Kromek Group plc Annual Report 2022

FY2022 Annual Report · Kromek Group plc

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Kromek Group plc
Kromek Group plc
Annual report and accounts
Annual report and accounts
for the year ended 30 April 2022
for the year ended 30 April 2022

Contents

1 Financial and Operational Highlights

4 Chairman’s Statement

Strategic Report

6 Chief Executive Officer’s Review

12 Chief Financial Officer’s Review

24 Principal Risks

28 Section 172 Statement

Governance

30 Directors’ Biographies

32 Directors’ Report

34 Corporate Governance Report

38 Audit Committee Report

39 Remuneration Committee Report

Financial Statements

44 Independent Auditor’s Report

50 Consolidated Income Statement

51 Consolidated Statement of
Comprehensive Income

52 Consolidated Statement of Financial

Position

53 Consolidated Statement of Changes

in Equity

54 Consolidated Statement of Cash

Flows

55 Notes to the Consolidated Financial

Statements

86 Company Financial Statements

Our most
prestigious
award so far

p16

Emerging
Technology
and Future
Concepts
Showcase

p20

Life Saving...

...and Saving
Lives
p2

Tested to
destruction at
Patriot 2I

p18

Our
commitment
to
Sustainability
p22

Financial Headlines

Revenue
£12.1m

16%

EBITDA*
(£1.2m)

Cash &
Equivalents
£5.1m

Product
% of Sales
82%
70%
value

Gross
Margin
46.7%

2021: £10.4m

2021: £(1.7m)

30 Apr 2021: £15.6m

2021: 56%

2021: 48.4%

*A reconciliation of adjusted EBITDA can be found in the Chief Financial Officer’s Review.

Operational Highlights

Awarded a US$6m contract extension from DARPA, an
agency of the US Department of Defense, to advance the
development of a mobile wide-area bio-security system

Strong revenue growth in advanced imaging with
delivery under component supply agreements and
increased customer engagement for future projects

Advanced Imaging

CBRN Detection

Sustained delivery in medical imaging:
• Ramp up in delivery continued as planned under
medical imaging contract expected to be worth
US$58.1m over the seven-year life of the contract,
which was awarded in 2019

Significant momentum in nuclear security, winning
new and repeat orders and participation in a greater
number of tenders reflecting the growth in global
government defence spending:
• Awarded a two-year contract, worth up to

• Completed delivery of a US$600k order from an
OEM customer for detectors to be used in niche
SPECT applications, with further orders expected

• Commenced commercial development

engagement with three new strategic OEM
customers

In security screening, the Group completed a two-
year US$1.6m project with the US Department of
Homeland Security and entered two new commercial
development engagements with OEMs

Signed a seven-year supply agreement, worth up to
US$17m, in industrial screening with a US-based
OEM and secured a US$250k repeat order from a
US-based aerospace and defence company

US$1.6m, by a US federal entity for the D3S-ID
wearable nuclear radiation detector – with a further
US$300k order received during the year and
US$695k post year end

• Repeat orders received from the European

Commission for the D3S-ID

• Received orders from three customers for the

D5 RIID

• A four-year contract worth £1.7m was received

from a UK government agency customer for CBRN
detection products and services

• Invested in developing new channels to market,

including the signing, post year end, of a
distribution agreement with Smiths Detection Inc.
for the North and South American markets

32 new customers won in the civil nuclear segment

Annual Report & Accounts 20222

Life saving...

Medical
Imaging

Security
Screening

Industrial
Screening

Advanced Imaging

Our Mission
“To be the preferred supplier of innovative detection
technology solutions, which enhance the quality
of information for our customers, and allow better
decision-making”

Our Vision
“To enhance the quality of life and save lives through
detection technology solutions”

Our Values
Customer Centred & Quality Driven

Innovative & Agile

Integrity (Trust & Honesty)

One Company, One Team

Committed to Diversity & Inclusion

Committed to Sustainability

KROMEK GROUP PLCand saving lives

Biosecurity

Radiological
Security

Nuclear
Detection

CBRN Detection

Redefining Who We Are

Kromek Group is a leading developer of Radiation Detection and Bio-detection
technology solutions for the Advanced Imaging and CBRN Detection segments. With
manufacturing operations in the UK and US, Kromek delivers on its vision of enhancing the
quality of life and saving lives through detection technology solutions.

Advanced Imaging encompasses the medical imaging (including CT and SPECT), security
screening and industrial screening markets for which Kromek provides its OEM customers
with detector components, based on its core cadmium zinc telluride (CZT) platform.

CZT-based detectors enable earlier and better detection of diseases such as cancer and
Alzheimer’s, contamination in industrial manufacture and explosives in aviation settings.

In CBRN Detection, the Group provides radiation and nuclear threat detection solutions
to the global defence and homeland security markets. Primarily end-user products,
Kromek’s compact, handheld, high-performance radiation detectors, based on advanced
scintillation technology, are predominantly used by government customers to protect critical
infrastructure and urban environments from the threat of ‘dirty bombs’.

The Group is also developing bio-security solutions in the CBRN detection segment. These
consist of fully automated and autonomous systems to detect a wide range of airborne
pathogens.

Manufacturing for Advanced Imaging is based at our facilities in Durham, Pennsylvania, and
California and manufacturing for CBRN Detection is based exclusively in Durham.

Annual Report & Accounts 20224

Chairman’s Statement

Rakesh Sharma

“Over the past three years, we have evolved to become
a commercial stage platform company addressing two
large markets with strong growth potential:
advanced imaging and CBRN detection.”

KROMEK GROUP PLC5

I am pleased to present our 2022 Annual Report, which outlines
how we have advanced the execution of our strategy. Against
the backdrop of an environment recovering from the harshest
business interruption seen, I am proud to say that the way
Kromek adapted to the changing eco-system has made this a
notable year.

Kromek remains a leading developer of radiation detection and
bio-detection technology solutions. Over the past three years, we
have evolved to become a commercial stage platform company
addressing two large markets with strong growth potential:
advanced imaging and CBRN detection.

Kromek continued to deliver on its existing contracts as well
as win new and repeat orders during the first half of the year.
In H2 2022, the commercial momentum increased, ahead of
management’s expectations, however, Kromek was not immune
to the industry-wide supply chain issues and challenges around
obtaining critical components. As a result, certain shipments
scheduled to be made in the final month did get delayed into the
next fiscal year.

The additional contract wins contributed to the Group achieving
strong revenue growth in H2 over H1 2022 resulting in a year-on-
year revenue increase of approximately 16%.

Strategic Value of Kromek in Medical Imaging

The medical imaging industry is transitioning to cadmium
zinc telluride (CZT) as OEMs’ next-generation products are
increasingly being installed in hospitals globally. As the only
remaining independent company capable of large-scale
manufacturing of CZT, Kromek is in an advantageous position
to increase its exposure to OEMs in this market as photon
counting CT and digital SPECT are becoming established in the
marketplace.

CBRN Remains a Major Commercial
Opportunity

Globally, Kromek has current visibility of tender orders in excess
of US$500m, of which the handheld segment of the market is
estimated to be worth almost half of that, per year. Additionally,
the UK government announced spending plans of hundreds of
millions over the next four years on nuclear detection. Portable
detection products are expected to be a key component of that.
Overall, we expect that, as a result of the global geopolitical
situation, the interest in Kromek’s capability and products will
remain high in the foreseeable future.

Employees and Partners

The Group continued to maintain tight cost control, improve
collections and manage cash flow. The experience of managing
our supply chain during the year will hold us in good stead for the
current fiscal year. We have record revenue visibility in the coming
year, which will help us to manage our inventories effectively and
avoid potential delays in delivery of orders.

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.

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 as a result of current
geopolitical instabilities, which is leading to increased demand for
Kromek’s technology.

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.

“We have record revenue visibility in the coming year,
which will help us to manage our inventories effectively
and avoid potential delays in delivery of orders.”

Annual Report & Accounts 20226
Strategic Report
Chief Executive Officer’s Review

Arnab Basu

“Kromek has had a positive start to the new financial year with
a significantly larger order book than at the same point last
year and the highest level of revenue visibility in our history.”

KROMEK GROUP PLC“We continued to fulfil our existing supply orders in medical imaging and
progress our development programmes. Delivery continued to ramp up
as planned to our significant OEM customer that, in H2 2019, awarded a
contract expected to be worth a minimum of US$58m...”

During the year to 30 April 2022, Kromek made good progress in
both the advanced imaging and chemical, biological, radiological,
and nuclear (CBRN) detection segments of the business.
We delivered on our existing contracts and development
programmes, won new and repeat orders and experienced
increased customer engagement regarding future contracts.
This resulted in revenue for FY 2022 increasing by 16% over the
previous year, with commercial momentum increasing throughout
the year, particularly in the CBRN detection segment. We also
continued to increase our utilisation of the expanded production
capacity that we had gained through the processes introduced in
the previous year to optimise manufacturing across our facilities.
Accordingly, and notwithstanding the impact of supply chain
pressures as described further below, we ended the year in a
stronger position than we had entered it.

ADVANCED IMAGING SEGMENT

The advanced imaging segment comprises the medical imaging,
security screening and industrial screening markets. Kromek
provides OEM customers with detector components, based on
our core cadmium zinc telluride (CZT) platform, to enable better
detection of diseases such as cancer and cardiac conditions,
contamination in industrial manufacture and explosives in aviation
settings.

In this segment, commercial engagement with customers
consists of an initial design phase followed by incorporation of
our detectors and technologies into a customer’s system and
then the award of a multi-year supply contract, which provides
long-term revenue visibility. We have an established track record
of winning orders for development purposes that transition to
multi-year supply contracts from customers in gamma probes,
bone mineral densitometry (“BMD”) and single photon emission
computed tomography (“SPECT”) in medical imaging as well as
in security and industrial screening. This success is evidenced by
the significant contracts awarded in H2 2019 in medical imaging
and also in the year under review in industrial imaging, which are
expected to be worth approximately US$58.1m and US$17m,
respectively. As we continue to win such contracts, our revenue
base expands and the revenue profile becomes increasingly
predictable.

Kromek delivered strong growth in this segment compared
with the 2021 financial year as we continued to deliver detector
components to our customers under orders for development
purposes and multi-year supply contracts. We also experienced
greater customer engagement regarding future projects as
normal business has resumed following the temporary redirection
of resources due to the COVID-19 pandemic.

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. The rate of new product
introduction with this class of detector is increasing with both
GE Healthcare and Siemens Healthineers introducing new
products in their clinical SPECT and CT business in 2021.
CZT detector platforms enable OEMs to significantly improve
the quality of imaging, which leads to earlier and more reliable
diagnosis of disease. Kromek’s CZT detector solutions are
increasingly being commercially adopted for SPECT, molecular
breast imaging (“MBI”) and BMD applications. These, along with
computed tomography (“CT”), are key target areas for future
growth as they address diseases particularly associated with
an ageing population such as cancer, Alzheimer’s, Parkinson’s,
cardiovascular illnesses and osteoporosis. Kromek also serves
the gamma probes market in medical imaging, which are used
during surgery for the removal of lymph nodes.

We continued to fulfil our existing supply orders in medical
imaging and progress our development programmes. Delivery
continued to ramp up as planned to our significant OEM
customer that, in H2 2019, awarded a contract expected to be
worth a minimum of US$58.1m over an approximately seven-
year period. In addition, we continued delivery of a US$600k
order received in H2 2021 from a different customer for the
supply of detectors to be used in niche SPECT applications. This
delivery was completed by the end of the 2021 calendar year as
planned and we expect to continue the supply of detectors to
this longstanding customer with new orders in the current year.

There was a significant increase in new business activity as
the impact of the pandemic – which had caused a temporary
redirection of resources in healthcare settings – continued to
recede. This applied particularly in our key target areas of CT
and SPECT, supported by the growing industry adoption of
new techniques and rollout of new systems. We commenced
commercial development engagement with three new strategic
OEM customers in this market. These initial orders are for the
supply of CZT-based detectors for use by the OEM customers in
their commercial development programmes.

One of our US medical imaging customers received FDA
approval for its system for a niche nuclear medical application,
which is using Kromek’s detectors. We have received several
orders from this customer, which we expect to continue on an
ongoing basis.

Annual Report & Accounts 20228
Strategic Report (Continued)

Chief Executive Officer’s Review (Continued)

Nuclear Security

“We have put significant effort into developing new channels in this
market and are seeing increased traction for our products.”

Nuclear Security

“During the year, we received orders from three customers for our
D5 RIID high-performance radiation detector designed for challenging
environments, which was launched in the previous year.”

KROMEK GROUP PLC9

Security Screening

In security screening, our technologies are used in travel,
primarily aviation, settings to 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. We
provide OEM and government customers with components and
systems for cabin and hold luggage scanning.

During the year, we continued to deliver under our existing
component supply agreements in the security screening market.
In our development work, we completed a two-year US$1.6m
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. We also
entered two new commercial development engagements during
the year to customise our detector solutions for incorporation
into OEM customers’ systems. This development process has
been completed with one of the customers and the customised
detectors have been delivered to the customer, and we expect to
receive further orders from this customer.

Industrial Screening

In industrial screening, Kromek provides OEM customers with
detector components for incorporating into scanning systems
used during manufacturing processes to identify potential
contaminants.

During the year, we signed a seven-year supply agreement, worth
up to US$17m, to provide CZT-based detector components for
incorporation into systems for identifying contaminants for the
purpose of product quality inspection. The contract is with a
US-based, sector-leading industrial OEM with a global customer
base and was awarded following the completion of a two-year
development programme. Initial delivery under this contract
commenced during the year and is expected to ramp up in the
current financial year.

Also, during the year, we were awarded a US$250k repeat order
from a US-based customer that is a global leader in aerospace
and defence technologies. The customer’s system, which
incorporates Kromek detectors, is used for in-line quality control
in manufacturing processes.

