Kromek Group plc
Kromek Group plc
Annual report and accounts
Annual report and accounts
for the year ended 30 April 2023
for the year ended 30 April 2023
Contents
1
2
3
4
Preface
Strategic Report
Governance
Financial Statements
4 Financial Summary
8 Chairman’s Statement
46 Directors’ Biographies
60 Independent Auditor’s
4 Operational Highlights
10 Chief Executive Officer’s
48 Directors’ Report
Review
14 Chief Financial Officer’s
Report
50 Corporate Governance
Review
36 Principal Risks
54 Audit Committee Report
56 Remuneration Committee
42 Section 172 Statement
Report
Report
66 Group Statement
of Comprehensive
Income
67 Consolidated Statement of
Comprehensive Income
68 Consolidated Statement of
Financial Position
69 Consolidated Statement of
Changes in Equity
70 Consolidated Statement of
Cash Flows
71 Notes to the Consolidated
Financial Statements
103 Company Financial
Statements
Another
‘worldy’ for
Kromek
p24
A reason to be
optimistic in the
fight against
breast cancer
p28
1
1
This year, we celebrated
turning 20. We look back at
some of the highlights
p18
A royal visit in
recognition of one of our
founding directors
p26
Dog walking
with our
distributors
p30
KROMEK GROUP PLC Annual Report & Accounts 2023 2
2
Our continued commitment
to sustainability
p32
Photon counting computed
tomography transforms
medical and security imaging
p34
KROMEK GROUP PLC Annual Report & Accounts 2023 3
3
1
Preface
4 Financial Summary
4 Operational Highlights
KROMEK GROUP PLC Annual Report & Accounts 2023 4
Financial Summary
Adjusted
EBITDA*
(£1.0m)
2022: £1.2m
Cash &
Equivalents
£1.1m
Product
% of Sales
85%
h49%
value
2022: 82%
Gross
Margin
51.6%
Revenue
£17.3m
h44%
2022: £12.1m
30 Apr 22: £5.1m
2022: 46.7%
*A reconciliation of adjusted EBITDA can be found in the Chief Financial Officer’s Review.
Operational Highlights
Advanced Imaging
• Significant progress in medical imaging:
o Signed a landmark 7-year collaboration agreement with a tier 1 OEM
to provide CZT-based detectors for use in the customer’s advanced
medical imaging scanners
o Entered a collaboration agreement with Analogic Corporation to develop
CZT-based detectors for photon counting computed tomography (“CT”)
applications in medical imaging and security screening
o Launch by Spectrum Dynamics Medical of the world’s first digital single-
photon emission computed tomography (“SPECT”)/CT scanner for
higher energy imaging, which uses Kromek’s CZT technology
o Received repeat orders totalling over $2.0m for the supply of detectors
for bone mineral densitometry (“BMD”) and SPECT applications and the
gamma probes market
o Awarded £2.5m from Innovate UK for two programmes to further
develop a low dose molecular breast imaging technology based on
Kromek’s CZT-based detectors
o Further contract win of $1.4m post year end from a new Asia-based
OEM customer for CZT-based detectors to be used in the customer’s
SPECT systems
KROMEK GROUP PLC Annual Report & Accounts 2023 Operational Highlights
5
Medical Imaging
“Strong revenue growth with delivery under component
supply agreements; secured new milestone contracts; and
end products launched into the market”
CBRN Detection
“Record revenue in nuclear security, with the
winning and delivery of new and repeat orders”
CBRN Detection
Nuclear
• Record revenue in nuclear security, with the winning and delivery of new
and repeat orders, including:
o A $1.3m contract from a US customer for the D3M and two orders
totalling $1.5m from US government customers for the D3S-ID
o Two contracts, totalling £1.5m, for D3M and D3S-based products for
European government end-users
• Established distribution partnership with Smiths Detection for the
distribution of the Group’s nuclear security products to North and South
American markets, the Middle East and certain key markets in Asia and
Australasia
• Post year end, awarded a $1.5m contract in Asia for a new product in the
civil nuclear market
Biological Threat Detection
• Concluded long-running programme with the Defense Advanced Research
Projects Agency to develop a biological-threat detection solution
• Received a £4.9m contract from a UK government department for a three-
year programme to deliver bio-security solutions
Manufacturing and IP
• Significant progress in improving yield and cost efficiency in CZT crystal
growth and detector manufacturing
• Nine new patents were filed and four were granted during the year
KROMEK GROUP PLC Annual Report & Accounts 2023 6
This page is left intentionally blank
KROMEK GROUP PLC Annual Report & Accounts 2023 7
7
2
Strategic Report
8 Chairman’s Statement
10 Chief Executive Officer’s Review
14 Chief Financial Officer’s Review
36 Principal Risks
42 Section 172 Statement
KROMEK GROUP PLC Annual Report & Accounts 2023 8
8
Strategic Report
Chairman’s Statement
Rakesh Sharma
“We are most excited about securing a long-term agreement
with a tier 1 OEM to provide CZT-based detectors for the
customer’s advanced medical imaging scanners. To have our
solutions designed into the products of a world leading health-
technology company represents a substantial commercial
opportunity and is what we have been striving towards.”
KROMEK GROUP PLC Annual Report & Accounts 2023 “We aim to build on the excellent progress of 2023 by
continuing to capitalise on the growth opportunities with
which we are presented and delivering on the significant
contracts that we have already secured.”
9
We recently celebrated Kromek’s 20th anniversary and it is apt
that this milestone has coincided with the business reaching
what we believe to be an inflection point in our history. In both
advanced imaging and CBRN detection, there have been notable
achievements this year that move us significantly towards the
realisation of our strategy.
That being said, the year wasn’t without its challenges, particularly
the inflationary environment and currency pressures experienced
in the first half. However, we saw an easing of this in the second
half of the year which, combined with our cost control measures
and strong revenue performance, enabled Kromek to generate
positive adjusted EBITDA and be cash neutral for H2.
Our CEO, in his statement, discusses some of the finer details
of the year, but the development that we are most excited
about is securing a long-term agreement with a tier 1 OEM
to provide CZT-based detectors for the customer’s advanced
medical imaging scanners. To have our solutions designed into
the products of a world leading health-technology company
represents a substantial commercial opportunity and is what we
have been striving towards. As the only independent commercial
supplier of CZT at scale, which is recognised as the enabling
technology for next-generation medical imaging, and with very
few of the major OEMs having in-house capabilities, we believe
that we will win further substantial customers in this sector.
Substantial market demand & opportunity
This year, we experienced our highest levels of customer
engagement – which reflects the ever-growing demand for
solutions such as ours across the markets in which we operate.
Nuclear imaging modalities, such as SPECT, CT and BMD, which
utilise CZT detector platforms, address a number of diseases
including Alzheimer’s, cardio-vascular illnesses and osteoporosis
that particularly affect aging populations. With improved imaging
quality, they lead to earlier and more reliable diagnoses to
promote better patient outcomes and reduced costs of care.
As noted, we are well-positioned within this market as the only
independent commercial supplier at scale, with the added
advantage that barriers to entry are high, entailing significant
investment, specialised knowledge and lengthy validation – all
of which Kromek has through our prior engagement with OEMs.
Accordingly, we believe that our addressable market in SPECT/
CT alone is over $400m annually.
Continuing global insecurity from war, inter-state nuclear tensions,
the COVID-19 pandemic, and other health and security threats,
underline that we are operating in markets where there is a real
and pressing need for our CBRN solutions. This is supported by
commensurate increases in national defence budgets. Based on
currently visible procurement programmes, we believe that the
total addressable market for our nuclear security product portfolio
is in excess of $500m annually.
People
Across the Group, we employ over 160 colleagues, who are
critical to Kromek’s success. We have continued to invest in our
colleagues and are committed to developing individuals through
supporting professional development, helping with targeted
training courses including leadership and other skills. We have an
extensive wellbeing support package available to our employees
and their families in addition to private healthcare. We also believe
that our success as a business depends on the strength of the
communities in which we live and work. We are excited to have
launched a new initiative that encourages our employees to
spend up to 20 hours a year volunteering – whether it’s working
with a local charity, environmental organisation or any other kind
of community service. As a company, we have always been
committed to making a positive impact in the sectors in which we
operate. By giving our time and efforts to local communities, we
can extend our reach and have an even greater impact.
