D, Inc. and eV Products, Inc. as at the 30 April
2021 was £488k (2020: £705k), 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.
Further details on impairment testing are set out in note 15.
KromeK Group plc Annual Report & Accounts 2021
65
17.
properTY, plANT AND equIpmeNT
lab
Equipment
£’000
computer
Equipment
£’000
plant and
machinery
£’000
Fixtures and
Fittings
£’000
cost or valuation
At 1 May 2020
Additions
Disposals
Exchange differences
At 30 April 2021
Accumulated depreciation and impairment
At 1 May 2020
Charge for the year
On disposals
Exchange differences
At 30 April 2021
carrying amount
At 30 April 2021
At 30 April 2020
20
189
-
-
209
-
33
-
-
33
176
20
1,306
18,041
79
-
(50)
166
(90)
(699)
1,335
17,418
957
108
-
(33)
6,173
1,066
(8)
(275)
1,032
6,956
303
349
10,462
11,868
552
20
-
(30)
542
238
56
-
(11)
283
259
314
18.
RIGHT-OF-USE ASSET
Details of the Group’s right-of-use assets and their carrying amount are as follows:
cost
Cost at 1 May 2020
New leases in the year
Lease modification
Effect of movements in exchange rates
cost at 30 April 2021
Depreciation
Depreciation at 1 May 2020
Charge for the year
Exchange differences
Depreciation at 30 April 2021
carrying amount
At 30 April 2021
At 30 April 2020
Total
£’000
19,919
454
(90)
(779)
19,504
7,368
1,263
(8)
(319)
8,304
11,200
12,551
£’000
4,565
194
756
(336)
5,179
713
430
(40)
1,103
4,076
3,852
66
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
19.
SuBSIDIArIeS
A list of the subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note 4 to the
Company’s separate financial statements.
20.
INVeNTorIeS
Raw materials
Work-in-progress
Finished goods
2021
£’000
2,022
3,707
473
6,202
2020
£’000
3,202
3,015
199
6,416
The cost of inventories recognised as an expense during the year in respect of continuing operations was £3,899k (2020: £4,654k).
The write-down of inventories to net realisable value amounted to £496k (2020: £616k). The reversal of write-downs amounted to £120k
(2020: £150k).
21.
AMOUNTS RECOvERABLE ON CONTRACTS AND TRADE AND OTHER RECEIvABLES
contracts in progress at the balance sheet date:
Amounts due from contract customers included in trade and other receivables
ECL impairment
Contract costs incurred plus recognised profits less recognised losses to date
Less: progress billings
Less: ECL impairment
The analysis above relates to the same contract with movement relating to foreign exchange.
Trade and other receivables
Amount receivable for the sale of goods
Amounts recoverable on contracts
Other receivables
Prepayments and accrued income
Current tax assets
2021
£’000
10,844
(10,844)
-
-
-
-
-
2021
£’000
4,979
-
958
707
1,015
7,659
2020
£’000
12,195
(12,023)
172
12,730
(535)
(12,023)
172
2020
£’000
6,076
172
662
1,300
1,031
9,241
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 reviews the recoverability of receivables over 120 days on a six-monthly
basis. This impairment review seeks evidence of recoverability, most notably, where specific support is being provided to strategic partners in the
marketing of new products. Commercial finance will then determine if the Group should recognise an impairment allowance.
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.
KromeK Group plc Annual Report & Accounts 2021
67
21.
AMOUNTS RECOvERABLE ON CONTRACTS AND TRADE AND OTHER RECEIvABLES (CONTINuED)
Amount receivable for the sale of goods (continued)
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 credit impaired receivables at the statement of financial position date was:
31-60 days
61-90 days
91-120 days
121+ days
Total
2021
£’000
410
12
-
1,977
2,399
2020
£’000
222
38
4
1,915
2,179
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
2021
£’000
-
-
-
1,158
1,158
2020
£’000
-
-
-
1,323
1,323
At 30 April 2021, trade receivables are shown net of an impairment allowance of £1,158k (2020: £1,323k) arising from the ordinary course of
business, as follows:
Balance at 1 May
Provided during the year
Impact of foreign exchange
Balance at 30 April
2021
£’000
1,323
16
(181)
1,158
2020
£’000
116
1,204
3
1,323
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.