CBRN DETECTION SEGMENT

In CBRN detection, we provide nuclear radiation detection
solutions to the global homeland defence and security market.
Kromek’s compact, handheld, high-performance radiation
detectors, based on advanced scintillation technology, are
primarily used to protect critical infrastructure and urban

environments from the threat of ‘dirty bombs’. 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 establishments. In addition, we are
developing bio-security solutions to detect a wide range of
airborne pathogens, including SARS-CoV-2 (COVID-19).

We won new and repeat orders in the nuclear security and civil
nuclear markets during the year and participated in an increasing
number of tenders reflecting the growth in global government
defence spending. With the current geopolitical environment,
the commercial momentum in this market increased during the
fourth quarter and has remained high into the current financial
year. We also made significant progress with our development
programmes in bio-security and anticipate early commercial
deployment of our products in this segment during the current
financial year.

Nuclear Security

Kromek’s nuclear security platforms – D3S and D5 – consist of a
family of products designed to cater for the varying demands of
homeland security and defence markets. In particular, the 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.

We were awarded a contract by a US federal entity for our
D3S-ID wearable nuclear radiation detector that is designed to
enable first responders, armed forces, border security and other
CBRN experts to detect radiological threats. The contract will
be delivered over two years and is worth up to US$1.6m. In the
final quarter of the year, this customer made a repeat order worth
US$300k and then a further order post year end of US$695k.
We also continued to receive repeat orders from the European
Commission for the D3S-ID.

During the year, we received orders from three customers for
our D5 RIID high-performance radiation detector designed for
challenging environments, which was launched in the previous
year. This included an order worth £173k from an existing
UK government agency customer and orders from two new
customers. As further testament to the strength of both our
solutions and long-term relationships, towards the end of the
year, the UK government agency customer awarded a further
four-year contract worth £1.7m for the provision of CBRN
detection products and services.

We have put significant effort into developing new channels in
this market and are seeing increased traction for our products.
This includes entering into an agreement, post year end, with
Smiths Detection to market and distribute our D3 and D5 series
of wearable radiation detectors and identification solutions to
North and South American markets. The current geopolitical

Annual Report & Accounts 202210

Civil Nuclear

“In the civil nuclear market, we won 32 new customers during the
year compared with 24 for 2021.”

events have provided an increased emphasis for government
spending in this segment as NATO countries are all increasing
their defence budgets. The threat of a nuclear event is also at an
all-time high since the end of the cold war. Our products provide
best-in-class capability to provide early warning and mitigation
capability in case of an event.

Civil Nuclear

In the civil nuclear market, we won 32 new customers during the
year compared with 24 for 2021. We continued our programme
of work under a development and supply contract awarded
in the previous financial year, worth a minimum of US$960k,
which is for a product with both nuclear security and civil nuclear
applications. The project is progressing on schedule, with the
development work being completed by the end of calendar year
2021 and the product is now in the validation phase ahead of
the commencement of supply, which we expect to start in the
current financial year.

Biological-Threat Detection

Kromek is developing bio-security solutions consisting of fully
automated and autonomous systems to detect a wide range
of airborne pathogens using genomic sequencing for the
purposes of national security and protecting public health. 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 autonomously senses, analyses and identifies
airborne pathogens. The programme was established to combat
bioterrorism and is now also aimed at providing an early warning
system in the event of a virus outbreak to enable action to be
taken to localise the spread and prevent it from becoming an
epidemic or global pandemic. We are also working under a
programme funded by Innovate UK, which commenced in 2021,
to develop a bio-security solution to support end-use cases
specifically for COVID-19 detection.

During the year, we continued to deliver on the development
milestones under our programme with DARPA and received
a US$6m contract for the next phase. The programme is for
the development of a completely automated wide spectrum
airborne pathogen detection system that is fully mobile and
runs autonomously. It is being designed to be networkable and
provide wide-area monitoring capability in near real-time. To date,
we have been awarded a total of over US$13m by DARPA under
this programme.

Several successful pilots were carried out for the fully automated
genomic sequencing platform in the UK and US. During the
year we published a white paper outlining the challenges
the world faces from the emergence of natural and synthetic
pathogens. The main recommendations of the white paper

include the implementation of a national network of automated
genomic sequencing systems. These systems can provide an
early warning alert for the emergence and understanding of
the prevalence of pathogens in the environment, and this has
been fed into a government consultation process led by the
Cabinet Office, which is aimed at forming a national strategy for
bio resilience and bio security for the UK. The initial findings are
very well aligned to our platform, and we continue to work with
multiple government agencies to define use cases and widescale
implementation opportunities.

Under our programme funded by Innovate UK to develop a
solution for airborne COVID-19 detection, we successfully
completed piloting of the system at several sites, including
schools, airports and other locations. The solution is now in
the productisation phase, with a manufacturing partner having
been identified and a number of pre-production models also
having been produced. Further, we engaged in validation of the
technology in third-party laboratories with very positive results on
the detection levels, sensitivity and false alarm rates.

PROCUREMENT

As previously stated, our growth was impeded during the year by
supply chain pressures, particularly global electronic component
shortages. Specifically, the late arrival of certain components
prevented the completion of orders totalling approximately
£2.9m that were scheduled to be delivered before the year end.
These orders have now begun to be shipped and the revenue is
expected to be largely recognised in the first half of the current
financial year.

Several steps were taken during the year to strengthen our
supply chain so that we are better positioned to be able to
manage such pressures going forward. As discussed in the
Chief Financial Officer’s Review, inventories increased with
components being sourced when available rather than in
accordance with what had previously been the normal supply
lead times. We bolstered our procurement team during the year
and have transitioned our buying cycles to accommodate the
current longer lead supply times. This has significantly helped
management, enabling greater visibility over orders. In addition,
we have widened and strengthened our supplier base through
establishing an increased number of strategic, rather than
transactional, relationships with key suppliers.

R&D, IP AND MANUFACTURING

We continue to ramp up several projects that commenced in
2021 for the expansion of production capacity and increased
process automation. These programmes are resulting in greater
productivity and cost efficiency in the manufacture of CZT and
non-CZT products in both our UK and US facilities.

KROMEK GROUP PLC11

Security Screening
“We completed a two-year US$1.6m 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.”

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 and, in particular, significantly
progressed the development of our biological-threat detection
solution.

During the year, we applied for 8 new patents and had 9
patents granted across three patent families, bringing the total
number of patents held by Kromek to in excess of 250. The new
applications cover innovations in both of our segments.

Bio-Security
“We continued to deliver on the development milestones under our
programme with DARPA and received a US$6m contract for the next
phase... To date, we have been awarded a total of over US$13m by
DARPA under this programme.”

OUTLOOK

Kromek has had a positive start to the new financial
year with a significantly larger order book than at the
same point last year and the highest level of revenue
visibility in our history. We have excellent visibility over
full year revenue forecasts with approximately 53% of
our forecast revenue contracted, 37% going through
contract negotiation and the remaining 10% expected to
be provided by our regular repeat order business.

As a result, we anticipate a year-on-year increase
in revenue in line with market expectations, with
accelerated growth in both our advanced imaging and
CBRN detection segments.

The anticipated growth is based on delivery under
existing long-term contracts, new orders won last
year and the sustained demand being received for
our products. In particular, the current geopolitical
environment is driving increased interest from
government agencies in Kromek’s products in the CBRN
detection segment. In advanced imaging, Kromek’s
CZT-based products continue to be in high demand from
both existing and new OEM customers.

We continue to maintain tight cost control, improve
collections and manage cash flow. We are also
effectively managing our supply chain and the current
challenges around obtaining critical components. The
high revenue visibility for the current year means we can
manage our inventories efficiently and avoid potential
delays in the delivery of orders.

Looking further ahead, Kromek is operating in multiple
substantial markets where our technology enables
our advanced imaging customers to differentiate their
products, forming an important part of the roadmap
of major OEMs, and allowing our CBRN detection
customers to enhance national defence. The demand
for technology that enables early medical diagnosis to
improve patient outcomes and government vigilance
to the threat of terrorism will continue. In addition, our
strategic position in the advanced imaging segment was
significantly strengthened during the year with Kromek
becoming the only commercial independent global
supplier of CZT. Consequently, the Board continues to
look to the future with great confidence.

Annual Report & Accounts 202212
Strategic Report (Continued)
Chief Financial Officer’s Review

Paul Farquhar

“Following the significant disruption to the business environment
caused by COVID-19... the Group recovered well in the year with good
progress in both the advanced imaging and CBRN detection segments
of the business and revenue growth in excess of 16% year-on-year.”

KROMEK GROUP PLCI am pleased to present my Chief Financial Officer’s Report for the
12-month period ended 30 April 2022.

Following the significant disruption to the business environment
caused by the COVID-19 pandemic in the latter part of our 2020
financial year and into 2021, the Group recovered well in the year
under review with good progress in both the advanced imaging
and CBRN detection segments of the business and revenue
growth in excess of 16% year-on-year.

The Group’s revenue growth was, however, significantly impacted
by continuing supply chain pressures, particularly global
electronic component shortages, which resulted in the delivery
of £2.9m of contracts being delayed into FY 2023. These orders
have now begun to be shipped and the revenue is expected to
be largely recognised in the first half of the current financial year.
In response to the ongoing supply chain pressures, we have
taken a number of steps to secure supply of critical components
including investing in additional procurement staff and purchasing
forward inventory from a wider range of suppliers than we would
normally due to the longer lead times for certain components. In
total, we invested £4.3m in additional inventory during the year,
some of which was at significantly higher cost than under normal
market conditions due to supply side inflation. It is anticipated
that the current supply chain pressures will continue into calendar
year 2023 although we do not expect the impact on the business
to be as significant as it was in FY 2022 as a result of the
mitigation actions taken as outlined above.

Revenue for the year was £12.1m (2021: £10.4m), an increase
of £1.7m from the prior year, and gross profit was £5.6m (2021:
£5.0m). Due to the higher gross profit, an increase of £1.0m in
other operating income, partially offset by higher administration
costs, adjusted EBITDA loss was reduced to £1.2m (2021:
£1.7m loss). A reconciliation between adjusted EBITDA and
results from operations is detailed below.

Revenue

Gross Margin

Gross profit at £5.6m (2021: £5.0m) represented a margin of
46.8% (2021: 48.4%). The slight reduction in gross margin is
attributable to the change in revenue mix and the increase in
component prices due to supply chain pressures.

Administration Costs

Administration costs and operating expenses increased by
£1.3m to £12.2m (2021: £10.9m). This increase is substantially
the net result of:
• £0.2m of amortisation due to continued investment in the

technology platform and product applications;

• £0.5m bad debt expense having assessed receivables at the

•

year end for expected credit losses;
a £0.2m increase in travel and subsistence due to the global
relaxation of travel restrictions;
a £0.5m increase in staff costs due to general salary
increases and the planned expansion of personnel to support
the biological detection project; and
savings of £0.1m relating to facility and general office
expenses.

Adjusted EBITDA* and Result from Operations

Adjusted EBITDA for 2022 was a loss of £1.2m compared with a
loss of £1.7m for the prior year as set out in the table below:

Revenue

Gross profit

Gross margin (%)

Loss before tax

EBITDA Adjustments:

Net interest

Depreciation of PPE and right-of-use assets

2022

£’000

12,055

5,636

46.7%

(6,129)

548

1,751

2,569

236

(132)

2021

£’000

10,352

5,006

48.4%

(6,331)

546

1,685

2,359

106

(52)

(1,157)

(1,687)

The Group generated total revenue of £12.1m (2021: £10.4m),
an increase of 16% over the prior year. However, growth was
impeded, as noted above, by global supply chain issues. The
split between product sales and revenue from R&D contracts is
detailed in the table below.

Amortisation

Share-based payments

Exceptional Item

Adjusted EBITDA*

Revenue Mix

2022

2021

Product

R&D

Total

£’000 % share

82%

18%

9,935

2,120

12,055

56%

44%

5,836

4,516

10,352

*Adjusted EBITDA is defined as earnings before interest, taxation,
depreciation, amortisation, exceptional items, early settlement discounts
and share-based payments. 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.

Annual Report & Accounts 202214
Strategic Report (Continued)

Chief Financial Officer’s Review (Continued)

The Group’s loss before tax was reduced to £6.1m compared
with £6.3m in the prior year. The improvement is primarily due
to the increase in gross profit and higher other operating income
as described below, partially offset by the increase in operating
costs.

During 2022, the Group recognised a gain of £2.1m (2021:
£2.0m loss) in the statement of other comprehensive income
that arose from foreign exchange differences on the translation
of foreign operations as described in note 2 to the financial
statements. This gain has been treated as a reserve movement,
consistent with the prior year. This accounting treatment is unlike
the £0.2m foreign exchange loss arising on the revaluation and
realisation of working capital balances that were expensed to the
profit and loss account during the 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 £0.9m for the
year (2021: £1.0m 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 (2021: £nil) 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 £1.2m (2021:
£1.0m credit).

Earnings per Share (“EPS”)

The EPS is recorded in the year on a basic and diluted basis as
1.1p loss per share (2021: 1.5p loss per share after excluding
exceptional items), reflecting the £0.4m reduction in loss for the
period.

R&D

The Group invested £5.6m in the year (2021: £5.5m) 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 lifecycle.

The Group continues 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.

The other key areas of development continue to be the
development and 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 (2021: £0.2m) with 8 new patents filed and
9 patents granted across 3 patent families.

Other Income

The Group generated total other operating income of £1.4m
(2021: £0.4m), which predominantly comprises the forgiveness
of Paycheck Protection Programme (PPP) loans in the US.
The Group had been granted PPP loans totalling US$1.8m
(£1.4m) in the prior year and, during the period under review,
applied for, and received, forgiveness for repayment from the
US Government. In the prior year period, £0.3m of the £0.4m
of other operating income comprised UK Government grants in
response to COVID-19. The balance of remaining other operating
income relates to grants received from the Coronavirus Job
Retention Scheme provided by the UK Government in response
to COVID-19’s economic impact on businesses and other small
miscellaneous grants.