Sustainability
We are committed to reducing our environmental impact and
establishing sustainable practices, including reaching net zero
by no later than 2050. We are also working with the University
of Durham to develop a heat recycling process that will make
our crystal growth processes more environmentally friendly
and sustainable. We encourage sustainable practices across
our organisation, and we are working on developing a detailed
strategy and plan to achieve our sustainability and net zero
targets.
Acknowledgements
I would like to thank everyone who has contributed to the Group’s
success in the past year, including employees, customers,
suppliers, partners, other stakeholders and the Board. In
particular, I want to thank our executive management team and
all of our colleagues for their hard work and dedication to the
Group. Without them, our achievements would not be possible.
I would also like to extend my gratitude to our shareholders –
both long-standing and those who we recently welcomed to the
register in our fundraising – for their support, which is very much
appreciated.
Looking forward
In the coming year we aim to build on the excellent progress of
2023 by continuing to capitalise on the growth opportunities with
which we are presented and delivering on the significant contracts
that we have already secured. The drivers of our core markets
persist – whether it is threats to national security or public need
for medical diagnostics that will provide better patient outcomes
at a reduced cost of care. Accordingly, we continue to look to the
future with confidence and I look forward to updating you on our
progress.
KROMEK GROUP PLC Annual Report & Accounts 2023 10
10
Strategic Report (Continued)
Chief Executive Officer’s Review
Arnab Basu
“We achieved our highest ever revenue – reflecting
record revenue in both advanced imaging and CBRN
detection respectively – and were adjusted EBITDA
positive for the second half of the year.”
KROMEK GROUP PLC Annual Report & Accounts 2023 “This has been a milestone year in terms of our medical imaging
activity. Most notably, we signed collaboration agreements with
a recognised tier 1 OEM and with Analogic to develop CZT-
based detectors for use in their advanced imaging scanners.”
11
This has been a strong year for Kromek. We achieved our highest
ever revenue – reflecting record revenue in both advanced
imaging and CBRN detection respectively – and were adjusted
EBITDA positive for the second half of the year. We delivered
on our existing contracts and development programmes, won
new and repeat orders across the business and from around
the world, and experienced significantly increased customer
engagement regarding future projects. Importantly, some of this
engagement transitioned to significant agreements during the
year – most notably, with a tier 1 OEM and Analogic Corporation
(“Analogic”) in the advanced imaging segment and Smiths
Detection in the CBRN detection segment. These agreements
are great endorsements of our technology and solutions, but are
also tangible demonstrations of our strategy coming to fruition.
Accordingly, we are delivering on our strategy, and ended the year
strongly with a foundation for continued growth.
ADVANCED IMAGING SEGMENT
In the advanced imaging segment, we primarily operate in the
medical imaging market with some opportunities in the security
screening and industrial screening sectors. 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 Alzheimer’s, contamination in
industrial manufacture and explosives in aviation settings. We
design, develop and produce CZT detectors and solutions along
with specialist electronics, which, when incorporated into our
customers’ systems, significantly enhance imaging quality to
provide high resolution information on material composition and
structure, which enables more effective identification and analysis.
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.
Medical Imaging
As the only independent commercial producer of CZT at scale,
Kromek is well-positioned in the medical imaging market. The rate
of introduction by leading OEMs of new medical imaging products
that include CZT detector platforms as the enabling technology
has been increasing in recent years. GE Healthcare and
Siemens Healthineers introduced new products in their clinical
single-photon emission computed tomography (“SPECT”) and
computed tomography (“CT”) businesses in 2021 and Spectrum
Dynamics launched the VERITON-CT 400 Series in 2022. SPECT
and CT, as well as molecular breast imaging (“MBI”) and bone
mineral densitometry (“BMD”), 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 – with higher resolution
images enabling earlier diagnosis for better patient outcomes
and reduced overall cost of care. Kromek also serves the gamma
probes market in this sector, which are used during surgeries for
the removal of lymph nodes.
This has been a milestone year in terms of our medical imaging
activity. Most notably, we signed collaboration agreements with
a recognised tier 1 OEM and with Analogic to develop CZT-
based detectors for use in their advanced imaging scanners.
The agreement with the tier 1 OEM, which is a leading health-
technology company, has an initial period of seven years. This
comprises a short development phase when the parties will work
together to integrate Kromek’s CZT-based detectors into the
customer’s medical imaging scanners, with the agreement then
transitioning to a longer commercial supply phase.
With Analogic, who have been global leaders in CT detector
technology for over 50 years, we are developing CZT-based
detector solutions for photon counting CT applications in both the
medical imaging and security screening sectors. Our CZT sensors
will be integrated with Analogic’s detector designs and, as the
project progresses towards commercialisation, we will ensure
production capacity is available to support their demand.
Another key milestone during the year was the introduction by
Spectrum Dynamics of the VERITON-CT 400 Series, the world’s
first digital SPECT/CT scanner capable of high energy imaging,
which uses Kromek’s CZT detector technology. We believe that
this product is receiving wide-ranging interest, and our business
with Spectrum Dynamics is tracking as expected.
We were also pleased to receive, post year end, an order worth
$1.4m from a new OEM customer that is an established player
in the medical imaging sector in Asia. The order is for CZT-based
detector-modules for use in the customer’s next generation
SPECT systems. Delivery and revenue recognition are expected in
the current financial year.
In total, we are now working with nine OEMs in SPECT and CT,
including our current customers, and we expect some of the
engagements to transition to formal significant contracts for final
design and integration followed by the supply of CZT detectors
and modules in the near term.
In our regular repeat business, we received two orders during
the first half of the year worth £751k, with one being for the
supply of detectors for BMD applications and the other for the
gamma probes market. We have seen an increase in demand
for detectors in the BMD segment and we expect that demand
to grow significantly over the next two years as rapid adoption of
our customer’s systems continue in China. In the second half, we
received three further orders totalling $1.1m, which were primarily
for SPECT applications.
KROMEK GROUP PLC Annual Report & Accounts 2023 12
Strategic Report (Continued)
Chief Executive Officer’s Review (Continued)
We continued to make progress under our development
programme for ultra-low dose MBI technology based on our CZT-
based SPECT detectors, which can significantly improve the early
detection of breast cancer in women with dense breast tissue. We
are expecting to enter the clinical study phase of this technology
development with a US-based OEM customer over the next year.
We also received approximately £2.5m in funding from Innovate
UK for two programmes to further develop an MBI system. The
projects are being conducted in collaboration with the Newcastle-
upon-Tyne Hospitals NHS Foundation Trust, the University of
Newcastle-Upon-Tyne and University College London.
Security and Industrial 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. 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 continued to deliver under our existing
component supply agreements and development programmes.
As noted above, the detector solutions to be developed under our
collaboration agreement with Analogic, that was entered during
the year, will be for security applications as well as medical.
Accordingly, we delivered record revenues in nuclear security in
2023. Our detector solutions were used in multiple high-profile
sporting, political and state events in the UK, across Europe and
in the US. In May 2023, for example, our D3S product range was
used by the EU Commission Protective Security Advisor team to
provide security at an event in Aachen, Germany where President
Zelensky of Ukraine was awarded the Charlemagne Prize for work
done in the service of European unification.
During the year, we received, and delivered, a $1.3m contract
from a US customer for the D3M and two orders totalling $1.5m
from US government customers for the D3S-ID, all of which were
repeat orders. We also received, and delivered, two contracts,
totalling £1.5m, for the supply of the D3M and D3S-based nuclear
security products to European government end-users – with
the contracts having been secured through our distribution and
procurement partners. The large proportion of repeat orders
reflects the increasingly regular nature of our business in this
market.
We expanded our channels-to-market for our nuclear security
products, as well as supporting the generation of regular, repeat
business, through the establishment of a distribution partnership
with Smiths Detection, a global leader in threat detection and
security screening technologies for aviation, ports and borders,
defence and urban security markets. The initial agreement was
to distribute our nuclear security products – with a focus on the
D3 and D5 series – to North and South American markets, with a
further agreement being signed for distribution to the Middle East
and certain key markets in Asia and Australasia.