68
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
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 2020
(Credit)/charge to profit or loss
At 30 April 2021
Fair value
revaluation of
acquired
intangibles
£’000
389
-
389
Accelerated
capital
allowances
£’000
Short-term
timing
differences
£’000
Tax
losses
£’000
Total
£’000
4,956
(516)
(4,829)
221
5,177
(132)
(648)
(89)
(4,918)
-
-
-
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
2021
£’000
4,918
(4,918)
2020
£’000
4,829
(4,829)
-
-
At the statement of financial position date, the Group has unused tax losses of £32,435k (2020: £27,614k) available for offset against
future profits. A deferred tax asset has been recognised in respect of £4,918k (2020: £4,484k) 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 £27,517k (2020: £23,130k) 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
Payable within one year:
Trade payables and accruals
Deferred income
payable in more than one year:
Deferred income
2021
£’000
6,000
174
6,174
2021
£’000
1,071
1,071
2020
£’000
8,632
163
8,795
2020
£’000
1,021
1,021
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken
for trade purchases is 40 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.
KromeK Group plc Annual Report & Accounts 2021
69
24.
leASe oBlIGATIoN
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 at 1 May
New leases entered into during the year
Effect of lease modifications
Finance costs
Payments made during the year
Impact of foreign exchange
At 30 April
Presented as:
Lease liability payable within 1 year
Lease liability payable in more than 1 year
At 30 April
2021
£’000
4,168
194
756
239
(395)
(307)
4,655
399
4,256
4,655
2020
£’000
4,211
134
-
240
(539)
122
4,168
324
3,844
4,168
Rental charges associated with other low value leased assets that fall within the expedient threshold have been expensed to the profit
and loss accounts £42k (2020: £15k).
25.
BorroWINGS
Secured borrowing at amortised cost
Revolving credit facility and capex facility
Other borrowings
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
2021
£’000
4,900
3,303
8,203
5,387
2,816
2020
£’000
4,900
706
5,606
3,669
1,937
The Group has a £5.0m revolving credit facility (RCF) with HSBC, which also incorporates a capex facility. This facility is for a 36-month
period with an option to extend to years 4 and 5. This loan is repaid on a quarterly basis in an amount equal to 1/20th of the drawn capex
loan. Once repaid, the Group is able to draw down the repaid amount against the original RCF. This facility is secured by a debenture and
a composite guarantee across the Group. The interest rate on the RCF is LIBOR+2.5% with a repayment term of six months from date
of drawdown. The fair value equates to the carrying value.
During the year the Group successfully secured a 2-year, £1.4m Term Loan with HSBC which attracts interest at 3.49% per annum over
Base Rate. This loan is repayable over 36 months, commencing on the date which is 13 months after the date of drawdown.
Other borrowings comprise a loan with the landlord in the US in respect of the facility occupied by eV Products, Inc. This loan is repaid in
equal instalments on a monthly basis and attracts interest at 7.50% per annum. At 30 April 2021, the total loan due to the landlord was
£0.5m (2020: £0.7m). Of this, £0.2m is due within 12 months (2020: £0.1m) and £0.3m (2020: £0.6m) is due after 12 months.
As a result of COVID-19, the Group’s US operations successfully secured £0.8m of Paycheck Protection Program Loans from the US
Government. A second draw of Paycheck Protection Program Loans was announced in January 2021 and the Group successfully
applied for, and secured, a further loan of £0.6m.
70
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
25.
BorroWINGS (CONTINuED)
The first round of Paycheck Protection Program Loans were forgiven post year end. Please see note 37 for further detail.
In addition to the Paycheck Protection Program Loans, the Group’s US operations were eligible to apply for an Economic Injury Disaster
Loan. A loan of £0.1m was approved and secured in June 2020. This loan attracts interest at a rate of 3.75% per annum and the maturity
date is 30 years from the date of loan note.
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
Other borrowing facilities
26.
DERIvATIvES FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
The Group had no derivatives in place at 30 April 2021 and 30 April 2020.
27.
SHARE CAPITAL
Allotted, called up and fully paid:
Balance at 1 May 2020: 344,647,089 (2020: 344,635,089) Ordinary shares of £0.01 each
Issued in the Year: 87,204,731 (2020: 12,000) Ordinary shares of £0.01 each
Balance at 30 April 2021: 431,851,820 (2020: 344,647,089) Ordinary shares of £0.01 each
During the year, 250,000 shares (2020: 12,000) were allotted under share option schemes.
28.