Capital Expenditure

Capital expenditure in the year amounted to £0.7m (2021:
£0.5m), which primarily relates to modest capital expenditure
across lab and computer equipment and manufacturing projects.

Financing Activities

The Group’s US operations secured an Economic Injury Disaster
Loan of £0.4m in August 2021.

Cash Balance

Cash and cash equivalents were £5.1m as of 30 April 2022 (30
April 2021: £15.6m). The £10.5m decrease in cash during 2022
was primarily due to the combination of the following:
• Adjusted EBITDA loss for the year of £1.2m, which includes

the PPP loan forgiveness of £1.4m

• Net cash used in financing activities of £1.6m
• A net increase in working capital of £4.8m
• R&D tax receipts of £1.3m
•

Investment in product development and other intangibles,
with capitalised development costs of £5.6m and IP additions
of £0.2m

• Capital expenditure of £0.7m
•

Impact of foreign exchange of £1.0m

KROMEK GROUP PLC15

Working capital increased by £4.8m as a result of the following:
• A £4.3m increase in inventories held on 30 April 2022 to

£10.5m (30 April 2021: £6.2m). This increase was primarily
in order to secure surety of critical electronic components
for delivery of FY 2023 revenues in response to supply chain
pressures. As such, the Group sourced component inventory
when available, rather than in accordance with normal
supply lead times. There was significant component price
inflation caused by the constrained market supply, which also
contributed to the increased spend on inventories;

• £0.2m decrease in trade and other receivables, reflecting the

timing of receipts; and

• a £1.7m increase in trade and other payables to £8.9m

(2021: £7.2m) due to the timing of invoicing around the year
end.

Annual Report & Accounts 202216
Strategic Report (Continued)

KROMEK GROUP PLC17

Our most prestigious
award so far...

Kromek received the Queen’s Award for Enterprise in April 2020 for its contribution to
international trade, with the company now exporting to more than 50 countries. Due to the
coronavirus pandemic, the formal award presentation and celebration event was postponed
to September 2021, when Her Majesty’s personal representative in County Durham visited
the company’s NETPark headquarters to bestow the honour.

The Queen’s Awards are among the most prestigious for UK businesses, recognising and
encouraging cross-sector achievements in internationally significant trade and innovation.
They provide a valuable opportunity to raise awareness of world-leading ingenuity and
industriousness whatever the size of the organisation.

The achievement is testament to the creativity, focus and innovation of all the staff at
Kromek, whose resilience during the pandemic enabled the company to grow into new and
expanding markets.

Kromek CEO, Dr Arnab Basu, said: “We were honoured to receive the Queen’s Award for
Enterprise last year following a period of significant international growth. Since winning the
award, we have benefitted from the worldwide recognition it bestows, and a sense of real
and sustained contribution to the world of business.”

Kromek CEO, Dr Arnab Basu, being officially presented with the Queen’s Award for Enterprise
by Lord-Lieutenant of County Durham, Mrs Sue Snowdon.

Annual Report & Accounts 202218
Strategic Report (Continued)

Accessing the
Global Defence Market

Kromek was re-united face-to-face with its defence
and homeland security contacts at the Defence and
Security Equipment International Exhibition (DSEI) in
September 2021, the first time since the pandemic.

The main theme was Integrated Response to Future
Threats, which gave Kromek the perfect platform to
showcase its D3 and D5 compact suite of handheld,
high-performance radiation detection products and
introduce the ground-breaking automated pathogen
early warning system to the widest possible
audience.

Funded by the US agency DARPA and the UK
government, Kromek has spent three years building
the next generation of a genomics early warning
system to mitigate against the effects of an outbreak
of any disease-causing airborne microbe.

The system (pictured above) can be networked in
large numbers, providing an early warning system
for emerging biological threats.

KROMEK GROUP PLC19

An Integrated Response
to Future Threats
Tested to Destruction at ‘Patriot 21’

Kromek was the only UK company supporting the PATRIOT 21 exercises in the US, and
one of just seven industry partners. Its world-renowned wearable detector, the D3S ID,
itself a key part of the Defense Threat Reduction Agency’s (DTRA) SIGMA system, was put
to the test in a variety of scenarios.

The devices were placed in the hands of experts drawn from CBRN specialists in the Air
National Guard, U.S. Air Force, the Army Emergency Response and CBRN team, along
with insight from the Federal Bureau of Investigation’s (FBI) Weapons of Mass Destruction
(WMD) Coordinators.

The exercises demonstrated the importance of Radioisotope Identification Devices (RIIDs)
that operate with speed and sensitivity of detection, provide accurate identification of
radioactive material, and have autonomous or semi-autonomous reach-back detection
and analytical capabilities all to lessen the time operators are directly exposed to
radiological hazards.

The main outcomes from PATRIOT 21 were that CBRN specialists need detectors with
high levels of endurance in extreme climates, and which are operable, often one handed,
by a user in full PPE. All these are attributes of the D3S ID.

In the post-exercise debrief, participants were heard praising Kromek’s D3S RIID’s speed,
accuracy, connectivity, and endurance. In one instance, a D3S ID which was idling in
‘snooze mode’ in an operator’s pocket correctly identified a radiological source before the
RIID and survey meter that were being tested.

PATRIOT 21 was held over three days from 15-17 June at the Volk Field Air National Guard
base in Camp Douglas, Wisconsin, USA

Annual Report & Accounts 202220

Emerging Technology and
Emerging Technology and
Future Concepts Showcase
Future Concepts Showcase

Today, nine nations have the capability to make a nuclear
weapon and the components for a nuclear weapon, or
a much simpler radiological dirty bomb, can be found
anywhere around the world. Even one terrorist detonation
would be catastrophic and could escalate the threat of
nuclear war to a level we have not seen since the Cold War.

Biological weapons are morbidly brilliant and if you have no
morals or scruples, you would use them all the time. Most
of our state and non-state adversaries appear to have no
morals or scruples.

When President Assad unleashed a massive nerve agent
attack in 2013 it stopped the rebels in their tracks and the
infamous Obama red line disappeared overnight, signalling
to every dictator, despot, rogue state, and terror group that
chemical and biological weapons were no longer the great
taboo.

If Covid-19 had been a terror event, it would have been the
most disruptive terror event in history. But has the pandemic
served as a massive ‘neon’ advert to ‘bad actors’ the world
over of the utility of biological attack?

The explosion in synthetic biology technology and the 3000+ bio secure labs around the world,
working on pathogens, create massive vulnerability in this area.

There is considerable evidence that both Russia and China have
had and may still have biological weapons programmes.

KROMEK GROUP PLC21

Biosecurity ‘as important as
conventional defence’

In a world of advancing threats, we strive to keep pace, we continue to
innovate, to adapt; bringing to market our highly sensitive and accurate
radiation and nuclear detection capabilities and developing ground-
breaking biological detection and monitoring technology.

Kromek hosted an ‘Emerging Technology and Future Concepts
Showcase’ at The Royal Academy of Engineering in late January.

With a specially invited guestlist of leading opinion formers and
specialists from government, the Home Office, Ministry of Defence, and
weapons establishments, the event extended the opportunity not only
to meet our technical experts and product specialists in person but to
also see the very latest in CBRN detection technology in action, thus
demonstrating the versatility of Kromek’s technologies, and the breadth
and depth of our expertise.

Funded by the US agency, DARPA, and the UK government, Kromek
has spent three years building the next generation of a pathogen
detection system that has the potential to help prevent another global
pandemic. It can form the bedrock of a Global Pathogen Alert System
(G-PAS) to prevent epidemics becoming pandemics, alongside National
PAS (N-PAS) to contain and react better to epidemics.

Kromek nuclear detection capabilities have the capacity to protect
entire cities from nuclear dirty bombs. Our radiation detection products
have been deployed against the threat of nuclear terrorism in over 40
countries. In Europe and the USA, they are also used to protect critical
infrastructure and major public events.

The Kromek Team (L to R): Lt.Col. (Rtd) Steven P Webber, Senior Technical Program Manager to the Nuclear Wargaming Team (RD/ NTA), Defense Threat Reduction
Agency (DTRA); Dr Arnab Basu, CEO Kromek; Col. (Rtd) Hamish de Bretton-Gordon OBE VR, Chemical Biological Radiological & Nuclear (CBRN), Expert Bio Security,
Fellow Magdalene College Cambridge; Sir Michael Fallon KCB, former Secretary of State for Defence (2014 to 2017); Craig Duff, CBRN Business Manager, Kromek;
Dr Alexandra Walmsley FRAeS, director of defence and security consultancy Ashbourne Strategic Consulting; and Jamie Marsay, Head of Biotechnology, Kromek.

Annual Report & Accounts 202222

Our Commitment
to Sustainability...

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i

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S

:
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A strategy to identify and reduce our environmental impact whenever and wherever we can and
bring the company to net zero no later than 2050

KROMEK GROUP PLC

Kromek is committed to reducing its environmental impact to the bare minimum,
and establishing sustainable practices, including the dramatic reduction in
carbon emissions.

Kromek has established a permanent Sustainability Team to create a concrete strategy
to bring the company to net zero and minimise its impacts wherever possible. In the
meantime, the company has made a commitment to reaching net zero no later than
2050, with plans being made to bring this date forward.

We are looking at our facilities, travel habits, supply chains and commercial partners
to identify and reduce our environmental impact wherever we can, by using the latest
technology, and by changing our practices. We are building a business, every part of
which practices are grounded in sustainability principles. We are always looking inside
and out for ways to be better, and we engage with our employees to do this.

In the near future, we hope to be able to update this space with information about on-
site electricity generation, the reduction or removal of gas-fired systems at our buildings
and much more.

We believe that creating a business which is not only financially sustainable but
environmentally sustainable is a necessity for the company and for society. We view
sustainability as a fundamental principle on which to build our future business.

• Energy Efficiency: we are greatly improving our energy efficiency in many areas
of our facilities, using renewable energy generation and/or third-party renewable

energy sourcing where available

• Responsible Sourcing: we remain committed to ensuring that sourcing throughout

our supply chain remains environmentally and socially responsible

• Climate Change: we continue to work towards reducing our greenhouse gas

emissions throughout our supply chain, including at our facilities, as part of our goal

of becoming carbon neutral

• Packaging / Plastics Elimination: we continue to seek the elimination of excessive
usage of primary, convenience and transportation packaging, as well as our use of

non-biodegradable forms of plastics

“We continue to be committed to the
highest standards of business conduct in
everything we do”

Annual Report & Accounts 202224
Strategic Report (Continued)
Review of Principal Risks

The Group takes a holistic approach to
risk management, first building a picture
of the principal risks at a divisional level
and then consolidating those principal
risks alongside Group risks into a Group
view. In addition, we continue to identify
and analyse emerging risks, which are
considered and approved at senior
management meetings before being
presented to the Audit Committee and
Board for consideration and approval.
The objective of this process is to ensure
that all key risks to the Group are known
and are being actively monitored, and
mitigating controls are put in place to
ensure risk falls within the risk appetite set
by the Board.

Our risk management methodology is
designed to identify the principal and
emerging risks that could:
•

adversely impact the safety or security
of the Group’s employees, customers
and assets
have a material impact on the financial
or operational performance of the
Group
impede achievement of the Group’s
strategic objectives and financial
targets
adversely impact the Group’s
reputation or stakeholder expectations

•

Risks are reviewed on a regular basis
by the Board and Audit Committee 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

Description

In 2022, the Group, in common with many
businesses, continued to face certain
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

Whilst the economic and operational
effects of COVID-19 on the Group are
receding compared to the last two years,
the Board and management continue to
monitor the current and potential impacts
of the pandemic on Group and divisional
performance. The health and safety of
our staff is of paramount importance and
we continue to operate with additional
hygiene measures in Kromek facilities and
encourage hybrid working where possible.
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 continues to invest in IP resources
and management systems and processes
to maximise our opportunities to succeed
in the competitive markets we serve.

KROMEK GROUP PLC25

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

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.

Annual Report & Accounts 2022procurement team during the year and
have transitioned our buying cycles to
accommodate the current longer lead
supply times. This has significantly helped
management, enabling greater visibility
over orders. In addition, we have widened
and strengthened our supplier base
through establishing an increased number
of strategic, rather than transactional,
relationships with key suppliers.

26
Strategic Report (Continued)

Review of Principal Risks (Continued)

Risks associated
with Brexit and other
macroeconomic
conditions

Risks associated
with global electronic
component shortages

Description

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 and the Russia-
Ukraine conflict. 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 constantly monitor the changing
environment, latest government guidelines
and industry best practice.

The global shortage of certain electronic
components, and in particular
semiconductors and micro-chips, as
outlined in the 2021 Annual Report,
continued and worsened into 2022,
and component prices have increased
significantly as a result of the excess
demand in the market. It is anticipated
that the situation will not improve until
2023, at the earliest.

The situation was 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 were 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. In
addition, the Russia-Ukraine conflict is
causing extra disruption to semiconductor
manufacturers by impacting the supply
of neon and hexafluorobutadiene
gases that are essential to manufacture
semiconductor chips as these are used in
the lithography processes for micro-chip
production.

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. We bolstered our

KROMEK GROUP PLC27

Risks associated with
economic conditions

Risks associated with
data security and
privacy, including
cyber-security

Risks associated with
human resources

Description

Employee costs represent the largest
component of the Group’s operating
costs. These costs include expenses
related to recruitment, retention and talent
development. The costs are impacted by
changes in employment markets, new
regulatory requirements and diversity
and inclusion programmes. A failure to
effectively recruit and retain a diverse and
talented workforce could have adverse
financial, reputational and operational
impacts. The employment market for
many disciplines, including engineers
and scientific staff, has become more
challenging since the pandemic. This has
increased our recruitment and retention
costs and may impact operations in future
periods. Our employee turnover has also
been impacted by current wider economic
circumstances, particularly rising inflation.