CBRN DETECTION SEGMENT
Civil Nuclear
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 and solid-state readout
technology, are primarily used to protect critical infrastructure,
events, personnel 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 biosecurity
solutions, which consist of fully automated and autonomous
systems to detect a wide range of airborne pathogens for the
purposes of national security and protecting public health.
Nuclear Security
We experienced a significant increase in demand for our nuclear
security products – with multiple new and repeat orders being
won and delivered during the year – as geopolitical instabilities
continued to drive greater global government defence and
security spending. We also established key distribution
partnerships to support continued expansion in this market.
Business in the civil nuclear market progressed as expected,
with regular sales through our distributor network and direct
to customer. In this sector, our products are used by over 450
customers around the globe.
Since year end, we were awarded a $1.5m contract by one of
our distribution partners in Asia, which is for a new product,
based on our existing technology, in the civil nuclear market. The
development of this new product was funded by the distribution
partner. We believe that the product has a global market beyond
our partner’s targeted market in Asia.
Biological Threat Detection
We continued to deliver on our long-running programme with
the Defense Advanced Research Projects Agency, an agency
of the US Department of Defense, to develop a biological-threat
detection solution. The solution developed under this programme,
which concluded during the year, is intended to form part of a
mobile wide-area bio-surveillance system deployed in urban
environments. Our work with the UK government also resulted
in the award of a contract by a UK government department for
KROMEK GROUP PLC Annual Report & Accounts 2023 13
a three-year programme worth £4.9m to develop and supply
biological threat detection systems. The contract includes an
option for extended maintenance services after the initial term.
The biosecurity strategies of the UK and US governments are
aligned with the need for a national network of automated
genomic sequencing systems for the early warning of pathogens,
which was reiterated in the UK Biological Security Strategy
published by the UK government in June 2023.
We continue to believe that biosecurity has significant market
opportunities as our technologies align very well with major
governments’ biosecurity strategies to protect against future
pandemics. In this sector, we may consider forming strategic or
financial partnerships to further accelerate the time to market for
this technology.
R&D, IP AND MANUFACTURING
We continued to execute on our programmes for the expansion
of production capacity and increased process automation, with
particular progress being made at our CZT manufacturing facility
in the US. These programmes are on track and are resulting in
greater manufacturing productivity and cost efficiencies. We are
making significant progress in our cost and productivity in CZT
crystal growth and detector manufacturing. We have dedicated
teams that are focussed on targeted improvements for every step
in the manufacturing process, which directly contributes to yield
and cost improvement.
As noted, during the year we continued to advance development
programmes with a number of partners.
During the year, we applied for 9 new patents and had 4
patents granted across 12 patent families, with the total number
of patents held by Kromek being in excess of 240. The new
applications cover innovations in both of our segments.
“Our detector solutions were used in multiple
high-profile sporting, political and state events in
the UK, across Europe and in the US.”
OUTLOOK
Kromek entered the 2024 financial year with heightened
commercial momentum - winning new orders in addition to a
growing and substantial opportunity funnel. We currently have
visibility of 60% of full year 2024 revenue forecasts, comprising
45% contracted or already shipped, 4% awarded and going
through contract negotiation and 11% being provided by our
regular repeat order business. Accordingly, we anticipate a
strong year-on-year increase in revenue, in line with market
expectations, representing growth in both the advanced
imaging and CBRN detection segments. Alongside the
anticipated revenue growth, we remain on track to be adjusted
EBITDA positive for full year 2024.
Looking further ahead, the macro-economic and market
conditions continue to drive strong demand across both
segments. There is an ever-growing need for medical imaging
solutions that facilitate earlier and more accurate diagnosis.
The position of CZT as the enabling technology for such
solutions is widely recognised, with leading OEMs increasingly
launching their CZT-based SPECT and CT scanners to the
market. Our recent agreement with a leading tier 1 OEM is
representative of this trend and offers significant potential. As
the only independent commercial producer of CZT at scale, we
are extremely well placed within this market. At the same time,
ongoing geopolitical conflict combined with the awareness of
the threat to public health posed by pathogens will continue
to drive demand for, and interest in, our CBRN detection
solutions.
As a result, the Board looks to the future with confidence.
KROMEK GROUP PLC Annual Report & Accounts 2023 14
14
Strategic Report (Continued)
Chief Financial Officer’s Review
Paul Farquhar
“...the Group continued that momentum in 2023 with record
revenue of £17.3m. This reflected our highest ever revenue in
both the advanced imaging and CBRN detection segments of
the business, representing revenue growth of 44% year-on-year.”
KROMEK GROUP PLC Annual Report & Accounts 2023 Following the recovery last year from the significant impact
caused by the COVID-19 pandemic, the Group continued that
momentum in 2023 with record revenue of £17.3m. This reflected
our highest ever revenue in both the advanced imaging and
CBRN detection segments of the business, representing revenue
growth of 44% year-on-year.
Despite the substantial commercial progress and contract wins
outlined in the CEO’s Review, the 2023 year can be characterised
as one of two halves.
In the first half, whilst revenue of £6.8m represented growth
of 44% compared to the previous half-year, gross margin was
40.4% compared to 46.8% in H1 2022 and distribution and
administrative expenses were £1.6m higher than in the prior year
period. The lower gross margin percentage was due to revenue
mix and component price inflation as supply chain pressures
persisted from the prior year. The increase in reported distribution
and administrative expenses was substantially due to the impact
of translating USD denominated expenses in the period due to
the weaker GBP against the USD in H1 2023 compared to H1
2022, and higher costs, including salaries, driven by widespread
inflationary pressures. As a result of the lower gross margin
percentage and the higher costs, adjusted EBITDA loss in H1
2023 widened to £2.7m, from £0.6m in the prior year period.
In the second half of 2023, revenue of £10.5m represented 54%
growth compared to H1 2023 revenue of £6.8m, and gross
margin was £6.2m compared to £2.7m. Gross margin percentage
improved from 40.4% in H1 2023 to 58.9% in H2 2023, driving the
full year gross margin percentage to 51.6%. Cost control measures
in H2 2023 reduced distribution and administrative expenses by
£0.7m, or 9%, compared to H1. The combined impact of higher
gross margin and lower overhead costs in H2, compared to H1,
contributed to positive adjusted EBITDA of £1.7m in H2 compared
to an adjusted EBITDA loss of £2.7m in H1.
As a result, revenue for the year was £17.3m (2022: £12.1m), an
increase of £5.2m from the prior year, and gross profit was £8.9m
(2022: £5.6m). Due to the higher gross profit, partially offset by
higher distribution and administrative expenses, adjusted EBITDA
loss was £1.0m compared with a loss of £1.2m for the prior year,
when we recorded £1.4m of other operating income from the
forgiveness of Paycheck Protection Program (PPP) loans in the
US. A reconciliation between adjusted EBITDA and results from
operations is detailed on page 16.
15
Revenue Mix
2023
2022
£’000 % share
£’000 % share
85%
18%
14,768
2,541
17,309
82%
18%
9,935
2,120
12,055
Product
R&D
Total
Gross Margin
Gross profit at £8.9m (2022: £5.6m) represented a margin of
51.6% (2022: 46.8%). The increase in gross margin, particularly
in the second half of 2023, is attributable to a change in revenue
mix and the easing of the supply chain pressures that impacted
margin in 2022 and the first half of 2023.
Distribution and Administrative Expenses
Distribution and administrative expenses increased by £2.4m
to £14.6m (2022: £12.2m). Of this £2.4m increase, £0.8m
represents the foreign exchange impact of translating USD
denominated expenses in the period due to the weaker GBP
against the USD in 2023 compared to 2022. The remaining
£1.6m increase is substantially the net result of:
• £0.3m of depreciation and amortisation due to continued
investment in the technology platform and product
applications;
• £1.1m increase in staff costs reflecting pay rises in line with
the wider economy and modest increased headcount to drive
future revenue growth;
• £0.5m bad debt expense having assessed receivables at the
year end for expected credit losses; and
•
savings of £0.3m relating to facility and general office
expenses.