SHARE PREMIUM ACCOUNT
Balance at 1 May 2020
Premium arising on issue of equity shares
Expenses arising on issue of equity shares
Balance at 30 April 2021
29.
TrANSlATIoN reSerVe
Balance at 1 May 2020
Exchange differences on translating the net assets of foreign operations
Balance at 30 April 2021
2021
%
3.00
6.70
2020
%
3.30
5.20
£’000
3,446
873
4,319
£’000
61,600
12,176
(833)
72,943
£’000
1,981
(1,981)
-
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.
KromeK Group plc Annual Report & Accounts 2021
71
30.
AccumulATeD loSSeS
Balance at 1 May 2020
Net loss for the year
Effect of share-based payment credit
Balance at 30 April 2021
31.
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 and ROU
Amortisation of intangible assets
Share-based payment expense
Impairment of intangible asset
Loss on disposal
Operating cash flow before movements in working capital
Decrease/(increase) in inventories
Decrease in receivables
(Decrease)/increase in payables
Cash used in operations
Income taxes received
Net cash (used in)/generated from operating activities
Cash and cash equivalents
Cash and bank balances
£’000
(43,813)
(5,353)
106
(49,060)
2021
£’000
2020
£’000
(5,353)
(16,540)
(2)
548
(978)
1,685
2,359
106
30
82
(1,523)
214
1,566
(2,571)
(2,314)
1,005
(1,309)
2021
£’000
15,602
(60)
604
(1,805)
1,185
2,142
225
-
-
(14,249)
(3,189)
11,787
4,932
(719)
898
179
2020
£’000
9,444
Cash and cash equivalents comprise cash and term bank deposits repayable between one and twelve months from balance sheet date,
net of outstanding bank overdrafts. The carrying amount of these assets is approximately equal to their fair value.
72
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
32.
recoNcIlIATIoN oF lIABIlITIeS ArISING From FINANcING AcTIVITIeS
Balance at 1 May 2020
Cash flows;
- Repayments
- Additions and modifications
Non-cash
- Additions and modifications
- Effect of exchange rates
-
Interest applied
Balance at 30 April 2021
33.
SHARE-BASED PAyMENTS
Borrowings
£’000
5,606
(595)
3,215
-
(69)
46
8,203
lease
liability
£’000
4,168
(395)
-
950
(317)
248
4,654
Equity-settled share option scheme
The Company has a share option scheme for all employees of the Group, for which some options are EMI qualifying. Options are generally
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:
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
Number
of share
options
2021
Weighted average
exercise price (£)
Number
of share
options
2020
Weighted average
exercise price (£)
11,392,670
11,981,489
(250,000)
(4,713,494)
18,410,665
7,438,570
0.15
0.13
0.015
0.24
0.13
0.21
10,028,470
2,295,200
(12,000)
(919,000)
11,392,670
9,299,470
0.17
0.21
0.015
0.22
0.15
0.17
The weighted average share price at the date of exercise for share options exercised during the year was £0.015 (2020: £0.015). The
options outstanding at 30 April 2021 had a weighted average exercise price of £0.15 (2020: £0.17) and a weighted average remaining
contractual life of four years (2020: four years). The range of exercise prices for outstanding share options at 30 April 2021 was 1.5p to
79p (2020: 1.5p to 79p). In 2021, the aggregate of the estimated fair values of the options granted was £4k (2020: £92k). 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
2021
15p
15p
37.70%
5 years
0.08
0%
2020
22p
22p
29.85%
3 years
0.74
0%
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.
KromeK Group plc Annual Report & Accounts 2021
73
33.
SHARE-BASED PAyMENTS (CONTINuED)
The Kromek Group plc 2013 long Term Incentive plan
On 10 October 2013, a Long Term Incentive Plan (“LTIP”) was adopted and then subsequently modified on 14 March 2018. Under
the revised plan, awards are made annually to key employees. Subject to the satisfaction of the required Relative Total Shareholder
Return (RTSR) performance criteria, these grants will vest after a three-year period, with the first having ended on 30 April 2014, and the
remainder on subsequent year end dates. Details of the LTIP share options outstanding during and at the end of the year are as follows:
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
Number
of share
options
2021
Weighted average
exercise price (£)
Number
of share
options
2020
Weighted average
exercise price (£)
2,473,889
2,150,664
-
(1,184,209)
3,440,344
350,000
0.01
0.01
0.01
0.01
0.01
0.01
2,157,118
1,298,330
-
(981,559)
2,473,889
-
0.01
0.01
0.01
0.01
0.01
0.01
During 2021, 2,150,664 (2020: 1,298,330) options were granted under the 2018 LTIP to a number of key employees, including two
(2020: two) executive directors of the Group. The fair value of these options granted was £84k (2020: £124k). The amounts recognised
as a share-based payment LTIP expense for the year ended 30 April 2021 was £63k (2020: £61k).