Mitigation

In order to increase retention and
decrease employee costs, the Group
has enhanced recruitment practices,
including leveraging multiple channels
including online recruitment for all roles.
To help prevent overall employee turnover,
we continue to focus on improving
communication with employees, defining
a new people strategy, investing in
employee development and diversity
and inclusion, and providing market
competitive salaries and benefits.

This risk relates to the Group’s exposure
to short-term macroeconomic conditions
and market cycles in the sectors in which
we operate such as inflation and periodic
market downturns. Some of the factors
driving such market changes are beyond
the Group’s control and are difficult to
forecast.

The Group’s success depends on
adapting to these economic fluctuations
which may negatively impact performance
through increased costs, changing
customer needs, reduced demand and/or
reduced opportunities for growth. Globally,
the economic outlook is less certain, and
in common with other businesses, the
Group has experienced significant cost
inflation driven by increased fuel costs
related in part to the Russia-Ukraine
conflict. All these market changes have
the potential to decrease the Group’s
available financial resources to invest
capital in innovative solutions that drive
demand.

Mitigation

The Group cannot control market
conditions but believes it has effective
measures in place to respond to changes.

Kromek continues to reinforce existing
measures in place, including:
•
the evolution of our business model;
• cost control, pricing and gross margin
management initiatives, including
a focus on customer service and
productivity improvement;
resource allocation processes; and

•
• capital expenditure controls and

procedures.

The Group continues to monitor for any
business disruption due to a resurgence
of COVID-19 and remains prepared
to implement appropriate mitigation
strategies.

This risk includes the risk of cyber-attack,
security of IT systems and resilience to
restore system availability. A cyber-attack
presents a risk to Kromek’s operations in
the following ways:
• Destructive compromise of Group-

wide networks resulting in a loss of all
services

• Confidentiality (leakage of customer

data)
Integrity (accuracy of Kromek’s data)

•
• Availability (loss of and access to data)

Cyber-attacks, computer malware,
viruses, spamming and phishing attacks
have become more prevalent and may
result in a breach of our systems. A
breach of our facilities and/or networks
could disrupt our operations and impair
our ability to protect data, and/or
compromise our confidential business
information. A failure to prevent, mitigate
or detect security breaches and/or
improper access to our business and/or
customer information and/or comply with
consumer privacy regulations could result
in disruption to our operations, significant
penalties and have an adverse impact on
confidence in the Group.

Mitigation

To protect our data and comply with
all data privacy regulations, the Group
has implemented IT infrastructure
controls across the company. The Group
administers a training programme to
new employees, communicating their
role in protecting and preventing the
unauthorised access to sensitive data,
and also provides refresher training to all
employees on an annual basis. Business
continuity plans continue to evolve and
are updated as the transition to greater
dependency on technology continues in
order to minimise the impact of cyber-
attacks and the potential threat to the
continuity of our operations.

Annual Report & Accounts 202228
Strategic Report (Continued)
Section 172 Statement

The Directors have acted in a way that they consider, in good
faith, would be most likely to promote the success of the
Company for the benefit of its members as a whole, in line with
Section 172 of the Companies Act 2006.

This section of the Strategic Report describes how the Directors
continue to have regard for:
•
•
•

the likely consequences of any decision in the long term;
the interests of the Company’s employees;
the need to foster the Company’s business relationships with
suppliers, customers and others;
the impact of the Company’s operations on the community
and the environment;
the desirability of the Company maintaining a reputation for
high standards of business conduct; and,
the need to act fairly as between members of the Company.

•

In discharging its Section 172 duties, the Board has considered
the factors set out above and the views of key stakeholders
as described below. The Board identifies the Group’s key
stakeholders as shareholders, employees, customers, suppliers
and community participants, and it is committed to effective
engagement with these stakeholders.

Shareholders

The 10 largest shareholders in the Group held, in aggregate,
approximately 63% of the Group’s shares at 30 April 2022.
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 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,
the CFO and the Group’s brokers. The Group communicates
with institutional shareholders 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 154 staff during 2022.
The management team interacts daily with all employees and
operates 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
dedicated Procurement and Legal functions that operate with the
Group’s commercial, project and production teams and those of
the Group’s key customers and suppliers.

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.

Responsible business

Over the course of 2022, the Board recognised and discussed
the increasing importance of Environmental, Social and
Governance (ESG) matters for a number of our stakeholders.
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 at all times in an
ethical and in an environmentally conscious manner.

Kromek is committed to being a responsible corporate member
of society and our priority both before, during, and as we come
out of 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

KROMEK GROUP PLC29

These aims are reflected in each of the following key areas for our
business:

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 Chief Executive Officer’s and Chief
Financial Officer’s Reviews.

Dr Arnab Basu MBE
Chief Executive Officer
1 August 2022

Annual Report & Accounts 202230

Directors’ Biographies

Mr Rakesh Sharma OBE, Chairman

Mr Sharma is a former FTSE 250 CEO with 30 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 also worked in commercial product development for Elmwood Sensors Ltd
(Honeywell Group, UK). A prominent figure within the business community, Dr Basu is Chair of
Academic Health Science Network for North East and North Cumbria, a Honorary Fellow of the
Institute of Physics, and an Export Champion for the Department of International Trade. 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 of 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 application specific elemental
analysis solutions for the petroleum and consumer products industries.

KROMEK GROUP PLC31

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 former Chairman of Metrasens Ltd in Malvern, UK
(a company in the healthcare and security fields) and is the Board Chair 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 and is also chairing a regional project looking to
radically improve University spinout and SME access to patient capital. He has served as interim
CEO or Executive Chairman of spinouts from Manchester and Cambridge Universities. Jerel 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.

Annual Report & Accounts 202232

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 2022.

Principal activities

Kromek Group plc is a leading developer of radiation detection
and bio-detection technology solutions for advanced imaging
and CBRN detection, based on cadmium zinc telluride (CZT)
and associated technologies. Headquartered in County Durham,
UK, Kromek has manufacturing operations in the UK and US,
delivering on the vision of enhancing the quality of life through
innovative detection technology solutions.

Advanced imaging comprises the medical (including CT and
SPECT), security and industrial markets. Kromek provides its
OEM customers with detector components, based on its CZT
platform, to enable better detection of diseases such as cancer
and Alzheimer’s, contamination in industrial manufacture and
explosives in aviation settings.

In CBRN detection, the Group provides nuclear radiation
detection solutions to the global homeland defence and security
market. Kromek’s compact, handheld, high-performance
radiation detectors, based on advanced scintillation technology,
are primarily used to protect critical infrastructure and urban
environments from the threat of ‘dirty bombs’. The Group is also
developing bio-security solutions in the CBRN detection division;
these consist of fully automated and autonomous systems to
detect a wide range of airborne pathogens.

The Group realises revenue primarily on the sale of radiation
equipment, development of radiation technology, and leading
research into different potential applications of its detection
technology.

Business and strategic review

The information that fulfils the requirements of the strategic report
and business review, including details of the results for the year
ended 30 April 2022, 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 Review, on pages 4 - 15.

Future developments

The Group’s development objectives for the year to 30 April 2022
are disclosed in the Strategic Report on pages 6 - 29.

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 2022.

Results and dividends

The consolidated income statement is set out on page 50.

The Group’s loss after taxation amounted to £4.9m (2021: £5.3m
loss after tax and exceptional items).

The Directors do not recommend the payment of a dividend for
the year ended 30 April 2022 (2021: £nil).

During the year ended 30 April 2022, the Group made political
donations of £nil (2021: £nil) and charitable donations of £nil
(2021: £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 P N Farquhar
Mr A Beumer
Mr L Kinet
Mr J H Whittingham
Mr C Wilks

The emoluments and interests of the Directors in the shares of
the Group are set out in the Remuneration Committee Report on
pages 39 to 41.

Details of significant events since the balance sheet date are
contained in note 16 to the parent company financial statements.

Directors’ indemnities

The Group has made qualifying third-party indemnity provisions
for the benefit of its Directors, which were made during the year
and remain in force at the date of this report.

Statement of Directors’ responsibilities in
respect of the annual report and the financial
statements

The Directors are responsible for preparing the annual report
and the Group and parent Company financial statements in
accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under the
AIM Rules of the London Stock Exchange, they are required
to prepare the Group financial statements in accordance with
UK-adopted International Financial Reporting Standards (“IFRS”),
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
consistently;

KROMEK GROUP PLC33

• make judgements and estimates that are

reasonable, relevant and reliable;

• state whether they have been prepared in
accordance with UK-adopted IFRS;

• assess the Group and parent Company’s ability

to continue as a going concern, disclosing, as
applicable, matters related to going concern; and
• use the going concern basis of accounting unless
they either intend to liquidate the Group or the
parent Company or to cease operations, or have
no realistic alternative but to do so.

The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the parent Company’s transactions and
disclose with reasonable accuracy at any time
the financial position of the parent Company and
enable them to ensure that its financial statements
comply with the Companies Act 2006. They
are responsible for such internal control as they
determine is necessary to enable the preparation
of financial statements that are free from material
misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of
the Group and to prevent and detect fraud and other
irregularities.

Under applicable law and regulations, the Directors
are also responsible for preparing a Strategic Report
and a Directors’ Report that complies with that law
and those regulations.

The Directors are responsible for the maintenance
and integrity of the corporate and financial information
included on the Company’s website. Legislation in the
UK governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.

Employees

Kromek develops and manufactures products and
systems that are designed to make the world a safer
place. The Board and senior management value
technological development in the Group’s sector
and actively support developments that lead to
better scanning and detection systems. To this end,
Kromek participates in technology transfer projects,
and works with many universities and other places
of learning worldwide. The Board, executive team
and staff are active across a wide range of industry
steering groups, organisations and other stakeholder
organisations. All staff are encouraged to meet and
participate in events and conferences that operate
in their area of expertise. The Group’s learning and
development policy encourages employees to further
their professional development. Operating a business
that is fair and equitable for all is vital to the Group’s
success. Kromek’s ethical values are outlined in its:

• Equal opportunity policy;
• Personal harassment policy;
• Family-friendly policy;
• Equality, inclusion and diversity policy; and
• Anti-bribery and corruption policy.

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 168 and the
percentage of this number that is female is 35%.

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 2022 and 30 June 2022 (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 2022

At 30 June 2021

Number
of shares

% of
voting
rights

Number
of shares

% of
voting
rights

Interactive Investor

50,184,970

11.62

50,007,806

11.58

Hargreaves Lansdown Asset
Management

Canaccord Genuity Wealth
Management

Halifax Share Dealing

Polymer Holdings

Herald Investment Management

AJ Bell Securities

Mr David Newlands & Mrs Monique
Newlands

49,066,373

11.36

50,568,960

11.71

38,637,500

8.95

38,637,500

8.95

27,691,392

21,940,142

19,080,059

15,833,357

6.41

5.08

4.42

3.67

28,046,170

21,940,142

19,080,059

16,105,691

6.49

5.08

4.42

3.73

15,520,000

3.59

14,370,000

3.33

Barclays Wealth

14,900,835

3.45

14,864,261

3.44

By order of the Board

Dr Arnab Basu MBE
Chief Executive Officer
1 August 2022

Annual Report & Accounts 202234

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 on pages 4 to 15 in the Strategic Report section 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, County Durham,

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 pages 28 - 29 of this Annual Report.

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 pages 28 - 29 of this Annual Report.

The Board has overall responsibility for risk management and is assisted by the Audit Committee in
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 4 - 27 of the Strategic Report within this Annual Report.

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 page 35 of this Annual Report.

•

•
•

•

• 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 30 - 31 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 Board review the preparation of the Group budget; review period results against budget, together with
commentary on significant variances and updates of both result and cash flow expectations for the period.

• Board authorisation of all major purchases and disposals and regular reporting of legal and accounting

developments to the Board.

•
•

•

The Group’s ethical values are outlined on page 33 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.

As noted in principle 1, the Board normally meets formally at least four times per year in person and four
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.

3. Take into account wider

stakeholder and social
responsibilities and their
implications for long-term
success

4. Embedded effective risk

management, considering
both opportunities and threats
throughout the organisation

5. Maintain the Board as a well-

functioning, balanced team led
by the Chairman

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

9. Maintain governance structures
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

This information is available on the Group’s website. Please visit www.kromek.com.

KROMEK GROUP PLC35

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.

Relations with stakeholders

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 28 to 29.

The Board

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 five times during the year ended 30 April 2022,
including one AGM. The following details the Board meetings
during 2021/22, and the attendees:

Date

18.07.21

14.10.21

09.12.21

03.03.22

Attendees

Rakesh Sharma
Arnab Basu
Paul Farquhar
Lawrence Kinet
Jerel Whittingham
Chris Wilks
Berry Beumer

Board effectiveness

The Board has set out, in the contract for Non-Executive
Directors, the time commitment required and asked for
confirmation that the Director can devote enough time to meet
the expectations of the Board.

The Board currently anticipates a minimum time commitment
of one day per month and further days if required for the
satisfactory fulfilment of Directors’ duties. This includes
attendance at 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.

Annual Report & Accounts 202236

Corporate Governance Report (Continued)

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. 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 2022:

Date

08.07.2021

09.12.2021

Attendees

Christopher Wilks
Rakesh Sharma
Lawrence Kinet
Jerel Whittingham
Arnab Basu*
Paul Farquhar*

* Attended by invitation

Remuneration Committee

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 39 to 41.

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.

Going concern

As at 30 April 2022, the Group had net current assets of £9.0m
(30 April 2021: £17.5m) and cash and cash equivalents of £5.1m
(30 April 2021: £15.6m) as set out in the consolidated statement
of financial position. The Group made a loss before tax of
£6,129k in the year (2021: £6,331k).