Adjusted EBITDA* and Result from Operations
Adjusted EBITDA loss for 2023 was reduced to £1.0m compared
with a loss of £1.2m for the prior year as set out in the table below:
Revenue
Gross profit
Gross margin (%)
Loss before tax
EBITDA Adjustments:
Net interest
2023
£’000
17,309
8,935
51.6%
(7,292)
1,243
1,903
2,891
354
(77)
-
2022
£’000
12,055
5,636
46.7%
(6,129)
548
1,751
2,569
236
-
(132)
(978)
(1,157)
Revenue
Depreciation of PPE and right-of-use assets
The Group generated total revenue of £17.3m (2022: £12.1m).
The split between product sales and revenue from R&D contracts
is detailed in the table in the next column.
Amortisation
Share-based payments
Change in fair value of derivative
Exceptional Item
Adjusted EBITDA*
KROMEK GROUP PLC Annual Report & Accounts 2023 16
Strategic Report (Continued)
Chief Financial Officer’s Review (Continued)
*Adjusted EBITDA is defined as earnings before interest,
taxation, depreciation, amortisation, exceptional items, early
settlement discounts, the change in fair value of financial
derivatives and share-based payments. The change in the value
of financial derivatives and share-based payments are adjusted
for when calculating the Group’s adjusted EBITDA as these
items have no direct cash impact on financial performance.
Adjusted EBITDA is considered a key metric to the users of
the financial statements as it represents a useful milestone that
is reflective of the performance of the business resulting from
movements in revenue, gross margin and the costs of the
business.
The reduction in the adjusted EBITDA loss in 2023 compared
to the prior year loss reflects the higher revenue and gross
margin and that the greater operating costs were offset
primarily due to an increase in net interest, amortisation and
depreciation. As a result of the increase in operating costs
– which primarily comprise distribution and administrative
expenses as described above – loss before tax was £7.3m
(2022: £6.1m).
During 2023, the Group recognised a loss of £0.2m (2022: a
gain of £2.1m) 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 £0.1m foreign exchange gain (2022: £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.
R&D
The Group invested £4.8m in the year (2022: £5.6m) in
technology and product developments that were capitalised on
the balance sheet, reflecting the continuing investment in new
products, applications and platforms for the future growth of the
business. This expenditure was capitalised in accordance with
IAS38 to the extent that it related to projects in the later stage
(development phase) of the project life cycle.
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 short and 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 D3 and D5 suite of products
in CBRN threat detection and the SPECT and CT platforms
in advanced imaging. All such investments in research and
development are linked to contract deliverables and productivity
improvements which, 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 (2022: £0.2m) with 9 new patents
filed and 4 patents granted across 12 patent families.
Tax
Other Income
The Group continues to benefit from the UK Research and
Development Tax Credit regime as it invests in developments of
technology. The Group recorded an R&D credit of £1.2m for the
year (2022: £1.2m 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 (2022: £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 (2022: £1.2m credit).
Earnings per Share (“EPS”)
Due to a £1.0m increase in the loss after tax for the period, the
EPS is recorded in the year on a basic and diluted basis as a
1.4p loss per share (2022: 1.1p loss per share after excluding
exceptional items).
The Group generated total other operating income of £0.1m
(2022: £1.4m), which relates to a retrospective Customs
Duty claim granted by HMRC. Other operating income in the
previous year predominantly comprised the forgiveness of PPP
loans of £1.4m in the US.
Capital Expenditure
Capital expenditure in the year amounted to £0.3m (2022:
£0.7m), which primarily relates to modest capital expenditure
across lab and computer equipment, IT and manufacturing
projects.
KROMEK GROUP PLC Annual Report & Accounts 2023 17
Financing Activities
Cash Balance
Cash and cash equivalents were £1.1m as of 30 April 2023 (30
April 2022: £5.1m). The £4.0m decrease in cash during 2023
was due to the combination of the following cash inflows and
outflows:
• Adjusted EBITDA loss for the year of £1.0m
• R&D tax receipts of £1.2m
•
Investment in product development and other intangible
assets, with capitalised development costs of £4.8m and IP
additions of £0.2m
• Capital expenditure of £0.7m (including £0.4m in respect of
leased assets)
• Net cash generated from financing activities of £1.7m
(including £2.8m from the issue of convertible loan notes)
• A decrease in cash arising from the impact of foreign
exchange of £0.2m
Post year end, the Group’s balance sheet was strengthened
with the successful completion of a placing, subscription and
open offer raising £8m before expenses, of which £7m was
raised through the share placing and subscription, and a further
£1m through the open offer.
The Group issued £2.8m of convertible loan notes, largely to
existing shareholders, in August 2022. The loan notes have
a term of 18 months, carry a coupon of 8% per annum and
have conversion dates in January and February 2024. They are
senior in ranking and unsecured. If they are repaid other than
on the repayment date or not repaid by the repayment longstop
date, they are convertible at the investors’ option into ordinary
shares in the capital of the Company at the lower of the closing
mid-market price on the repayment date, or 15 pence per
ordinary share.
At 30 April 2023, the Group had a £5.0m revolving credit
facility (“RCF”) with HSBC, the repayment date for which was
extended by the bank from 11 March 2023 to 31 August 2023.
At the date of this report, the Group is finalising the terms of
an alternative borrowing facility to replace the HSBC RCF, and
the Board is confident that this facility will be secured to repay
the RCF by the required repayment date. Further details of the
Group’s borrowings are available at Note 25.
Inventories
Inventories increased by £0.4m to £10.9m at 30 April 2023 (30
April 2022: £10.5m). This reflects a continuation of the global
supply chain pressures, which requires the Group to hold higher
inventory levels than historically has been necessary. However,
raw material inventory reduced during the year to £2.2m at 30
April 2022 (30 April 2022: £3.6m), reflecting the conversion to
work in progress and finished goods of some of the additional
component inventories purchased during the previous year
when the supply chain had been acutely constrained.
KROMEK GROUP PLC Annual Report & Accounts 2023 18
18
Kromek Celebrates its
20th Anniversary
During this year, Kromek celebrated 20 years of being in business.
We started our journey back in 2003, in a small laboratory in Durham
University. Today, we operate out of two purpose-built state-of-the-art
manufacturing facilities in Sedgefield and Pittsburgh in the US. We’ve
grown from a two-person operation to over 170 employees, and still
growing.
It’s been an exciting journey. We are incredibly proud of our work, proud
of our products. We are a technology company at heart, we innovate,
and we provide products that save lives and keep people safe, all
around the world.
People are the lifeblood of Kromek. It is a great place to work where
exceptional talents are encouraged to use their initiative, to be creative
and innovative while working on varied and technically challenging
programmes and projects.
So, it was right that our special anniversary should be celebrated right
across the business by the people that have helped make Kromek what
it is today; small recognition for all the big things they have done; all the
hard work, all the dedication, all the creativity they bring to the team, and
ultimately, taken Kromek to where it is.
KROMEK GROUP PLC Annual Report & Accounts 2023 1919
KROMEK GROUP PLC Annual Report & Accounts 2023 20 2003
First registered as a business in April
2003, Durham Scientific Crystals
was set up to commercialise the
semiconductor crystal growth
technology developed in the Physics
Department of Durham University over
a period of some 20 years. Its first
official day of trading was 19 May.
2004
Having outgrown the facilities at
Durham University, Kromek became
the very first tenant in the North East’s
brand new Technology Park (NETPark)
in 2004.
some of our highlights and milestones
2003
Kromek pioneered digital colour
imaging for x-rays, combining ground-
breaking materials innovation with
advanced 3D imaging to literally
change the way in which we see the
world. In early 2004, a Department
for Trade and Industry SMART award
funded the construction of the first
commercial crystal growth facility.
2005
The company recieved its first
development contract, shortly after its
move to NETPark, to supply specialist
material to the European Space
Agency.
KROMEK GROUP PLC Annual Report & Accounts 2023 2009
21
In 2009, Durham Scientific Crystals
changed its trading name to Kromek.
A stronger, more memorable
and unique name. Kromek is the
amalgamation of two words - Chroma
(attributes of colour) and Mechanism
(a system or way something works). A
highly simplified definition of how our
ground-breaking technologies work.
2010
Kromek acquired California-based
NOVA R&D Inc., and announced
a four-year contract with the Univ.
of Massachusetts Medical School
(UMASS), to develop an advanced
system for breast cancer detection
and diagnosis, which ultimately
dramatically improved the way breast
cancer is detected and treated.