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
2021
15p
1p
35.00%
3 years
0.32
0%
2020
22p
1p
35.00%
3 years
0.32
0%
The Kromek Group plc 2017-18 Average Valuation Scheme
During 2018, a new incentive award scheme was introduced for a number of key employees based on Valuation Creation of the Company,
referred to as the “VC”. This has awarded key employees 8,007,162 options under the scheme. However, the active members agreed to
end the scheme on 29 April 2021 and accordingly there are no 2018 issued VC share options outstanding at 30 April 2021. The options
cancelled of 8,007,162 (2020: £nil) have been added back to the available share options pool and a write back in VC share option
expense of £23k (2020: £nil) is included within this year’s overall share-based payments charge.
Details of the VC share options outstanding during and at the end of the year are as follows:
Number
of share
options
2021
Weighted average
exercise price (£)
Number
of share
options
2020
Weighted average
exercise price (£)
Outstanding at beginning of the year
8,007,162
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
-
-
(8,007,162)
-
-
0.01
0.01
0.01
0.01
0.01
0.01
8,007,162
-
-
-
8,007,162
-
0.01
0.01
0.01
0.01
0.01
0.01
The Group recognised a total expense in the year of £44k (2020: £225k) related to all equity-settled share-based payment transactions.
This is inclusive of both the equity-settled share option scheme and the 2013 LTIP scheme.
74
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
34.
RETIREMENT BENEFIT SCHEMES
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for all employees. Where there are employees who leave the
schemes prior to vesting fully, the contributions payable by the Group are reduced by the amount of forfeited contributions.
There are two defined contribution pension schemes for UK employees, one of which is an auto-enrolment workplace pension scheme
established following the UK Pensions Act 2008. The employees of the Group’s subsidiaries in the US are members of a state-managed
retirement benefit scheme operated by the US government. 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 £401k (2020: £365k) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at 30 April 2021, contributions of £42k (2020: £50k) due in respect of the current reporting period
had not been paid over to the scheme.
35.
FINANcIAl INSTrumeNTS
Financial Instruments
The Group’s principal financial instruments are cash and trade receivables.
The Group has exposure to the following risks from its operations:
capital risk
The Group manages its capital to ensure that each entity in the Group will be able to continue as a going concern whilst maximising
the return to shareholders through the optimisation of the balance between debt and equity. The Group’s overall strategy has remained
unchanged between 2020 and 2021.
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 27 to 30.
The Group is not subject to any externally imposed capital requirements.
The Group’s primary source of capital is equity. By pricing products and services commensurate 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 £4.9m (2020: £4.9m). Details of the revolving credit facility have been included in note 25.
The Group considers that the current capital structure will provide sufficient flexibility to ensure that appropriate investment can be made,
if required, to implement and achieve the longer-term growth strategy of the Group.
market risk
The Group may be affected by general market trends, which are unrelated to the performance of the Group itself. The Group’s success
will depend on market acceptance of the Group’s products and there can be no guarantee that this acceptance will be forthcoming.
Market opportunities targeted by the Group may change and this could lead to an adverse effect upon its revenue and earnings.
Foreign currency risk
The Group’s operations are split between the UK and the US, and as a result the Group incurs costs in currencies other than its
presentational currency of pounds sterling. The Group also holds cash and cash equivalents in non-sterling denominated bank accounts.
The following table shows the denomination of the year end cash and cash equivalents balance:
£ sterling
US$ (sterling equivalent)
€ (sterling equivalent)
2021
£’000
14,497
444
661
2020
£’000
8,285
612
547
Had the foreign exchange rate between sterling, US$ and € changed by 9% (2020: 4%), this would affect the loss for the year and net
assets of the Group by £272k (2020: £493k). 9% (2020: 3%) is considered a reasonable assessment of foreign exchange movement as
this has been the movement noted between 2020 and 2021 (2019 and 2020).
KromeK Group plc Annual Report & Accounts 2021
75
35.