KROMEK GROUP PLC37

The Directors have prepared detailed forecasts of the Group’s
financial performance over the next twelve months from the
date of this report. Given the rapidly changing macroeconomic
landscape and the Group’s forecast financial performance for
the next twelve months, management also prepared a financial
forecast based on a sensitised and severe but plausible
scenario. It should be noted that in each scenario, the Board has
specifically excluded any significant upsides from these scenarios
or mitigating cost reductions.

The forecasts prepared by the Directors indicate that the Group
will breach its net debt:EBITDA bank covenant during the
forecast period. In response to these potential breaches, the
Board has negotiated with HSBC that the Group shall not be
required to ensure compliance with this leverage covenant up to
and including the January 2023 quarterly compliance review. As
this waiver is conditional at the date of signing this report, should
the condition not be met, it would result in the early repayment
of the outstanding bank debt. The conditional nature of the bank
waiver gives rise to an event which may cast significant doubt
over the Group’s ability to continue as a going concern. The
Directors are comfortable that the conditions will be met, and
acknowledge if they are not met, there is sufficient mitigation due
to the Group having various ongoing fundraising opportunities at
its disposal. The Directors consider it to be almost certain that
sufficient financial support could be raised from one or more of
these opportunities to repay the bank in the unlikely instance that
the condition of the bank waiver is not met.

In both the original and the severe but plausible scenario
forecasts, there is an assumption that additional financing will
be available to the Group. The requirement for future funding
results in conditions that may cast significant doubt over the
Group’s ability to continue as a going concern. The Board is
exploring a number of such opportunities that are available, and
has concluded that it is almost certain the required mitigating
financing will be secured. As a consequence, the Board is
confident that the Group will have 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, the Board continues to
adopt the going concern basis in preparing the Group financial
statements.

Annual Report & Accounts 202238

Audit Committee Report

On behalf of the Board, I am pleased to present the Audit
Committee report for the year ended 30 April 2022.

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 spacecraft, 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;
•
•
•
•
•
• meeting with the external auditor without management

review of the 2022 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

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 2022 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 both the 2022 and the 2021 years.

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 five years normalised loss before tax and exceptional
items. The materiality of the Group for the 2022 audit was £255k
(2021: £193k). 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 30 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
1 August 2022

KROMEK GROUP PLC39

Remuneration Committee Report (Unaudited)

As Kromek 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 is responsible for recommending
the remuneration and other terms of employment for the
Executive Directors of Kromek Group plc.

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
and life 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.

Share Options and Long-Term Incentive Plan (“LTIP”)

The Group believes that share ownership by Executive Directors
and employees strengthens the link between their personal
interests and those of the Group and the shareholders.

The Group has executive share ownership incentive schemes,
which are designed to promote long-term improvement in the
performance of the Group, sustained increase in shareholder
value and provide clear linkage between executive reward and
the Group’s performance. The LTIP scheme is based on total
shareholder return (“TSR”) relative to the FTSE AIM All-Share
Index, which is the peer group for the LTIP scheme. Any awards
made vest only after three years.

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

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.

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.

Directors’ emoluments (Audited)

Emoluments of the Directors for the year ended 30 April 2022 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 Basu1

Paul Farquhar2

Berry Beumer3

30 April 2022
£’000

30 April 2021
£’000

1 In 2022 Mr Basu opted to take part of his contractual pension
contribution entitlement as salary in lieu of contributions to the Company
pension scheme
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
Directors’ shareholdings

Beneficial interests of the Directors in the shares of the Group are
shown below:

30 April 2022

30 April 2021

Arnab Basu

Rakesh Sharma

Paul Farquhar1

Berry Beumer

Lawrence Kinet

Number

2,988,750

469,195

66,500

80,000

350,000

Jerel Whittingham

364,890

Christopher Wilks

177,941

1 Includes shares owned by family

0.7

0.1

0.0

0.1

0.0

Number

2,988,750

311,704

66,500

80,000

350,000

364,890

177,941

0.7

0.1

0.0

0.1

0.0

Annual Report & Accounts 202240

Remuneration Committee Report (Continued)

The table below forms part of the audited financial statements:

Non-executive Chairman

Rakesh Sharma1

Executive

Arnab Basu2

Paul Farquhar3

Berry Beumer4

Non-executive

Lawrence Kinet5

Jerel Whittingham5

Christopher Wilks5

Total

Salary
£’000

Benefits
£’000

Bonus
paid
£’000

Pension
contributions
£’000

Total
emoluments
2022
£’000

Total
emoluments
2021
£’000

264

166

219

852

270

180

236

890

231

518

1 Rakesh Sharma was appointed as a Director on 8 October 2020 and assumed the role of Chairman on 1 January 2021
2 The 2022 salary of Arnab Basu includes £13,500 of contractual pension entitlement which Mr Basu has opted to take as salary in lieu of contributions
to the Company pension scheme
3 Paul Farquhar was appointed as a Director on 31 October 2020. The 2022 salary of Paul Farquhar includes £6,000 of compensation taken as cash in
lieu of a Group car
4 Berry Beumer was appointed as a Director on 16 December 2020, having previously been a senior manager at Kromek
5 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

None of the executive or non-executive directors exercised any
share options in the year ended 30 April 2022 (2021: nil).
Executive Directors’ share incentive scheme
(LTIP)

Share incentive scheme for executive directors

The Remuneration Committee agreed, in April 2022, an incentive
award scheme for Arnab Basu, Paul Farquhar and Berry
Beumer, to offer them up to 833,333, 516,667 and 614,844
shares respectively, at a price of 1p per share, to vest based on
specified performance criteria.

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
1p per share, to vest based on specified performance criteria.

The share incentives noted above are measured by a Total
Shareholder Return (TSR) condition, calculated as the average
total return in comparison to a peer group.

As at 30 April 2022, the LTIP incentive option shares issued in
fiscal years 2021 and 2022, remained unvested.
Share price during the year

During the year to 30 April 2022, the highest share price was
21.00p (2021: 23.47p) and the lowest share price was 9.98p
(2021: 10.07p). The market price of the Group’s shares at 30
April 2022 was 10.25p (30 April 2021: 15.15p).
Directors’ interests in material contracts

No Director was materially interested either at the year-end or
during the year in any contract of significance to the Group other
than their employment or service contract.
Executive Directors’ share options

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.

KROMEK GROUP PLC41

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:

Exercise
price p

At 1 May 2021
number

Awarded
during the
year number

Cancelled
during the
year number

Exercised
during the
year number

At 30 April
2022
number

Expiry date

Director

Date of grant

Arnab Basu

20 Nov 2011

Arnab Basu

14 Dec 2020

Arnab Basu

29 April 2021

Arnab Basu

1 May 2021

20.0

12.0

1.0

1,000,000

1,250,000

110,000

400,000

Paul Farquhar

15 Oct 2020

12.0

1,000,000

Paul Farquhar

1 May 2021

Berry Beumer1

1 Jan 2016

Berry Beumer1

14 Dec 2020

Berry Beumer

29 April 2021

Berry Beumer

1 May 2021

1.0

27.0

12.0

1.0

150,000

180,000

1,250,000

150,000

1 Awarded to Mr Beumer prior to him being appointed as a Director

1,000,000

20 Nov 2024

1,250,000

14 Dec 2030

110,000

30 April 2023

400,000

1 May 2031

1,000,000

15 Oct 2030

150,000

1 May 2031

180,000

1 Jan 2026

1,250,000

14 Dec 2030

150,000

30 April 2023

150,000

1 May 2031

Jerel Whittingham
Remuneration Committee Chairman
1 August 2022

Annual Report & Accounts 202242

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KROMEK GROUP PLC43

Annual report and accounts
Annual report and accounts
for the year ended 30 April 2022
for the year ended 30 April 2022

FINANCIAL STATEMENTS
FINANCIAL STATEMENTS

Annual Report & Accounts 202244

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 2022 which comprise the Consolidated
Statement of Comprehensive Income, the Consolidated
and Parent Company Statement of Financial Position, the
Consolidated and Parent Company Statement 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 the preparation
of the financial statements is applicable law and UK-adopted
International Financial Reporting Standards (“IFRS”).

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 2022 and of the
Group’s loss for the year then ended;
have been properly prepared in accordance with UK adopted
international accounting standards;
have been prepared in accordance with the requirements of
the Companies Act 2006.

•

• Reviewing the director’s going concern assessment and
evaluating the key assumptions used and judgements
applied;

• Reviewing the liquidity headroom by applying a number of
sensitivities to the base forecast and plausible worst-case
forecast, prepared by management, to provide comfort
over there being sufficient cash to pay debts as they fall due
throughout the going concern period;

• Reviewing and recalculating banking covenant requirements

during the year and for the period of the forecasts;

• Reviewing correspondence between the bank and the Group

in relation to covenant breaches;

• Obtaining, and reviewing correspondence and other

supporting documentation, between the Group and potential
sources of equity and debt finance, which are required in the
short to medium term, to ensure that the Group is able to
meet its liabilities as and when they fall due;

• Where possible, obtaining confirmation directly from potential
sources of finance to support the director’s going concern
assessment;

• Reviewing the appropriateness of disclosures in the financial

Basis for opinion

statements.

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 Company’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’s and Parent Company’s ability to
continue as a going concern;

• Evaluating the methodology used by the directors to assess
the Group’s and Parent Company’s ability to continue as a
going concern;

The directors have prepared a detailed cashflow forecast
including a plausible worst-case scenario. The plausible worst-
case scenario indicates a requirement for funding to ensure the
Group can continue operating as a going concern throughout the
forecast period. This indicates there are conditions that may cast
significant doubt on the Group’s ability to continue as a going
concern. The directors are comfortable that the level of support
required to ensure the Group can pay its debts as they fall due
within the going concern period, will be met by one, or a number
of financing options available to the Group as at the date of
signing this report.

The forecasts prepared by the directors indicate that the Group
will breach its net debt:EBITDA bank covenant during the
forecast period. The Group has received confirmation from the
bank that the Group will not be required to ensure compliance
with this leverage covenant up to and including the January 2023
quarterly compliance review. The waiver that has been obtained
is conditional at the date of signing this report. The conditionality
of this waiver is an event that casts significant doubt over the
ability of the Group to remain a going concern. Should the
condition not be met, it would result in the early repayment of
the outstanding bank debt. The directors are confident that
conditions will be met and are comfortable that if they are not
met, there are sufficient mitigations in place, due to the Group
having various ongoing fundraising opportunities at its disposal.
The directors consider it to be almost certain that sufficient
financial support could be raised from one or more of these
opportunities to repay the bank in the unlikely instance that the
condition of the bank waiver is not met.

KROMEK GROUP PLC45

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
Group’s or Parent Company’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.

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.

Materiality for the Group financial statements was set at
£255,000. This was determined with reference to 6% 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 £192,000.

The reporting threshold to the Audit and Risk Committee was set
as 5% of materiality, being £12,750. If in our opinion differences
below this level warranted reporting on qualitative grounds, these
would also be reported.

Materiality for the Parent Company financial statements was
set at £192,000. This was determined with reference to gross
assets, based on the company being a holding entity with no
trading activity outside of the group, and was capped at 0.23%
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 £144,000.

The reporting threshold to the Audit and Risk Committee was set
as 5% of materiality, being £9,600. 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. For the
three companies that are resident in the UK, we have performed
full scope statutory audits.

For the entities registered in the USA, we have performed audit
procedures on each entity to varying degrees of detail, with
the work performed on the most significant component, eV
Products Inc. being equivalent to that of a full scope statutory
audit, performed to component materiality. For Nova R&D Inc.,
which is considered to be material but not significant, we have
performed analytical procedures for areas considered to be low
risk, and substantive audit testing for those material balances
which are considered to be high risk. For Kromek Inc., which is
considered to be relevant but not material or significant, we have
performed analytical procedures and enquiries of management,
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 is considered to be appropriate to all components
of the Group as materiality is based on a trading measure.

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.

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.

In addition to the matter described in the Conclusion related
to going concern section, we have determined the matters
described below to be the key audit matters to be communicated
in our report.

Annual Report & Accounts 202246
Independent Auditor’s Report (Continued)

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 £12.06m (2021: £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
2 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 assessed by management to be
recognised at a point in time, we reviewed and challenged
management’s assessment to ensure revenue was recorded in
line with the stipulations of IFRS 15, and was recognised using
the input method with reference to milestones detailed in the
contract.

For all contracts which were assessed by management to
be recognised over time, we reviewed and challenged the
input being method used to ensure the contracts were being
recognised 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 supporting documentation, 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.

Where product sales around the year end were recognised in
accordance with Incoterms 2020, we ensured that the relevant
Incoterms applied to each sale were appropriately considered
when considering the point in time at which revenue was
recognised.

KROMEK GROUP PLC47

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 £26.5m (2021: £22.1m).

The estimated recoverable amount of capitalised developments
costs is highly material on a Group level. There is a risk that this
balance is 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:

- Challenging the CGUs on which forecasts were based;
- Agreeing future revenues included in the forecast to

committed contracts;

- Agreeing pipeline sales to supporting documentation to

support the inclusion of non-committed revenue;

- Assessing the appropriateness of the discount factor used

in the preparation of the forecasts;

- Comparing actuals and historical forecasts, when

assessing the reasonableness forecasts used to support
the year end balances;

- Assessing the sensitivity analysis presented by

management to detail the headroom for each category of
intangible asset;

- Performing our own sensitivity analysis to assess the level
of headroom regarding the capitalised intangible assets;

- Reviewing 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;

- Reviewing the sensitivity analysis disclosure in the

financial statements in line with the forecasts provided by
management as part of their impairment review.

In line with the stipulations of IAS 38 intangible assets, we
obtained and assessed, management’s inclusion of capitalised
development cost additions to ensure that these met the
definition criteria of development costs.