2009
Kromek introduced its first ‘Worldy’,
its revolutionary Liquid Explosives
Detection System / bottle scanner,
part of a family of products for the
global aviation / security screening
markets to combat threats posed
by liquid-based explosives and
precursors, and the smuggling of
narcotics dissolved in alcohol.
2010
Quantum Leap - Kromek moves
into its brand new (and current)
headquarters, a 20,000 square foot
purpose-built, manufacturing facility
having grown from a two-man start-up
to employing more than 50 people.
KROMEK GROUP PLC Annual Report & Accounts 2023 22
2011
The enormous Tohoku earthquake
and tsunami which resulted in the
nuclear meltdown at the Fukushima
Daiichi nuclear plant accelerated the
establishment of Kromek’s Nuclear
Products Division after the GR1
spectrometer was selected as the
primary mobile detection tool used by
the authorities for the post-Fukushima
clean up.
NASA’s NuSTAR was the first space
telescope to create focused images
of cosmic x-rays. eV Products worked
with CalTech to deliver CZT detectors
that enabled NuSTAR to visualize x-rays
in colour. Image shows the energized
remains of a dead star 17,000 light-years
away, nicknamed the “Hand of God”.
2013
In October 2013, Kromek was
admitted to the AIM market of the
London Stock Exchange (KMK),
an important and very necessary
step in the Group’s development.
The floatation provided the financial
resources to transform the company’s
growth trajectory utilising its developed
technology platforms.
The GR1 being used inside a protective lead shield during the clean-up at Fukushima
2013
Kromek acquired eV Products Inc.,
Pennsylvania. eV brought significant
commercial relationships in Kromek’s
core markets, with a wide range of
products including medical imaging sub-
systems for SPECT and CT scanners;
NDE detector systems; baggage
scanners; gamma-ray detectors; digital
x-ray imaging systems.
2015
Kromek partnered with DARPA to
create a new generation of radiation
detectors. Legacy devices were
expensive, typically $10,000+, the
size of a shoebox that generated lots
of false alarms. The result was the
multiaward-winning Kromek D3 family
of small, compact, high-performance,
handheld and wearable detectors.
KROMEK GROUP PLC Annual Report & Accounts 2023 2018
23
Our US operations relocated to a
new, purpose-built premises near
Pittsburgh, Pennsylvania. The facility
provided a world-class platform upon
which to build next-generation CZT-
based molecular imaging SPECT
detector assemblies and other
medical imaging products.
2019
Exports account for almost 85%
of Kromek’s turnover. Kromek was
invited to become part of a nationwide
network of British companies that,
in conjunction with the Department
for International Trade, act as
ambassadors for exporting by sharing
their success stories, offering practical
advice and leading by example.
Kromek CEO, Dr Arnab Basu, receiving
the Queen’s Award for Enterprise from
Lord-Lieutenant of County Durham,
Mrs Sue Snowdon.
2019
Kromek successfully completed a
major expansion programme at its
Sedgefield headquarters significantly
increasing CZT production capacity
to meet the growing demand for its
products. The £10 million capital
investment programme increased both
crystal growth manufacturing capacity
and the level of process automation.
2020
The Queen’s Awards are among the
most prestigious for UK businesses,
recognising and encouraging cross-
sector achievements in internationally
significant trade and innovation.
Kromek received the Queen’s Award
for Enterprise for its contribution to
international trade, with the company
exporting to more than 55 countries.
KROMEK GROUP PLC Annual Report & Accounts 2023 24
24
Improvements in sensitivity and spatial resolution yield vastly improved image quality, which
in turn leads to earlier and more accurate diagnoses, improved treatment targeting and faster
treatments, and much improved patient outcomes.
KROMEK GROUP PLC Annual Report & Accounts 2023 25
2022
Another World First for Kromek
In October, Spectrum Dynamics Medical Group, in partnership with Kromek
Group, announced the world’s most advanced SPECT/CT scanner to date, the
VERITON-CT 400.
Developments in SPECT technology have made tremendous progress over the
last two decades with the most significant technological advancement being
the introduction of CZT (cadmium zinc telluride) detectors replacing legacy
scintillator detectors.
As the only independent CZT detector manufacturer in the world, Kromek has
played a pivotal role in cost and technology leadership that has enabled the
development of this superior technology.
The VERITON-CT 400 SPECT/CT scanner incorporates Kromek’s high-
performance CZT digital detectors within its 360-degree wide-bore gantry and
together with its advanced image recognition algorithms, set a new standard
in image quality. The significantly improved image quality provides earlier and
more reliable diagnosis of disease, improved treatment targeting and faster
treatments, and much improved patient outcomes.
Kromek’s CZT digital detectors also offer new possibilities for future clinical use.
Smaller and lighter camera detector heads enable superior modality-specific
SPECT, such as for cardiac, breast and prostate screening etc. They address
diseases particularly associated with an ageing population such as cancer,
Alzheimer’s, Parkinson’s, cardiovascular illnesses and osteoporosis – with
higher resolution images enabling earlier diagnosis for better patient outcomes
and reduced overall cost of care.
‘Implementation of CZT solid-state detectors has
established the design as the gold standard of CZT-
based SPECT cameras used in Nuclear Medicine’
Spectrum Dynamics
Spectrum Dynamics Veriton-CT 400 SPECT/CT
scanner that incorporates Kromek’s high-performance
CZT digital detectors
KROMEK GROUP PLC Annual Report & Accounts 2023 26
26
2022
KROMEK GROUP PLC Annual Report & Accounts 2023 HRH the Prince of Wales Opens
‘The Brinkman CZT Growth Facility’
27
HRH the Prince of Wales opened the upgraded crystal growth facility
named after the late Prof. Andrew Brinkman, one of Kromek’s founding
directors and the person whose research and innovations were the
building blocks for the establishment of Durham Scientific Crystals in
2003.
Over £10m was spent upgrading the crystal growth facility creating a
six-fold increase in capacity.
After a tour of the facility, His Royal Highness unveiled a plaque to
officially open ‘The Brinkman CZT Growth Facility’.
Speaking to staff, the Prince of Wales said: “I do hope this will draw
attention to the remarkable work of Professor Brinkman, who helped
start all of this. I think it is remarkable, having just had a very short
glimpse of what you all do here, just what a high-powered company
this is.”
“It gives this county an even greater reputation in so many of these
fields. The fact that you are so much in demand for what you produce
here all around the world is a great tribute to your incredible hard
work and genius.”
“I can only congratulate you on the success you have had so far.”
His Royal Highness’ tour of the Sedgefield site included all areas of
Kromek’s work: medical imaging; radiation detection and our emerging,
bio-security capability. Pictured in ‘The Brinkman CZT Growth Facility’.
It also marked the official opening of ‘The
Brinkman CZT Growth Facility’ of 154
furnaces, which provides the core of our
detection technology for advanced imaging.
KROMEK GROUP PLC Annual Report & Accounts 2023 28
28
Early studies indicate that women with dense breast tissue are at higher risk of breast
cancer – they are both more susceptible to the disease and more difficult to diagnose.
Data from Cancer Research UK show that when breast cancer is diagnosed at its
earliest stage, almost all (98%) people will survive for five years or more, compared
with around 1 in 4 (26%) when the disease is diagnosed at the latest stage, so it’s
vital that every tool is appropriately applied in screening regimes.
KROMEK GROUP PLC Annual Report & Accounts 2023 Finally, a reason to be optimistic in
the fight against breast cancer
29
With more than two million new cases diagnosed worldwide in 2020, (about
55,000 new cases in the UK alone) breast cancer is the most common cancer
in women.
While early detection through mammography screening has been proven
to be effective, it has limitations. One major drawback is that traditional
mammography has limited sensitivity in women with dense breast tissue. Up
to 40 per cent of women have dense breast tissue, which can make it more
difficult to detect cancerous lesions on a mammogram. Early studies indicate
that women with dense breast tissue are at higher risk of breast cancer – they
are both more susceptible to the disease and more difficult to diagnose.