FINANcIAl INSTrumeNTS (CONTINuED)
credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group
has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate as a means
of mitigating the risk of financial loss from defaults. The Group only transacts with entities that are rated the equivalent of investment
grade and above. This information is supplied by independent rating agencies where available, and if not available, the Group uses other
publicly available financial information and its own trading records to rate its major customers. The Group’s exposure and the credit
ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved
counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee
annually.
Trade receivables consist of a small number of customers, spread across diverse industries and geographical areas. Ongoing credit
evaluation is performed on the financial condition of accounts receivable.
The Group’s standard credit terms are 30 to 60 days from date of invoice. Invoices greater than 60 days old are assessed as overdue.
The maximum exposure to credit risk is the carrying value of each financial asset included on the statement of financial position as
summarised in note 21.
The Group’s management considers that all the above financial assets that are not impaired or past due for each of the reporting dates
under review are of good quality.
As a result of COVID-19, the Group has adopted the simplified approach when measuring the trade receivable expected credit losses.
To measure the expected credit losses, trade and other receivables have been grouped based on market and geographical region. The
expected loss rates are reviewed annually, or when there is a significant change in external factors potentially impacting credit risk and are
updated where management’s expectations of credit losses change. In 2020, management increased the expected loss rates for trade
and other receivables by £13,062k, which has been summarised further in note 9. Of the items impaired in the prior year, the Group has
reversed £52k in 2021.
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. Further,
the Group has a US dollar overdraft facility with a right to offset, which allows US dollars to be drawn at any time provided that the
Group maintain sufficient credit balances on other currency accounts to facilitate an offset. Following the offset, the Group has to be in a
minimum net credit position of £100 at any time. It is management’s intent to offset this overdraft with other credit balances. The purpose
of this offset account is to allow the Group operational flexibility in meeting its multicurrency liabilities and to be able to utilise credit from
its multicurrency customers. The Group has sufficient cash reserves to facilitate this right of offset.
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.
76
Notes to the consolidated financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
35.
FINANcIAl INSTrumeNTS (CONTINuED)
Liquidity risk (continued)
Weighted
average
effective
interest rate
%
Less
than
1 month
£’000
1-3
months
£’000
3 months
to 1 year
£’000
1-5 years
£’000
5+ years
£’000
revolving credit Facility
at 30 April 2020
Other Borrowing Facilities
at 30 April 2020
lease obligations
at 30 April 2020
revolving credit and capex
Facility at 30 April 2021
Other Borrowing Facilities
at 30 April 2021
lease obligations
at 30 April 2021
3.3
5.2
5.4
3.0
6.7
5.0
-
14
26
40
-
11
33
44
-
28
53
81
-
24
67
91
Total
£’000
4,900
706
3,500
1,400
127
537
-
-
245
1,206
2,638
4,168
3,872
3,900
3,143
1,000
1,452
1,735
2,638
9,774
-
81
4,900
3,303
299
1,987
2,269
4,655
5,651
4,722
2,350
12,858
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 2.
Financial covenants
The total RCF the Group has with HSBC has three covenants:
• A maximum cap on the net debt / EBITDA ratio. Following the renegotiation of this covenant with HSBC, it will first be tested
for the quarter ending 31 July 2021 having secured a covenant holiday in the quarters ending 31 October 2020, 31 January
2021 and 30 April 2021.
• A maximum cap on the EBIT / finance charges ratio. This is tested on an annual basis ending 30 April. Following the renegotiation
of this covenant with HSBC, it will first be tested for the 12 months ending 30 April 2022 having secured a covenant holiday
for the year ending 30 April 2021.
There is also a further covenant specifically relating to the working capital element of the RCF the Group has with HSBC as follows:
• The working capital element of the RCF is not to exceed a maximum cap of the combined total of Group inventories and trade
receivables less than 90 days old. This is tested on a quarterly basis ending 31 January, 30 April, 31 July and 31 October.
categories of financial instruments
Financial assets
Cash and bank balances
Loans and receivables
Financial liabilities
Amortised cost
2021
£’000
15,602
5,937
2020
£’000
9,444
6,969
(20,098)
(18,957)
KromeK Group plc Annual Report & Accounts 2021
77
35.
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 and asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
Level 3: The fair value is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs).
In these financial statements, all of the above financial instruments are considered to be Level 2 in the fair value hierarchy. There have
been no transfers between categories in the current or preceding year. The fair value of financial instruments held at fair value have been
determined based on available market information at the balance sheet date of 30 April 2021.