Annual Report & Accounts 2022
48
Independent Auditor’s Report (Continued)

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 £5.7m (2021: £5.5m)
and intercompany receivables of £71.7m (2021: £64.7m).

Given the Group, and each of the subsidiaries to which the
balances relate are 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 and receivable balances relate.

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 to which
these balances relate. 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;

- Assessing the appropriateness of the discount factor used

in the preparation of the forecasts;

- Comparing actuals and historical forecasts, when

assessing the reasonableness forecasts used to support
the year end balances;

- Assessing the sensitivity analysis presented by

management detailing the headroom for each subsidiary;
- Considering external impairment indicators as part of our
review of the impairment assessment performed by the
Directors;

- Performing our own sensitivity analysis to assess the level
of headroom regarding the balance of investments and
intercompany receivables.

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
the Parent Company financial statements are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law
are not made; or

•

• we have not received all the information and explanations we

require for our audit.

Responsibilities of directors

As explained more fully in the directors’ responsibilities statement
set out on page 32 and 33, 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

KROMEK GROUP PLC49

compliance with a law or regulation is removed from the events
and transactions reflected in the financial statements, as we will
be less likely to become aware of instances of non-compliance.
The risk is also greater regarding irregularities occurring due to
fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission or misrepresentation.

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
1 August 2022

10 Queen Street Place
London
EC4R 1AG

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 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
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.
− Inspecting correspondence with regulators and tax

authorities;

− Discussions with management regarding the relevant laws

and regulations that apply to the Group and its subsidiaries;

− 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 breaches of AIM
rules, 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 particularly
relating to assumptions made in preparing value in use
calculations for impairment assessments.

Because of the inherent limitations of an audit, there is a risk
that we will not detect all irregularities, including those leading
to a material misstatement in the financial statements or non-
compliance with regulation. This risk increases the more that

Annual Report & Accounts 202250
Consolidated income statement

For the year ended 30 April 2022

Continuing operations

Revenue

Cost of sales

Gross profit

Other operating income

Distribution costs

Administrative expenses

Note

2022
£’000

12,055

(6,419)

5,636

1,410

(551)

2021
£’000

10,352

(5,346)

5,006

379

(287)

(12,208)

(10,935)

Operating loss (before exceptional items)

(5,713)

(5,837)

Exceptional impairment reversal on trade receivables
and amounts recoverable on contracts

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)

The notes form part of these financial statements.

132

(5,581)

(5,785)

(582)

(548)

(6,129)

(6,331)

1,211

978

(4,918)

(5,353)

(5,050)

(5,405)

(1.1)

(1.5)

KROMEK GROUP PLC51
Consolidated statement of comprehensive income

Loss for the year

Items that are or may be subsequently reclassified to profit or loss:

For the year ended 30 April 2022

2022
£’000

2021
£’000

(4,918)

(5,353)

Exchange differences on translation of foreign operations

2,063

(1,981)

Total comprehensive loss for the year

(2,855)

(7,334)

The notes form part of these financial statements.

Annual Report & Accounts 202252
Consolidated statement of financial position

As at 30 April 2022

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

2022
£’000

1,275

28,375

10,944

3,874

44,468

10,503

6,429

942

5,081

22,955

67,423

(7,855)

(5,716)

(375)

(13,946)

9,009

(1,131)

(4,161)

(749)

(6,041)

(19,987)

47,436

4,319

72,943

21,853

2,063

(53,742)

47,436

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

The notes form part of these financial statements.

The financial statements of Kromek Group plc (registered number 08661469) were approved by the Board of Directors and authorised
for issue on 1 August 2022. They were signed on its behalf by:

Dr Arnab Basu MBE
Chief Executive Officer

KROMEK GROUP PLC53
Consolidated statement of changes in equity

For the year ended 30 April 2022

Share capital
£’000

Share
premium
account
£’000

Merger
reserve
£’000

Translation
reserve
£’000

Retained
losses
£’000

Total
equity
£’000

Balance at 1 May 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

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

(5,353)

(1,981)

(5,353)

(7,334)

873

11,343

106

(49,060)

50,055

(4,918)

2,063

(4,918)

(2,855)

236

Balance at 30 April 2022

4,319

72,943

21,853

2,063

(53,742)

47,436

The notes form part of these financial statements.

Annual Report & Accounts 202254
Consolidated statement of cash flows

For the year ended 30 April 2022

Net cash used in operating activities

Investing activities

Interest received

Purchases of property, plant and equipment

Purchases of patents and trademarks

Capitalisation of development costs

Net cash used in investing activities

Financing activities

Net proceeds on issue of shares

New borrowings

Payment of borrowings

Payment of lease liability

Interest paid

Note

2022
£’000

2021
£’000

(3,530)

(1,309)

(651)

(179)

(5,619)

(6,415)

760

(1,340)

(646)

(340)

(454)

(156)

(5,463)

(6,071)

12,216

3,215

(595)

(395)

(309)

Net cash generated from/(used in) financing activities

(1,566)

14,132

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

The notes form part of these financial statements.

(11,511)

15,602

990

5,081

6,752

9,444

(594)

15,602

KROMEK GROUP PLC55
Notes to the consolidated financial statements

For the year ended 30 April 2022

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 prepares its consolidated financial statements in accordance with UK-adopted IFRS.

The Board is currently evaluating the impact of the adoption of all other standards, amendments and interpretations but does not expect
them to have a material impact on the Group’s operation or results.

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
As at 30 April 2022, the Group had net current assets of £9.0m (30 April 2021: £17.5m) and cash and cash equivalents of £5.1m (30
April 2021: £15.6m) as set out in the consolidated statement of financial position. The Group made a loss before tax of £6,129k in the
year (2021: £6,331k).

The Directors have prepared detailed forecasts of the Group’s financial performance over the next twelve months from the date of this
report. Given the rapidly changing macroeconomic landscape and the Group’s forecast financial performance for the next twelve months,
management also prepared a financial forecast based on a sensitised and severe but plausible scenario. It should be noted that in each
scenario, the Board has specifically excluded any significant upsides from these scenarios or mitigating cost reductions.

The forecasts prepared by the Directors indicate that the Group will breach its net debt:EBITDA bank covenant during the forecast period.
In response to these potential breaches, the Board has negotiated with HSBC that the Group shall not be required to ensure compliance
with this leverage covenant up to and including the January 2023 quarterly compliance review. As this waiver is conditional at the date of
signing this report, should the condition not be met, it would result in the early repayment of the outstanding bank debt. The conditional
nature of the bank waiver gives rise to an event which may cast significant doubt over the Group’s ability to continue as a going concern.
The Directors are comfortable that the conditions will be met, and acknowledge if they are not met, there is sufficient mitigation due to
the Group having various ongoing fundraising opportunities at its disposal. The Directors consider it to be almost certain that sufficient
financial support could be raised from one or more of these opportunities to repay the bank in the unlikely instance that the condition of
the bank waiver is not met.

In both the original and the severe but plausible scenario forecasts, there is an assumption that additional financing will be available to
the Group. The requirement for future funding results in conditions that may cast significant doubt over the Group’s ability to continue as
a going concern. The Board is exploring a number of such opportunities that are available, and has concluded that it is almost certain
the required mitigating financing will be secured. As a consequence, the Board is confident that the Group will have 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, the Board continues to adopt the going concern basis in preparing the Group financial statements.

Business combinations
The Group financial statements consolidate those of the Company and its subsidiary undertakings. Subsidiaries are entities controlled by
the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so
as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken
into account. The financial information of subsidiaries is included from the date that control commences until the date that control ceases.
Intra-Group balances and transactions, and any unrealised income and expenses arising from intra-Group transactions, are eliminated in
preparing the consolidated financial information.

Acquisitions on or after 1 May 2010
For acquisitions on or after 1 May 2010, the Group measures goodwill at the acquisition date as:

•
•
•
•

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.

Annual Report & Accounts 202256
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Acquisitions on or after 1 May 2010 (continued)
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.

Goodwill
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill
is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the identifiable
assets acquired and the liabilities assumed.

If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration
transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in
the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated
to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to
which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may
be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the
basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Contracts with customers
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 FCA Delivery Location (Incoterms 2020), unless otherwise stated.

The Group’s contracts that satisfy the over-time criteria are typically product development contracts where the customer simultaneously

KROMEK GROUP PLC57

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue and profit recognition (continued)
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
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.

Sale of 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. The Group continued to adopt 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 required 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.

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.

Annual Report & Accounts 202258
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Leases (continued)
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 and leased cars. 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 average exchange rate for the month to which the transaction relates. 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 £19k (2021: £379k).

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, such as impairment reversals, 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.

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 UK 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.

KROMEK GROUP PLC59

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Taxation (continued)
i) Current tax

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.

ii) Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the Consolidated Statement of Financial Position and the corresponding tax bases used in the computation of taxable profit
and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised
for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised
if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and
interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that
the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is
realised, based on tax laws and rates that have been enacted or substantively enacted at the 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.

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;

An internally-generated intangible asset arising from the Group’s product development is recognised only if all of the following conditions
are met:
•
•
•
• 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.

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.

Annual Report & Accounts 2022

60
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 11.35% (2021: 9.47%) 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. The Group continue to adopt 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 six
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

Classification

(a)
On initial recognition, a financial asset is classified as measured at: amortised cost; Fair Value through Other Comprehensive
Income (FVOCI) – debt investment; FVOCI – equity investment; or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for
managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period
following the change in the business model.

A financial asset is measured at amortised cost if it meets both of the following conditions:
•
•

It is held within a business model whose objective is to hold assets to collect contractual cash flows; and
Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding.

KROMEK GROUP PLC61

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Financial instruments (continued)

(a) Classification (continued)
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.

(iii)

Impairment

The Group recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost, debt
investments measured at FVOCI and contract assets (as defined in IFRS 15).

The Group measures loss allowances at an amount equal to lifetime ECL, except for other debt securities and bank balances for
which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly
since initial recognition, which are measured as twelve-month ECL.

Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECL. When
determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating
ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This
includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed
credit assessment and including forward-looking information.

The Group assumes that the credit risk on a financial asset may have increased if it is more than 120 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

• 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.

Annual Report & Accounts 202262
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Intra-Group financial instruments (continued)

Impairment (continued)

(iii)
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
Credit losses are measured and assessed on an individual balance by balance basis. In calculating, the Group uses its historical
experience, external indicators and forward-looking information to calculate the expected credit losses. The general approach
incorporates a review for any significant increase in counterparty credit risk since inception.

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. If there is recovery of the financial asset, a reversal will be recognised in the profit and loss.

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.

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.
Management disaggregate revenues by sales of goods and services, revenue from development grants (such as Innovate UK) and

KROMEK GROUP PLC63

CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)

Performance obligations arising from customer contracts (continued)
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 advisers 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 £47k to £895k.

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 £44,468k 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.

vi) Calculation of share-based payment charges
The charge related to equity-settled transactions with employees is measured by reference to the fair value of the equity instruments
at the date they are granted, using an appropriate valuation model selected according to the terms and conditions of the grant.
Judgement is applied in determining the most appropriate valuation model and estimates are used in determining the inputs to
the model. Third-party experts are engaged to advise in this area where necessary and management believe an external valuation
should be carried out at least every two - three years.

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

Annual Report & Accounts 202264
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

OPERATING SEGMENTS (CONTINUED)

Products and services from which reportable segments derive their revenues (continued)
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
or 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

2022
£’000

2,033

5,807

1,556

2,601

2021
£’000

1,627

5,693

610

2,387

12,055

10,352

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.

KROMEK GROUP PLC4.

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 2022

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 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 assets

Amortisation

Share-based payment charge

Reversal of exceptional items

Adjusted EBITDA

Other segment information

Property, plant and equipment additions

Right-of-use assets

Depreciation of PPE and right-of-use assets

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

9,036

646

1,227

10,909

(5,564)

5,345

(3,732)

(348)

(4,046)

1,228

(2,818)

314

(1,228)

1,010

1,548

236

(938)

124

2,048

1,010

(44)

4,199

1,548

39,494

(13,376)

9,013

245

9,258

(2,548)

6,710

(1,981)

(234)

132

(2,083)

(17)

(2,100)

234

741

1,021

(132)

(219)

527

3,458

741

1,599

1,021

27,929

(6,611)

18,049

646

1,472

20,167

(8,112)

12,055

(5,713)

(582)

132

(6,129)

1,211

(4,918)

548

(1,211)

1,751

2,569

236

(132)

(1,157)

651

5,506

1,751

(44)

5,798

2,569

67,423

(19,987)

Annual Report & Accounts 202266
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

OPERATING SEGMENTS (CONTINUED)

Analysis by geographical area (continued)

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 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 assets

Amortisation

Share-based payment charge

Exceptional items

Adjusted EBITDA

Other segment information

Property, plant and equipment additions

Right-of-use assets

Depreciation of PPE and right-of-use assets

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)

(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)

(4,415)

(11)

(4,426)

224

688

989

(52)

10,741

474

4,240

15,455

(5,103)

10,352

(5,837)

(548)

(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)

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.

KROMEK GROUP PLC4.

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

2022
£’000

9,935

2,120

12,055

10,352

Information about major customers
Included in revenues arising from US operations are revenues of approximately £2,178k (2021: £1,934k) that arose from the Group’s
largest commercial customer. Included in revenues arising from UK operations are revenues of approximately £955k (2021: £2,784k) that
arose from a major Governmental organisation customer.

OTHER OPERATING INCOME

During the financial year, other operating income comprised the forgiveness of PPP loans granted by the US Government and grants
received from the Coronavirus Job Retention Scheme provided by the UK Government in response to COVID-19’s economic impact on
businesses.