Kromek is pioneering ground-breaking research to develop the next generation
of ultra-low dose Molecular Breast Imaging (MBI) detectors that will enable safe
and effective complementary screening for breast cancer in women with high
breast density.
MBI breast screening involves a special radio tracer being injected into the
patient’s bloodstream. It accumulates in cancerous cells, which are detected
by a specialised camera that creates a 3D image of the volume emitting
excessive amount of radiation, which indicates a potential cancer growth.
Part funded by the UK Government, this research is being conducted in
partnership with Newcastle Upon Tyne Hospitals, Newcastle University, and
University College London.
MBI has the potential to revolutionise breast cancer screening for women
by becoming an indispensable tool in the early diagnosis of breast cancer –
putting those women with dense breast tissue on an equal footing with those
for whom conventional mammography is already an effective diagnostic tool.
In the United States, MBI is already approved by the Food and Drug
Administration (FDA) for screening patients with dense breast tissue and its use
is becoming more widespread. The FDA’s approval accelerates the adoption of
the technology in other countries. Here in the UK, the government is finalising
a new fast-track regulatory recognition route for medical devices that have
received approvals from international partners such as the FDA.
Initial results, reported at multiple international conferences and published
in peer-reviewed journals, demonstrated the potential of this new modality.
The project is now at the advanced stage of developing the equipment and
procedures needed to begin full clinical trials.
KROMEK GROUP PLC Annual Report & Accounts 2023 30
30
Tom Scott, SW Nuclear Hub Director from the University of Bristol, demonstrates how Kromek
detectors provide users with high quality spectral and geolocation data from both the air, when
mounted on a drone, and from the ground when attached to a robot dog.
KROMEK GROUP PLC Annual Report & Accounts 2023 Strengthening Relationships with
Global Distributors
31
Every manufacturer knows that having strong relationships with their
distributors is a key factor in the success of their products in overseas markets.
Kromek is no exception to this.
In September, Kromek held its second annual civil nuclear distributor event
at its NETPark headquarters. The two-day event welcomed distributors from
across Europe and Asia to meet with Kromek’s team of technical experts. It
provided the perfect opportunity to catch up with the latest technical advances
as well as the realities on the ground that the distributors face in market.
In addition to plenty of hands-on product training, another of our partners, Tom
Scott, SW Nuclear Hub Director from the University of Bristol, demonstrated
how Kromek detectors provide users with high quality spectral and geolocation
data from both the air, when mounted on a drone, and from the ground when
attached to a robot dog.
“The value of these events cannot be overstated,” said Craig Duff, Kromek’s
CBRN Business Manager.
“One of the most valuable outcomes of the event is feedback not just in terms
of product strengths or weaknesses, but where enhancements can be made,
opportunities for line extensions or developing new products such as the latest
new probes to pair with the RayMon.”
“When we and our distributors work in the same direction and align our visions,
it is much easier for us both to achieve our goals and find mutual success. We
then create the tools that enable our distributors, not only to sell more but to
sell more effectively, increasing both our revenue and market penetration.”
KROMEK GROUP PLC Annual Report & Accounts 2023 32
32
Our Commitment
to Sustainability...
KROMEK GROUP PLC Annual Report & Accounts 2023 33
We are committed to the highest
standards of business conduct
in everything we do
Kromek is committed to reducing its environmental impact to the
bare minimum, and establishing sustainable practices, including the
dramatic reduction in carbon emissions.
We have an established Sustainability Team, and together with senior
management, the company has begun implementing the policies and
programmes that will help us attain our goal of being net zero no later
than 2050.
We are reducing our environmental impact wherever we can by using
the latest technology, and by changing our practices. We are continually
looking both inside and out the organisation for ways to be better and
engage with our employees to achieve this.
Some of our recent initiatives include:
Net Zero Commitment
Social Responsibility
Green Energy
Moving our business to
using only energy supplied
from renewable sources
Heat Recycling
Programme
Undertaking a heat recycling
programme to reuse the heat
from our furnaces to heat the
factory and offices
Volunteering
Introduced 1800 hrs of paid
volunteering programme in
support of local and national
charities
Apprenticeships,
Internship, Summer
Placements and Outreach,
and supporting grass-root
sports
KROMEK GROUP PLC Annual Report & Accounts 2023 34
34
A pixelated CZT detector for
a PCCT detector array.
Conventional CT scanners provide a
black-and-white image with relatively poor
differentiation of soft tissue. In contrast,
PCCT enables clinicians to see X-ray images
in full color and with ultra-high resolution
and achieves this differentiation while
reducing patient exposure to radiation dose
compared to conventional CT.
3D image CT angiographphy for
heart disease.
3D multi-view CT image of
thoracic aorta.
KROMEK GROUP PLC Annual Report & Accounts 2023 35
Photon Counting Computed
Tomography Transforms Medical
and Security Imaging
Computed Tomography (CT), the most widely deployed medical imaging modality
in the world, has transformed patient care through its versatility and information rich
images. Photon Counting CT (PCCT) is the next evolutionary development in this
imaging modality and Cadmium Zinc Telluride (CZT) -based detectors are the enabling
technology.
Kromek is at the centre of this technology conversion supporting medical imaging
OEMs with the mission critical CZT devices that enable PCCT scanners. The company
collaborates with key technology partners and industry system manufacturers to help
ensure the broadest adoption of this new and breakthrough technology.
Conventional CT scanners provide a black-and-white image of the human body with
relatively poor differentiation of soft tissue. Complementary medical examinations, such
as MRI scans, are often required to confirm a diagnosis. In contrast to conventional CT,
Photon Counting CT systems quantify the energy of each individual photon. As a result,
PCCT enables clinicians to see X-ray images in full color and with ultra-high resolution.
PCCT achieves this differentiation while decreasing patient exposure to radiation dose
compared to conventional CT. The additional contrast of PCCT images contains clinically
highly relevant and new information which in-turn results in better patient outcomes and
reduced cost of care.
While PCCT scans are used to better identify disease or injury of the body, in security
screening, the improved image quality and 3D images of passenger bags and parcels
will, for example, allow passengers to keep their luggage in their bag as they move
through security checkpoints. Kromek’s PCCT technology partnership with Analogic is
a telling example of an industry collaboration to enhance identification of prohibited and
dangerous items in real time while improving airport logistics and passenger safety.
It was reported in the US in May 2023, the TSA was
awarding up to $1.3bn to procure additional CT
X-ray Scanners for Airport Checkpoints.
KROMEK GROUP PLC Annual Report & Accounts 2023 36
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.
Pandemic
Risks associated
with competition
The Group faces competition from two
types of competitor, specialised companies
targeting discrete markets and divisions of
large integrated device manufacturers. The
Group’s current and future competitors
may develop superior technology or
offer superior products, sell products at
a lower price or achieve greater market
acceptance in the Group’s target markets.
Competitors may have longer operating
histories, greater name recognition,
access to larger customer bases and
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.
Some uncertainties remain worldwide in
relation to the social and economic impact
from any future epidemics or pandemics.
National and international travel restrictions
and social distancing measures would
prevent the Group’s personnel from
visiting countries where restrictions are in
place and would limit potential users of
its products from attending training and/
or trainers from providing training on the
safe use of its products. In the event of
the introduction of another epidemic or
pandemic, medical resources at national
and local levels will be focused on
mitigating the impact of such infections
rather than undertaking non-urgent or
elective procedures that would otherwise
be able to utilise the Group’s products.
There may be future restrictions on the
ability of sales representatives to attend
customer sites. Should Group personnel
become infected or show symptoms of
any such infection, they will be required to
self-isolate and/or take extended time off
work. National social distancing responses
may in future require alternative working
methods (i.e. home-working) which may
not be suitable for all Group employees.
Mitigation
The Board and management continue to
monitor the current and potential impacts
of an epidemic or 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. In the event of a future
pandemic, management would follow and
implement government guidance in each
jurisdiction in which the Group operates
and would continually review its business
continuity plan and financial forecasts to
ensure that the business can serve its
customers efficiently and safely.
KROMEK GROUP PLC Annual Report & Accounts 2023 37
Risks associated
with management of
the Group’s growth
strategy
Risks associated
with product and
technology adoption
rates
Risks associated with
timing of customer or
third-party projects
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.