36.
relATeD pArTY TrANSAcTIoNS
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation
and are not disclosed in this note. Transactions between the Group and its related parties are disclosed below.
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.
37.
EvENTS AFTER THE BALANCE SHEET DATE
As a result of COVID-19, the Group’s US operations successfully secured £0.8m in the first round of Paycheck Protection Program Loans
offered to businesses in the US. Post year end, the Group applied for full forgiveness of these loans and was successful in its application.
This income will be reported as other operating income in 2022. Other than the forgiveness of these loans, there have been no further
events after the reporting date that require adjustment or disclosure in line with IAS10 events after the reporting period.
78
Company statement of financial position
KromeK Group plc Annual Report & Accounts 2021
As at 30 April 2021
Non-current assets
Investment in subsidiaries
Amounts due from subsidiary company
current assets
Trade and other receivables
Cash and cash equivalents
Total assets
current liabilities
Trade and other payables
Borrowings
Net current assets
Non-current liabilities
Borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium account
Merger reserve
Accumulated losses
Total Equity
Note
4
6
7
8
8
12
13
14
2021
£’000
5,500
64,688
70,188
192
12,897
13,089
83,277
(407)
(3,900)
(4,307)
8,782
(1,000)
(1,000)
(5,307)
77,970
4,319
72,943
3,221
(2,513)
77,970
Restated*
2020
£’000
5,394
60,284
65,678
196
6,020
6,216
71,894
(342)
(3,500)
(3,842)
2,374
(1,400)
(1,400)
(5,242)
66,652
3,446
61,600
3,221
(1,615)
66,652
*see note 2 on page 81 of the accounts
The loss for the year was £1,004k (2020: loss £645k).
The financial statements of Kromek Group plc (registered number 08661469) were approved by the Board of Directors and authorised
for issue on 13 July 2021. They were signed on its behalf by:
Dr Arnab Basu mBe
Chief Executive Officer
KromeK Group plc Annual Report & Accounts 2021
79
Company statement of changes in equity
For the year ended 30 April 2021
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 2019 (as previously reported)
3,446
61,600
3,221
(2,364)
65,903
Settled share-based payment transactions
(see note 2)
-
-
-
1,169
1,169
Balance at 1 may 2019 restated
3,446
61,600
3,221
(1,195)
67,072
Total comprehensive loss for the year
Settled share-based payment transactions
(see note 2)
-
-
-
-
-
-
(645)
(645)
225
225
Balance at 30 April 2020 restated
3,446
61,600
3,221
(1,615)
66,652
Total comprehensive loss for the year
Settled share-based payment transactions
Issue of share capital
Premium on shares issued less expenses
-
-
873
-
-
-
-
11,343
-
-
-
-
(1,004)
(1,004)
106
-
-
106
873
11,343
Balance at 30 April 2021
4,319
72,943
3,221
(2,513)
77,970
80
Company statement of cash flows
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
Note
11
Net cash used in operating activities
Investing activities
Investment receipts from money market account
Interest received
Net cash (used in)/generated from investing activities
Financing activities
Borrowings received
Borrowings repaid
Net proceeds from issue of share capital
Loans made to Group companies
Net interest paid
Net cash from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
2021
£’000
(806)
-
-
(806)
400
(400)
12,216
(4,404)
(129)
7,683
6,877
6,020
2020
£’000
(630)
1,250
11
1,261
2,100
(200)
-
(13,382)
(72)
(11,554)
(10,923)
16,943
Cash and cash equivalents at end of year
12,897
6,020
KromeK Group plc Annual Report & Accounts 2021
81
Notes to the Company financial statements
For the year ended 30 April 2021
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 2 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.
reSTATemeNT
Following a management review and in accordance with IFRS 2, Kromek Group plc has an obligation to settle equity instrument
transactions with Kromek Limited’s employees by providing its own equity instruments. The accounting treatment is to recognise an
increase in equity and a corresponding increase in investment. Reserves as at 30 April 2020 have been adjusted to recognise the
cumulative impact of settled share-based payments (£1,169k) and the settled share-based payment transactions expense for 2020
(£225k), with the corresponding entry posted to investments. This has a nil impact on the loss before tax and cash flow for the years
ended 30 April 2021 and 2020.
3.