Coronavirus Job Retention Scheme

Miscellaneous

PPP loan forgiveness

Other government grants

Total other operating income

LOSS BEFORE TAX FOR THE YEAR

Loss before tax for the year has been arrived at after charging/(crediting):

Net foreign exchange losses

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)

Staff costs (see note 8)

2022
£’000

1,374

1,410

2022
£’000

155

1,308

1,751

(44)

2,569

3,003

(132)

9,543

2021
£’000

129

250

379

2021
£’000

1,116

1,685

(44)

2,359

3,899

(52)

8,806

Annual Report & Accounts 202268
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

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

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

2022
£’000

120

2021
£’000

2022
Number

2021
Number

133

154

2022
£’000

8,069

739

499

236

9,543

118

139

2021
£’000

7,618

682

400

106

8,806

The total Directors’ emoluments (including non-executive directors) was £890k (2021: £640k). The aggregate value of contributions
paid to money purchase pension schemes was £24k (2021: £28k) in respect of four directors (2021: four directors). For a breakdown
of remuneration by director, refer to the Directors’ emoluments table on page 40. There has been no exercise of share options by the
Directors in the period and therefore no gain recognised in the year (2021: nil).

The highest paid director received emoluments of £270k (2021: £231k) and amounts paid to money purchase pension schemes was
£4k (2021: £15k).

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.

2022
£’000

1,050

112

146

1,340

2021
£’000

888

125

106

1,148

KROMEK GROUP PLC9.

EXCEPTIONAL ITEMS

Exceptional items, booked to operating costs, comprised the following:

Reversal of trade receivables and AROC

Total exceptional items

2022
£’000

(132)

2021
£’000

(52)

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 £132k in 2022 (2021: £52k) in relation to items impaired in a prior year. The impairment (recognised in FY2020)
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. A charge of £13,062k
was presented in FY2020 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 and 2022 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

11.

FINANCE COSTS

Interest on bank overdrafts, loans and borrowings

Interest expense for lease arrangements

Total interest expense

2022
£’000

340

242

582

2021
£’000

309

239

548

Annual Report & Accounts 202270
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

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

2022
£’000

942

286

(17)

1,211

2021
£’000

1,014

(25)

(11)

978

Total tax credit in income statement

1,211

978

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 2022 has been calculated at 19% (2021: 19%). The corporate tax rate will 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% (2021: 19%)

Non-taxable income/expenses not deductible

Effect of R&D

Effect of other tax rates/credits

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

2022
£’000

(6,129)

1,165

(184)

456

124

(815)

286

179

1,211

2021
£’000

(6,331)

1,203

614

451

(1,648)

(26)

379

978

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.

The rate of corporation tax for the year is 19% (2021: 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
27.59%, which represents the federal plus state tax rate.

13.

DIVIDENDS

The Directors do not recommend the payment of a dividend (2020: £nil).

KROMEK GROUP PLC71

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

2022
£’000

(4,918)

2022
Number

2021
£’000

(5,353)

2021
Number

Weighted average number of ordinary shares for the purposes of basic losses per share

431,851,820

358,912,092

Effect of dilutive potential ordinary shares:

Share options

350,556

372,638

Weighted average number of ordinary shares for the purposes of diluted losses per share

432,202,376

359,284,730

Basic (p)

2022

(1.1)

2021

(1.5)

Basic earnings per share is calculated by dividing the loss attributable to shareholders by the weighted average number of ordinary
shares in issue during the year. IAS 33 requires presentation of diluted EPS when a company could be called upon to issue shares that
would decrease earnings per share or increase the loss per share. For a loss-making company with outstanding share options, net loss
per share would be decreased by the exercise of options. Therefore, the anti-dilutive potential ordinary shares are disregarded in the
calculation of diluted EPS.

15.

INTANGIBLE ASSETS INCLUDING GOODWILL

Cost

At 1 May 2021 and 30 April 2022

Accumulated impairment losses

At 1 May 2021 and 30 April 2022

Carrying amount

At 1 May 2021 and 30 April 2022

£’000

1,275

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit
from that business combination. Before recognition of impairment losses, the carrying amount of goodwill had been allocated as follows:

CGU

Total

Goodwill
£’000

1,275

Intangibles
£’000

10,862

17,513

28,375

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.

Annual Report & Accounts 202272
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

15.

INTANGIBLE ASSETS INCLUDING GOODWILL (CONTINUED)

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 (UK) and 15 years (US) 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 and the
cash flows are based on the useful economic life of the ‘know how’, which is considered to be the essential asset.

The key assumptions to the value in use calculations are set out below:

- Growth rate. The 2022 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 11.35% (2021: 9.47%) 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 higher than that used in 2021. 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 whilst taking into consideration

potential capacity constraints.

The key assumptions to the value in use calculations are set out below:

- Growth rate. The model does not include any growth in years 1 and 2 (see below for comparatives), with a 5% growth rate
from year 3 onwards. 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 10.50% (2021: 9.13%) 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. The discount rate is higher than that used in 2021. 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.

KROMEK GROUP PLC73

15.

INTANGIBLE ASSETS INCLUDING GOODWILL (CONTINUED)

Sensitivities
The headrooms in the base case models are £30,209k (US CGU) and £34,729k (UK CGU). The table below sets out the impact of the
following reasonable changes in assumption on the headroom of each CGU:

Challenge base model

Combination of Discount Rate +2% and Challenge model

Combination of Discount Rate -2% and Challenge model

US Headroom

UK Headroom

£119,554k

£112,343k

£85,450k

£171,904

£70,641k

£179,612

The Directors have reviewed the recoverable amount of the CGU and do not consider there to be any impairment in 2022 or 2021.

16. OTHER INTANGIBLE ASSETS

Cost

At 1 May 2021

Additions

Exchange differences

At 30 April 2022

Amortisation

At 1 May 2021

Charge for the year

Exchange differences

At 30 April 2022

Carrying amount

At 30 April 2022

At 30 April 2021

Development
costs
£’000

Patents,
trademarks &
other intangibles
£’000

29,055

5,619

1,206

35,880

6,944

2,056

296

9,296

26,584

22,111

7,344

179

390

7,913

5,311

513

298

6,122

1,791

2,033

Total
£’000

36,399

5,798

1,596

43,793

12,255

2,569

594

15,418

28,375

24,144

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. Any impairment of development costs are recognised immediately through the profit
and loss.

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 30 April
2022 was £357k (2021: £488k), 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.

Annual Report & Accounts 202274
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

17.

PROPERTY, PLANT AND EQUIPMENT

Cost or valuation

At 1 May 2021

Additions

Exchange differences

At 30 April 2022

Accumulated depreciation and impairment

At 1 May 2021

Charge for the year

Exchange differences

At 30 April 2022

Carrying amount

At 30 April 2022

At 30 April 2021

Lab
Equipment
£’000

Computer
Equipment
£’000

Plant and
Machinery
£’000

Fixtures and
Fittings
£’000

209

210

135

176

1,335

17,418

527

676

1,463

18,621

1,032

118

6,956

1,078

324

1,189

8,358

274

303

10,263

10,462

542

619

283

347

272

259

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 2021

Effect of movements in exchange rates

Cost at 30 April 2022

Depreciation

Depreciation at 1 May 2021

Charge for the year

Exchange differences

Depreciation at 30 April 2022

Carrying amount

At 30 April 2022

At 30 April 2021

19.

SUBSIDIARIES

Total
£’000

19,504

651

758

20,913

8,304

1,288

377

9,969

10,944

11,200

£’000

5,179

327

5,506

1,103

463

1,632

3,874

4,076

A list of the subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note 3 to the
Company’s separate financial statements.

KROMEK GROUP PLC20.

INVENTORIES

Raw materials

Work-in-progress

Finished goods

2021
£’000

2,022

3,707

473

6,202

2022
£’000

3,554

6,304

645

10,503

The cost of inventories recognised as an expense during the year in respect of continuing operations was £5,006k (2021: £3,899k).

The write-down of inventories to net realisable value amounted to £852k (2021: £496k). The reversal of write-downs amounted to £94k
(2021: £120k).

21.

AMOUNTS RECOVERABLE ON CONTRACTS AND TRADE AND OTHER RECEIVABLES

Trade and Other Receivables

Amount receivable for the sale of goods

Amounts recoverable on contracts

Other receivables

Prepayments and accrued income

Current tax assets

2022
£’000

4,860

542

1,027

942

7,371

2021
£’000

4,979

958

707

1,015

7,659

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 79 days. The Group reviews the recoverability of receivables over 120 days every
six months and on an individual balance by balance 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 and finance will then determine if the
Group should recognise an impairment allowance. When considering the impairment allowance, strategic and commercial relationships
are taken into account.

Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer’s credit quality
and defines credit limits by customer.

The Group does not hold any collateral or other credit enhancements over any of its trade receivables, with the exception of stock
recovered from customers in respect of the doubtful debts disclosed below.

Ageing of past due but not credit impaired receivables at the statement of financial position date was:

31-60 days

61-90 days

91-120 days

121+ days

Total

2022
£’000

109

1,346

1,458

2021
£’000

410

1,977

2,399

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.

Annual Report & Accounts 202276
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

Ageing of impaired receivables at the statement of financial position date was:

31-60 days

61-90 days

91-120 days

121+ days

Total

2022
£’000

1,460

2021
£’000

1,158

At 30 April 2022, trade receivables are shown net of an impairment allowance of £1,460k (2021: £1,158k) arising from the ordinary course
of business, as follows:

Balance at 1 May

Provided during the year

Release during the year

Impact of foreign exchange

Balance at 30 April

2022
£’000

1,158

321

(139)

120

1,460

2021
£’000

1,323

(181)

1,158

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.

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 2021

(Credit)/charge to profit or loss

At 30 April 2022

Fair value
revaluation of
acquired
intangibles
£’000

Accelerated
capital
allowances
£’000

Short-term
timing
differences
£’000

Tax
losses
£’000

389

5,177

1,629

6,806

(648)

(4,918)

(1,629)

(648)

(6,547)

Total
£’000

Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the
deferred tax balances (after offset) for financial reporting purposes:

Deferred tax liabilities

Deferred tax assets

2022
£’000

6,547

(6,547)

2021
£’000

4,918

(4,918)

At the statement of financial position date, the Group has unused tax losses of £49,862k (2021: £32,435k) available for offset against
future profits. A deferred tax asset has been recognised in respect of £6,547k (2021: £4,918k) 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 £43,315k (2021: £27,517k) 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.

KROMEK GROUP PLC23.

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

2022
£’000

7,524

331

7,855

2022
£’000

1,131

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 55 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.

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

2022
£’000

4,655

242

(646)

285

4,536

375

4,161

4,536

2021
£’000

4,168

194

756

239

(395)

(307)

4,655

399

4,256

4,655

Rental charges associated with other low value leased assets that fall within the expedient threshold have been expensed to the profit
and loss accounts £46k (2021: £42k).

Annual Report & Accounts 202278
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

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

2022
£’000

4,500

1,965

6,465

5,716

749

2021
£’000

4,900

3,303

8,203

5,387

2,816

The Group has a £5.0m revolving credit facility (RCF) with HSBC, which also incorporates a capex facility. This facility was for an initial
36-month period with an option to extend to years 4 and 5. The Group opted to extend the facility to year 4 being the year to March
2023, which was agreed by the Bank. 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. The facility is secured by a debenture and a
composite guarantee across the Group. The interest rate on the RCF is Bank of England Base Rate +2.5% with a repayment term of six
months from date of drawdown. The fair value equates to the carrying value.

The RCF and capex facility from HSBC have certain covenants attached (see page 85 for a definition of the covenants and the measurement
and testing requirements). The Group has been in compliance with all of the Bank’s covenant requirements during the year other than the
compliance period 30 April 2022, when the Group breached its leverage covenant. This breach was subsequently waived by HSBC and
the Board has negotiated with HSBC that the Group shall not be required to ensure compliance with this leverage covenant up to and
including the January 2023 quarterly compliance review. This waiver is conditional at the date of signing this report, however, the Board
are confident that the Group will be able to satisfy the condition.

In the prior year, the Group successfully secured a 2-year, £1.4m Term Loan with HSBC which attracts interest at 3.49% per annum over
Bank of England Base Rate. This loan is repayable in August 2022.

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 2022, the total loan due to the landlord was
£0.4m (2021: £0.5m). Of this, £0.2m is due within 12 months (2021: £0.2m) and £0.2m (2021: £0.3m) is due after 12 months.

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. A further loan of £0.4m was approved and secured in August 2021. This loan attracts interest at a rate of 3.75% per annum
and the maturity date is 30 years from the date of the loan note.

Due to the disruption to the Group’s business caused by COVID-19, in 2021 the Group’s US operations successfully secured £1.4m of
Paycheck Protection Program Loans offered to businesses in the US. During the year, the Group applied for full forgiveness of these loans
and was successful in its application. This loan forgiveness has been recorded as other operating income (note 5).

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 2022 and 30 April 2021.

2022
%

2.80

6.60

2021
%

3.00

6.70

KROMEK GROUP PLC27.

SHARE CAPITAL

Allotted, called up and fully paid:

Balance at 1 May 2022: 431,851,820 (2021: 344,647,089) Ordinary shares of £0.01 each

Issued in the Year: nil (2021: 87,204,731) Ordinary shares of £0.01 each

Balance at 30 April 2022: 431,851,820 (2021: 431,851,820) Ordinary shares of £0.01 each

During the year, no shares (2021: 250,000) were allotted under share option schemes

28.

SHARE PREMIUM ACCOUNT

Balance at 30 April 2022 and 1 May 2021

29.

TRANSLATION RESERVE

Balance at 1 May 2021

Exchange differences on translating the net assets of foreign operations

Balance at 30 April 2022

£’000

4,319

£’000

72,943

£’000

2,063

Exchange differences relating to the translation of the net assets of the Group’s foreign operations, which relate to subsidiaries only, from
their functional currency into the parent’s functional currency, being sterling, are recognised directly in the translation reserve.