The ability of the Group to implement its
strategy in rapidly evolving and competitive
markets will require effective management
planning and operational controls.
Significant expansion will be required to
respond to market opportunities and the
Group’s future growth and prospects will
depend on its ability to manage this growth
and to continue to expand and improve
operational and financial performance,
whilst at the same time maintaining
effective cost controls and working capital.
Mitigation
The Group’s experienced management
team is well versed in the current markets
available to the Group and well-positioned
to adapt to any changes in those markets.
The Group also has detailed control
systems including R&D cost control and
extensive project management criteria.
The Group has demonstrated its ability
to identify, execute and integrate M&A
opportunities with its two successful US
acquisitions. The Group has also relocated
one of the US subsidiary companies to a
custom-built facility that specialises in the
production of CZT gamma cameras used
for SPECT.
KROMEK GROUP PLC Annual Report & Accounts 2023 38
Strategic Report (Continued)
Review of Principal Risks (Continued)
Risks associated
with exchange rate
fluctuations
Risks associated with
Brexit
Risks associated
with global electronic
component shortages
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.
As a consequence of the UK’s decision
to leave the European Union at the end of
2020, there continues to be international
uncertainty around the long-term impact
this will have on business and trade. The
Group will continue to monitor Brexit
and other macroeconomic factors such
as US and China relations. Kromek, as
an export led Group, may be subject
to risks associated with international
trade, including operational impacts on
logistics, potential tariffs and duties (for
example on imports on some categories
of semiconductor material), and export
control matters for some of the Group’s
nuclear products as a result of the final
terms of the UK’s departure from the
European Union. There is unlikely to be an
impact on staff relating to any restriction on
the movement of labour.
Mitigation
The Group has significant operations and
market presence in non-EU territories such
as the US and Asia, as well as a portfolio of
products that are market leaders because
of the technological capabilities offered. As
a result, the Group is strategically well-
placed to navigate whatever will be the
long-term outcomes of Brexit.
However, management continually monitors
the political environment and keeps the
impact of Brexit under review and other
global economic events such as the existing
relationship between the US and China.
The Group employs specialist skills within
its functions and applies regular technical
update training to 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 and 2022 Annual
Reports, continued into 2023 although
global availability of components has
started to improve, and component prices
have started to reduce, as a result of
the improving supply in the market. It is
anticipated that the situation will continue
to improve in 2024.
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 large numbers
of components for finished products.
In addition, the Russia-Ukraine conflict
continues to cause some 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.
KROMEK GROUP PLC Annual Report & Accounts 2023 Mitigation
The Group took 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 securing future supply and
thereby continuity of supply for the Group’s
customers. We bolstered our procurement
team and transitioned our buying cycles
to accommodate the resulting longer lead
supply times. This significantly helped
management, enabling greater visibility
over orders. In addition, we widened
and strengthened our supplier base
through establishing an increased number
of strategic, rather than transactional,
relationships with key suppliers.
Management will continue to monitor the
situation closely as global component
availability improves and prices start to
return to more normal levels.
39
Economic conditions
Data security and
privacy, including
cyber-security
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 the current
high inflationary environment, high and
increasing interest rates, 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 war. 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 caused by the factors
outlined above 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 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 impact to the continuity of our
operations.
KROMEK GROUP PLC Annual Report & Accounts 2023 40
Strategic Report (Continued)
Review of Principal Risks (Continued)
Human resources
Protection of
Intellectual Property
Geopolitical risks
including Ukraine and
Taiwan conflicts
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, by implementing a people-
focused strategy, investing in employee
development and diversity and inclusion,
and providing market competitive salaries
and benefits.
The Group operates internationally,
meaning that it is exposed to certain
risks relating to international trade,
regulation, import/export regimes,
sanctions and politics. For example, in
relation to countries seeking to on-shore
or pursuing a ‘buying local’ policy, that
could fetter international sales of products
manufactured outside of such countries.
In addition, the ongoing Russia-Ukraine
conflict and increasing tensions between
China and Taiwan are likely to have an
adverse financial impact on the Company
as the conflict has accelerated the
inflationary pressures already in place
due to the pandemic. Central banks are
expected to continue tightening monetary
policy and raising interest rates, which
increases the probability of a recession.
Such economic pressures affecting global
markets are likely to depress demand
in international sales of the Company’s
products.
Mitigation
In order to mitigate the geopolitical risks,
the Group stays in regular communication
with its customers and is aware of potential
impacts on customer operations. The
maintenance of a robust export control
policy is also a key factor to mitigate the
associated geopolitical risks. In addition,
to appropriately reflect any potential
downturns in revenue, pipeline and forecast
revenue is based on a risk weighted
average.
The Group’s success and ability to
compete effectively are in large part
dependent upon exploitation of proprietary
technologies that the Group has developed
internally, the Group’s ability to protect and
enforce its intellectual property rights so as
to preserve its exclusive rights in respect of
its technologies, and its ability to preserve
the confidentiality of its know-how. The
Group relies primarily on patent laws to
protect its intellectual property rights.
Worldwide, the Group has 246 patents
granted.
In addition, policing unauthorised
use of this technology is difficult and
expensive. There can be no assurance
that the steps the Group takes will
prevent misappropriation of, or prevent an
unauthorised third party from obtaining or
using, the technologies Kromek relies on.
In addition, effective protection may be
unavailable or limited in some jurisdictions.
Any misappropriation of the Group’s
proprietary technology and intellectual
property could have a negative impact on
the Group’s business and its operating
results. Litigation may be necessary in the
future to enforce or protect the Group’s
rights or to determine the validity or
scope of the proprietary rights of others.
Litigation could cause the Group to incur
substantial costs and divert resources and
management attention away from its daily
business and there can be no guarantees
as to the outcome of any such litigation.
Mitigation
Intellectual property is treated as a priority,
group wide. Kromek has increased its
resources in protecting IP during the year.
There are tight controls around the use of
technology set up in the Group, as well
as training to increase awareness of staff.
Kromek also employs an in-house legal
Counsel whose experience in this key area
aids in protecting the Group’s IP.
KROMEK GROUP PLC Annual Report & Accounts 2023 41
Financial risk
The key financial risk is the availability
of sufficient funding until the business
reaches a sustained positive cash
generative position, as the Group
continues to commercialise its product
range. Commercialisation of product
and distribution as well as R&D are both
working capital intensive which results in a
requirement for high liquidity. Constraints
on liquidity could result in delays in
development and production.
Mitigation
The Group has an experienced finance
team that provides effective management
of the Group’s financial exposures, with
a strong focus on cash control. Along
with appropriate financial modelling, the
Group prepares long term business plans
and forecast which ensures liquidity is
monitored. Whilst the Group are expected
to repay their current facility, the Directors
are confident that this will be replaced
by alternative borrowing and additional
financing will be available to the Group.
Post year end, the Group also successfully
concluded a placing, subscription and open
offer which raised £7.4m net of fundraising
costs.
KROMEK GROUP PLC Annual Report & Accounts 2023 42
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 66% of the Group’s shares at 30th April 2023. 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 173 staff during 2023. 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 2023, 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 PLC Annual Report & Accounts 2023 43
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 Review.
Dr Arnab Basu MBE
Chief Executive Officer
21 July 2023
KROMEK GROUP PLC Annual Report & Accounts 2023 44
This page is left intentionally blank
KROMEK GROUP PLC Annual Report & Accounts 2023 45
45
3
Governance
46 Directors’ Biographies
48 Directors’ Report
50 Corporate Governance Report
54 Audit Committee Report
56 Remuneration Committee Report
KROMEK GROUP PLC Annual Report & Accounts 2023 46
46
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 previously LSE-listed group that specialised 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 Moneysupermarket
Group plc. As part of his pro bono activities, he is a lay council member at The University of
Nottingham, and supports a range of small businesses and entrepreneurs in a non-executive or
advisory 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, and started his career in technology businesses in India and the UK. A prominent figure
within the business community, Dr Basu is Chair of Academic Health Science Network for North
East and North Cumbria, an 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
in excess of 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 PLC Annual Report & Accounts 2023 47
47
Mr Lawrence Kinet, Non-Executive Director
Mr Kinet has over 45 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 developing treatment for brain cancer.