AuDITor’S remuNerATIoN
The auditor’s remuneration for audit and other services is disclosed in note 7 to the consolidated financial statements.
4.
SuBSIDIArIeS
Details of the Company’s direct and indirect subsidiaries as at 30 April 2021 are as follows:
Name
Kromek Limited (Direct)
Kromek Germany Limited
(Indirect through Kromek Limited)
Kromek, Inc.
(Indirect through Kromek Limited)
NOVA R&D, Inc.
(Indirect through Kromek Limited)
eV Products, Inc.
(Indirect through Kromek Limited)
Place of incorporation
(or registration) and operation
NETPark, Sedgefield,
TS21 3FD, United Kingdom
NETPark, Sedgefield,
TS21 3FD, United Kingdom
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
Dormant company
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 2020 (restated)
At 30 April 2021
£,000
5,394
5,500
The impact economic impact of COVID-19 has created uncertainty in the markets in which the Company’s investments operate, which
is considered to be an indicator of impairment. Management have considered this, in conjunction with the full impairment review that
has been undertaken on the Group’s cash-generating units of which the Company’s investments form part. The results of this review are
disclosed in note 15 within the consolidated financial statements, including a sensitivity analysis. In this review no impairment has been
identified with regard to the Company’s investments in subsidiaries.
82
Notes to the Company financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
4.
SuBSIDIArIeS (CONTINuED)
At 30 April 2021 the Company was owed £64,688k (2020: £60,284k) 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. This assessment and amount is based on the future discounted cash flows of Kromek
Limited. Based on their assessment, the Directors do not consider there to be any impairment in 2021 or 2020. The loan is unsecured
and interest free.
Amounts owed by Group undertakings have been assessed in line with IFRS 9 and an assessment is made of the expected credit loss.
No expected credit loss was identified based on the future cash inflows of receivables.
Amounts due from subsidiary undertakings are unsecured, interest free and repayable on demand.
5.
STAFF coSTS
The average monthly number of employees (excluding non-executive directors) was:
2021
Number
2020
Number
Research and development, production
Sales and marketing
Administration
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Pension scheme contributions
6.
TRADE AND OTHER RECEIvABLES
Prepayments and accrued income
7.
TRADE AND OTHER PAyABLES
Trade payables and accruals
Social security and other taxation
2
1
4
7
2021
£’000
527
66
26
619
2021
£’000
192
192
2021
£’000
318
89
407
2
1
4
7
2020
£’000
565
71
23
659
2020
£’000
196
196
2019
£’000
283
59
342
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.
KromeK Group plc Annual Report & Accounts 2021
83
8.
BorroWINGS
Details regarding the borrowings of the Company are disclosed in note 25 to the consolidated financial statements.
9.
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.
10.
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 62 days. The carrying amount of trade payables approximates to their fair value.
11. NOTES TO THE STATEMENT OF CASH FLOWS
Loss for the year
Adjustments for:
Finance costs
Operating cash flows before movements in working capital
Decrease/(increase) in receivables
Increase/(decrease) in payables
Net cash used in operating activities
12.
SHARE CAPITAL
Allotted, called up and fully paid:
2021
£’000
(1,004)
129
(875)
4
65
(806)
Balance at 1 May 2020: 344,647,089 (2020: 344,635,089) Ordinary shares of £0.01 each
Issued in the Year: 87,204,731 (2020: 12,000) Ordinary shares issued at £0.01 each
Balance at 30 April 2021: 431,851,820 (2020: 344,647,089) Ordinary shares of £0.01 each
During the year, 250,000 shares (2020: 12,000) were allotted under share option schemes. See note 33 of the Group financial
statements for further details of share-based payments.
13. SHARE PREMIUM ACCOUNT
Balance at 1 May 2020
Premium arising on issue of equity shares
Expenses arising on issue of equity shares
Balance at 30 April 2021
2020
£’000
(645)
61
(584)
(39)
(7)
(630)
£’000
3,446
873
4,319
£’000
61,600
12,176
(833)
72,943
84
Notes to the Company financial statements (continued)
KromeK Group plc Annual Report & Accounts 2021
For the year ended 30 April 2021
14. AccumulATeD loSSeS
Balance at 1 May 2020 as restated (see note 2)
Net loss for the year
Settled share-based payments
Balance at 30 April 2021
£’000
(1,615)
(1,004)
106
(2,513)
15. 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 each entity in the Company will be able to continue as a going concern while maximising
the return to shareholders through the optimisation of the balance between debt and equity.