30.

ACCUMULATED LOSSES

Balance at 1 May 2021

Net loss for the year

Effect of share-based payment credit

Balance at 30 April 2022

£’000

(49,060)

(4,918)

236

(53,742)

Annual Report & Accounts 202280
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

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

PPP loan forgiveness

Impairment of intangible asset

Loss on disposal

Operating cash flow before movements in working capital

(Increase)/decrease in inventories

Decrease in receivables

Increase/(decrease) in payables

Cash used in operations

Income taxes received

Net cash used in operating activities

Cash and cash equivalents

Cash and bank balances

2022
£’000

2021
£’000

(4,918)

(5,353)

(34)

582

(1,211)

1,751

2,569

236

(1,443)

(2,468)

(4,301)

215

1,741

(4,813)

1,283

(3,530)

2021
£’000

5,081

(2)

548

(978)

1,685

2,359

106

(1,523)

214

1,566

(2,571)

(2,314)

1,005

(1,309)

2020
£’000

15,602

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.

KROMEK GROUP PLC32.

RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

Balance at 1 May 2021

Cash flows;

- Repayments

- Additions and modifications

Non-cash

- Additions and modifications

- PPP loan forgiveness

- Effect of exchange rates

Interest applied

Balance at 30 April 2022

33.

SHARE-BASED PAYMENTS

Lease
liability
£’000

4,655

(646)

285

242

4,536

Borrowings
£’000

8,203

(1,340)

760

(1,443)

241

6,465

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 10 years from the date of grant, the options expire unless, at the
discretion of the Remuneration Committee, the options are granted an extension period. 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

Transfer from LTIP

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

2022
Weighted average
exercise price (£)

Number
of share
options

2021
Weighted average
exercise price (£)

18,410,665

350,000

2,743,628

(1,470,302)

20,033,991

5,990,000

0.13

0.01

0.10

0.21

0.15

0.21

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

The weighted average share price at the date of exercise for share options exercised during the year was £nil (2021: £0.015). The options
outstanding at 30 April 2022 had a weighted average exercise price of £0.15 (2021: £0.13) and a weighted average remaining contractual
life of four years (2021: four years). The range of exercise prices for outstanding share options at 30 April 2022 was 1.5p to 73p (2021:
1.5p to 79p). In 2022, the aggregate of the estimated fair values of the options granted was £159k (2021: £4k). 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

2022

10p

40.21%

5 years

0.36

2021

15p

37.70%

5 years

0.08

Annual Report & Accounts 202282
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

33.

SHARE-BASED PAYMENTS (CONTINUED)

Equity-settled share option scheme (continued)
Expected volatility was determined by calculating the historical volatility of similar listed businesses over the previous three years. The
expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions, and behavioural considerations.

The Kromek Group Plc 2013 Long Term Incentive Plan
On 10 October 2013, a 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

Transfer to share option scheme

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

2022
Weighted average
exercise price (£)

Number
of share
options

2021
Weighted average
exercise price (£)

3,440,344

(350,000)

2,213,001

(939,680)

4,363,665

0.01

2,473,889

2,150,664

(1,184,209)

3,440,344

350,000

0.01

During 2022, 2,213,001 (2021: 2,150,664) options were granted under the 2018 LTIP to a number of key employees, including three
(2021: two) executive directors of the Group. The fair value of these options granted was £31k (2021: £84k). The amounts recognised as
a share-based payment LTIP expense for the year ended 30 April 2022 was £77k (2021: £63k).

The 2013 Long Term Incentive Plan award was valued using the Monte Carlo pricing model in 2021. 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

2022

15p

35.00%

3 years

0.32

2021

15p

35.00%

3 years

0.32

In 2022 an assessment of the LTIP expense was carried out internally by management. As noted in note 3, management believe an
external valuation should be carried out every two to three years.

The Group recognised a total expense in the year of £236k (2021: £44k) 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.

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 £496k (2021: £401k) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at 30 April 2022, contributions of £51k (2021: £42k) due in respect of the current reporting period
had not been paid over to the scheme.

KROMEK GROUP PLC83

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 2021 and 2022.

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 £4.5m (2021: £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)

2022
£’000

5,366

(601)

316

2021
£’000

14,497

444

661

Had the foreign exchange rate between sterling, US$ and € changed by 1% (2021: 9%), this would affect the loss for the year and net
assets of the Group by £16k (2021: £272k). 1% (2021: 9%) is considered a reasonable assessment of foreign exchange movement as
this has been the movement noted between 2021 and 2022 (2020 and 2021).

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 120 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.

Annual Report & Accounts 202284
Notes to the consolidated financial statements (continued)

For the year ended 30 April 2022

35.

FINANCIAL INSTRUMENTS (CONTINUED)

Credit risk (continued)
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.

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
£132k in 2022.

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.

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 2021

Other Borrowing Facilities
at 30 April 2021

Lease Obligations
at 30 April 2021

Revolving Credit and Capex
Facility at 30 April 2022

Other Borrowing Facilities
at 30 April 2022

Lease Obligations
at 30 April 2022

3.0

6.7

5.0

2.8

6.6

5.0

Total
£’000

4,900

3,303

3,900

1,000

1,452

1,735

299

1,987

2,269

4,655

5,651

4,500

4,722

2,350

12,858

4,500

1,176

246

503

1,965

277

1,785

2,376

4,536

5,953

2,031

2,879

11,001

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.

KROMEK GROUP PLC85

35.

FINANCIAL INSTRUMENTS (CONTINUED)

Financial covenants
The Group has three covenants with HSBC in respect of the RCF facility:

• A minimum tangible net worth of the Group’s balance sheet. The tangible net worth is defined as shareholders’ funds less
intangible assets plus non-redeemable preference shares. In accordance with the year 4 extension period to the Bank facility,
this covenant will be tested on a quarterly basis on 31 July 2022, 31 October 2022 and 31 January 2023.

• 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. In accordance with the year 4 extension period to the Bank facility, this covenant will be
tested on a quarterly basis on 31 July 2022, 31 October 2022 and 31 January 2023.

• A maximum cap on the net debt / EBITDA ratio whereby leverage shall not exceed 3:1. However, as discussed in note 25, the
Board has negotiated with HSBC that the Group shall not be required to ensure compliance with this leverage covenant up
to and including the January 2023 quarterly compliance review and whilst this waiver is conditional at the date of signing this
report, the Board are confident that the Group will be able to satisfy the condition.

Categories of financial instruments

Financial assets

Cash and bank balances

Loans and receivables

Financial liabilities

Amortised cost

2022
£’000

5,081

5,375

2021
£’000

15,602

5,937

(19,769)

(20,098)

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 or liabilities.

Level 2: The fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.

Level 3: The fair value is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs).

In these financial statements, all of the above financial instruments are considered to be Level 2 in the fair value hierarchy. There have
been no transfers between categories in the current or preceding year. The fair value of financial instruments held at fair value have been
determined based on available market information at the balance sheet date of 30 April 2022.

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.

Directors’ 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.

EVENTS AFTER THE BALANCE SHEET DATE

37.
There have been no further events after the reporting date that require adjustment or disclosure in line with IAS10 events after the
reporting period.

Annual Report & Accounts 202286
Company statement of financial position

As at 30 April 2022

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 (liabilities)/assets

Non-current liabilities

Borrowings

Total liabilities

Net assets

Equity

Share capital

Share premium account

Merger reserve

Accumulated losses

Total Equity

Note

2022
£’000

5,736

71,668

77,404

229

4,538

4,767

82,171

(417)

(4,500)

(4,917)

(150)

(4,917)

77,254

4,319

72,943

3,221

(3,229)

77,254

2021
£’000

5,500

64,688

70,188

192

12,897

13,089

83,277

(407)

(3,900)

(4,307)

8,782

(1,000)

(5,307)

77,970

4,319

72,943

3,221

(2,513)

77,970

The loss for the year was £952k (2021: loss £1,004k).

The notes form part of these financial statements.

The financial statements of Kromek Group plc (registered number 08661469) were approved by the Board of Directors and authorised
for issue on 1 August 2022. They were signed on its behalf by:

Dr Arnab Basu MBE
Chief Executive Officer

KROMEK GROUP PLC87
Company statement of changes in equity

For the year ended 30 April 2022

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 2020

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

873

Premium on shares issued less expenses

11,343

(1,004)

106

873

11,343

Balance at 30 April 2021

4,319

72,943

3,221

(2,513)

77,970

Total comprehensive loss for the year

Settled share-based payment transactions

(952)

236

(952)

236

Balance at 30 April 2022

4,319

72,943

3,221

(3,229)

77,254

The notes form part of these financial statements.

Annual Report & Accounts 2022Note

88
Company statement of cash flows

For the year ended 30 April 2022

Net cash used in operating activities

Investing activities

Investment receipts from money market account

Interest received

Net cash used in 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

2022
£’000

(818)

2021
£’000

(806)

(785)

(806)

400

(800)

(6,980)

(194)

(7,574)

(8,359)

12,897

400

(400)

12,216

(4,404)

(129)

7,683

6,877

6,020

Cash and cash equivalents at end of year

4,538

12,897

The notes form part of these financial statements.

KROMEK GROUP PLC89
Notes to the Company financial statements

For the year ended 30 April 2022

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.

AUDITOR’S REMUNERATION

The auditor’s remuneration for audit and other services is disclosed in note 7 to the consolidated financial statements.

SUBSIDIARIES

Details of the Company’s direct and indirect subsidiaries as at 30 April 2022 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

143 Zehner School Road,
Zelienople, PA 16063,
United States of America

2934 East Garvey Avenue
South, Suite 104, West Covina
CA 91791
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

Proportion
of ownership
interest %

100

Ordinary

100

Ordinary

100

Activity

Scientific research
and development

Dormant company

Holding company

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 2021

Share option charge

At 30 April 2022

£,000

5,500

236

5,736

The 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.

At 30 April 2022 the Company was owed £71,668k (2021: £64,688k) 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 2022 or 2021. The loan is unsecured
and interest free.

Annual Report & Accounts 202290
Notes to the Company financial statements (continued)

For the year ended 30 April 2022

SUBSIDIARIES (CONTINUED)

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.

STAFF COSTS

The average monthly number of employees (excluding non-executive directors) was:

2022
Number

2021
Number

Research and development, production

Sales and marketing

Administration

Their aggregate remuneration comprised:

Wages and salaries

Social security costs

Pension scheme contributions

During the year, no directors were paid through Kromek Group PLC (2021: none).

TRADE AND OTHER RECEIVABLES

Prepayments and accrued income

TRADE AND OTHER PAYABLES

Trade payables and accruals

Social security and other taxation

2022
£’000

494

597

2022
£’000

229

2022
£’000

345

417

2021
£’000

527

619

2021
£’000

192

2021
£’000

318

407

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.

BORROWINGS

Details regarding the borrowings of the Company are disclosed in note 25 to the consolidated financial statements.

KROMEK GROUP PLC91

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.

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 56 days. The carrying amount of trade payables approximates to their fair value.

10. NOTES TO THE STATEMENT OF CASH FLOWS

Loss for the year

Adjustments for:

Finance costs

Operating cash flows before movements in working capital

(Increase)/decrease in receivables

Increase in payables

Net cash used in operating activities

11.

SHARE CAPITAL

Allotted, called up and fully paid:

Balance at 1 May 2022: 431,851,820 (2021: 344,647,089) Ordinary shares of £0.01 each

Issued in the Year: nil (2021: 87,204,731) Ordinary shares issued at £0.01 each

Balance at 30 April 2022: 431,851,820 (2021: 431,851,820) Ordinary shares of £0.01 each

2022
£’000

(952)

161

(791)

(37)

(818)

2021
£’000

(1,004)

129

(875)

(806)

£’000

4,319

During the year, no shares (2021: 250,000) were allotted under share option schemes. See note 33 of the Group financial statements for
further details of share-based payments.

12. SHARE PREMIUM ACCOUNT

Balance at 1 May 2021 and 30 April 2022

£’000

61,600

Annual Report & Accounts 202292
Notes to the Company financial statements (continued)

For the year ended 30 April 2021

13. ACCUMULATED LOSSES

Balance at 1 May 2021

Net loss for the year

Settled share-based payments

Balance at 30 April 2022

£’000

(2,513)

(952)

236

(3,229)

14. FINANCIAL INSTRUMENTS

The Company’s principal financial instruments are cash and trade receivables.

The Company has exposure to the following risks from its operations:

Capital risk
The Company manages its capital to ensure that 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.

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 PLC93

14. FINANCIAL INSTRUMENTS (CONTINUED)

Liquidity risk (continued)

Weighted
average
effective
interest rate
%

3.3

2.8

Less than
1 month
£’000

1-3 months
£’000

3 months
to 1 year
£’000

1-5 years
£’000

5+ years
£’000

Total
£’000

3,900

1,000

4,500

4,900

4,500

Revolving Credit Facility
at 30 April 2021

Revolving Credit Facility and
Capex Facility at 30 April 2022

Financial covenants
The Company has three covenants with HSBC in respect of the RCF facility:

15.

ULTIMATE CONTROLLING PARENT AND PARTY

In the opinion of the Directors, there is no ultimate controlling parent or party.

16.

EVENTS AFTER THE BALANCE SHEET DATE

There have been no events after the reporting date that require disclosure in line with IAS10 events after the reporting period.

Annual Report & Accounts 202294

KROMEK GROUP PLCDirectors, 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

finnCap Capital Markets

One Bartholomew Close

London

EC1A 7BL

REGISTRAR

Link Group

10th Floor, Central Square

29 Wellington Street

Leeds

LS1 4DL

FINANCIAL PR ADVISER

Gracechurch Group

48 Gracechurch Street

London

EC3V 0EJ

Kromek Group plc

NETPark, Thomas Wright Way,

Sedgefield, County Durham, TS21 3FD, UK