The capital structure of the Company consists of equity attributable to equity holders of the Company, comprising issued capital, reserves
and accumulated losses as disclosed in notes 27 to 30 to the consolidated financial statements.
The Company is not subject to any externally imposed capital requirements.
Cash flow is controlled by ongoing justification, monitoring and reporting of capital investment expenditures and regular monitoring and
reporting of operating costs.
The Company considers that the current capital structure will provide sufficient flexibility to ensure that appropriate investment can be
made, if required, to implement and achieve the longer-term growth strategy of the Company.
market risk
The Company may be affected by general market trends, which are unrelated to the performance of the Company itself. The Company’s
success will depend on market acceptance of the Company’s products and there can be no guarantee that this acceptance will be
forthcoming.
Market opportunities targeted by the Company may change and this could lead to an adverse effect upon its revenue and earnings.
Foreign currency risk
The Company currently does not undertake transactions denominated in foreign currencies.
credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The
Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate,
as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent
of investment grade and above. This information is supplied by independent rating agencies where available, and if not available, the
Company uses other publicly available financial information and its own trading records to rate its major customers. The Company’s
exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is
spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the
risk management committee annually.
The Company’s management considers that all the above financial assets that are not impaired or past due for each of the reporting dates
under review are of good quality.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity
risk management framework for the management of the Company’s short-, medium- and long-term funding and liquidity management
requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities,
by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment
periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which
the Group can be required to pay. The table includes both interest and principal cash flows. The contractual maturity is based on the
earliest date on which the Group may be required to pay.
KromeK Group plc Annual Report & Accounts 2021
85
15. FINANcIAl INSTrumeNTS (CONTINuED)
Liquidity risk (continued)
Weighted
average
effective
interest rate
%
3.3
3.3
Less than
1 month
£’000
1-3 months
£’000
3 months
to 1 year
£’000
1-5 years
£’000
5+ years
£’000
Total
£’000
-
-
-
-
3,500
1,400
3,900
1,000
-
-
4,900
4,900
revolving credit Facility
at 30 April 2020
revolving credit Facility and
capex Facility at 30 April 2021
Financial covenants
The total RCF the Company has with HSBC has three covenants:
• A maximum cap on the net debt / EBITDA ratio. Following the renegotiation of this covenant with HSBC, it will first be tested
for the quarter ending 31 July 2021 having secured a covenant holiday in the quarters ending 31 October 2020, 31 January
2021 and 30 April 2021.
• A maximum cap on the EBIT / finance charges ratio. This is tested on an annual basis ending 30 April. Following the renegotiation
of this covenant with HSBC, it will first be tested for the 12 months ending 30 April 2022 having secured a covenant holiday
for the year ending 30 April 2021.
There is also a further covenant specifically relating to the working capital element of the RCF the Company has with HSBC as follows:
• The working capital element of the RCF is not to exceed a maximum cap of the combined total of Group inventories and trade
receivables less than 90 days old. This is tested on a quarterly basis ending 31 January, 30 April, 31 July and 31 October.
16.
ulTImATe coNTrollING pAreNT AND pArTY
In the opinion of the Directors, there is no ultimate controlling parent or party.
17.
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.
18.
relATeD pArTY TrANSAcTIoNS
No dividends were paid in the period in respect of ordinary shares held by the Company’s Directors.
86
KromeK Group plc Annual Report & Accounts 2021
KromeK Group plc Annual Report & Accounts 2021
87
88
KromeK Group plc Annual Report & Accounts 2021
Directors, Secretary and Advisers
DIRECTORS
Dr A Basu
Mr A Beumer
Mr P N Farquhar
Mr R Sharma
Mr L H N Kinet
Mr J H Whittingham
Mr C Wilks
COMPANY SECRETARY
Mr P N Farquhar
REGISTERED OFFICE
BANKERS
HSBC Bank plc
1 Saddler Street
Durham
DH1 3NR
AUDITOR
Haysmacintyre LLP
10 Queen Street Place
London
EC4R 1AG
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 Group
10th Floor, Central Square
29 Wellington Street
Leeds
LS1 4DL
FINANCIAL PR ADVISER
Luther Pendragon
48 Gracechurch Street
London
EC3V 0EJ
Kromek Group plc
NEtPark, thomas Wright Way,
Sedgefield, County Durham, tS21 3FD, UK