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 also chaired (2021-22) 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.
KROMEK GROUP PLC Annual Report & Accounts 2023 48
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 2023.
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 which now represents a separate
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 2023, 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 8 - 17.
Future developments
The Group’s development objectives for the year to 30 April 2023
are disclosed in the Strategic Report on pages 8 - 17.
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 2023.
Results and dividends
The consolidated income statement is set out on page 67.
The Group’s loss after taxation amounted to £6.1m (2022: £4.9m
loss after tax and exceptional items).
The Directors do not recommend the payment of a dividend for
the year ended 30 April 2023 (2022: £nil).
During the year ended 30 April 2023, the Group made political
donations of £nil (2022: £nil) and charitable donations of £6k
(2022: £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 56 to 58.
Details of significant events since the balance sheet date are
contained in note 17 to the parent company financial statements.
Directors’ indemnities
The Group has made qualifying third-party indemnity provisions
for the benefit of its Directors, which were made during the year
and remain in force at the date of this report.
Statement of Directors’ responsibilities in respect of the annual
report and the financial statements
The Directors are responsible for preparing the annual report
and the Group and parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under the
AIM Rules of the London Stock Exchange, they are required
to prepare the Group financial statements in accordance with
International Financial Reporting Standards as adopted by the UK
(IFRSs as adopted by the UK), 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 PLC Annual Report & Accounts 2023 49
• make judgements and estimates that are
reasonable, relevant and reliable;
• state whether they have been prepared in
accordance with IFRSs as adopted by the UK;
• 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 166 and the
percentage of this number that is female is 28%.
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 2023 and 30 June 2023 (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
Hargreaves Lansdown Asset
Management
At 30 April 2023
At 30 June 2023
Number
of shares
% of
voting
rights
Number
of shares
% of
voting
rights
58,331,323
13.51
69,323,505
11.70
Interactive Investor
54,710,071
12.67
62,282,507
10.51
Canaccord Genuity Wealth
Management
Halifax Share Dealing
Polymer Holdings
AJ Bell Securities
Herald Investment Management
Barclays Wealth
38,637,500
8.95
64,665,960
10.92
25,015,673
21,940,142
19,229,527
19,080,059
16,500,154
5.71
5.79
4.45
4.42
3.82
28,033,882
42,032,529
22,491,965
29,080,059
18,292,847
4.73
7.10
3.80
4.91
3.09
By order of the Board
Dr Arnab Basu MBE
Chief Executive Officer
21 July 2023
KROMEK GROUP PLC Annual Report & Accounts 2023 50
Corporate Governance Report
The Directors recognise the importance of sound corporate governance and have chosen to apply the Quoted Companies Alliance
Corporate Governance Code (the “QCA Code”). The QCA Code was developed by the QCA, in consultation with a number of
significant institutional small company investors, as a corporate governance code applicable to companies with shares traded on AIM.
Principle
Compliance
1. Establish a strategy and
business model which promote
long-term value for shareholders
• Kromek is a leading supplier of radiation detection components and devices.
•
•
The Group strategy is set out in the Strategic Report section on pages 8 to 17 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 42 to 43 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 42 to 43 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 36 to 41 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 pages 51 to 53 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 46 to 48 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 49 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. Consider 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 PLC Annual Report & Accounts 2023 51
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 four times during the year ended 30 April 2023,
including one AGM. The following details the Board meetings
during 2022/23, and the attendees:
Date
23/06/2022
28/09/2022
09/12/2022
29/03/2023
Attendees
Rakesh Sharma
Arnab Basu
Paul Farquhar
Lawrence Kinet
Jerel Whittingham
Chris Wilks
Berry Beumer
Rakesh Sharma
Arnab Basu
Paul Farquhar
Lawrence Kinet (virtual)
Jerel Whittingham
Chris Wilks
Berry Beumer (virtual)
Rakesh Sharma
Arnab Basu
Paul Farquhar
Lawrence Kinet
Jerel Whittingham
Chris Wilks
Berry Beumer
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.
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 8 to 17.
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,
KROMEK GROUP PLC Annual Report & Accounts 2023 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.
52
Corporate Governance Report (Continued)
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 2023:
Date
13/07/2022
29/07/2022
30/01/2023
Attendees
Christopher Wilks
Rakesh Sharma
Paul Farquhar
Lawrence Kinet
Jerel Whittingham
Arnab Basu
Christopher Wilks
Rakesh Sharma
Paul Farquhar
Lawrence Kinet
Jerel Whittingham
Arnab Basu
Christopher Wilks
Rakesh Sharma
Paul Farquhar
Lawrence Kinet
Jerel Whittingham
Arnab Basu
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 56 to 58.
KROMEK GROUP PLC Annual Report & Accounts 2023 53
Going concern
As at 30 April 2023, the Group had net current assets of £1.8m
(30 April 2022: £9.0m) and cash and cash equivalents of £1.1m
(30 April 2022: £5.1m) as set out in the consolidated statement of
financial position. The Group made a loss before tax of £7,292k in
the year (2022: £6,129k).
The Directors have prepared detailed forecasts of the Group’s
financial performance for the twelve month period 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 Group has a £5.0m revolving credit facility (RCF) with HSBC.
The expiry date of this facility was 11 March 2023, although
the Bank has extended this date to 31 August 2023. In both
the original and the severe but plausible scenario forecasts, the
Directors indicate that this facility will be replaced by alternative
borrowing and additional financing will be available to the Group.
In addition, post year end, the Group successfully concluded a
placing, subscription and open offer which raised £7.4m net of
fundraising costs. Accordingly, the Board has concluded that
it is almost certain that the required mitigating financing will be
secured, allowing the Group to repay the RCF by the agreed
payment date. The Board has received a confirmation of financial
support from one of the Group’s largest shareholders, in the event
that refinancing the debt takes longer than expected and the
HSBC facility needs to be repaid prior to a new facility being in
place. 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.
KROMEK GROUP PLC Annual Report & Accounts 2023 54
Audit Committee Report
On behalf of the Board, I am pleased to present the Audit
Committee report for the year ended 30 April 2023.
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, including direct conversations between the Chairman
of the Committee and the auditors.
Members of the Audit Committee
The Committee consists of four Independent Non-Executive
Directors; myself (as Chair), Lawrence Kinet, Jerel Whittingham
and Rakesh Sharma.
The Board is satisfied that I, as Chairman of the Committee,
have recent and relevant financial experience. I am currently
Chief Financial Officer at ECO Animal Health Group plc and was
formerly Chief Financial Officer at Signum Technology, which I
co-founded in 2012. Prior to this, I was Chief Financial Officer
at Sondex plc, where I successfully managed their listing on the
Main Market of the London Stock Exchange in 2003 and made
several post-IPO acquisitions. In 2007, Sondex was acquired
by GE. After graduating from Durham University with a BSc in
Applied Physics and Electronics, I initially joined Marconi Space
Systems designing power systems for space craft, and then
trained as a Chartered Accountant at Arthur Young (now EY).
Duties
The main duties of the Audit Committee are set out in its Terms
of Reference, which are available on the Group’s website (www.
kromek.com) and are also 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 2023 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 2023 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 2023 and the 2022 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. 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 2023 audit was £326k (2022: £255k). There
were no unadjusted material differences reported by the auditor to
the Audit Committee.
Fair, balanced and understandable
The content and disclosures made in the Annual Report are
subject to a verification exercise by management to ensure that
no statement is misleading in the form and context in which it
is included, no material facts are omitted which may make any
statement of fact or opinion misleading, and implications which
might be reasonably drawn from the statement are true. The
Committee was satisfied that it was appropriate for the Board
to approve the Financial Statements and that the Annual Report
taken as a whole is fair, balanced and understandable such
that it allows shareholders to assess the Group’s position and
performance against the Group’s strategy and business model.
KROMEK GROUP PLC Annual Report & Accounts 2023 55
Significant issues
The Committee reviewed the key judgements applied to a number of significant issues in the preparation of the Financial Statements.
The review included consideration of the following:
Issue
How the committee addresses
Revenue Recognition
Intangible assets capitalised,
development expenditure and
impairment
Valuation of investments in
subsidiaries and intercompany
receivables
Going Concern
The Group has well-developed accounting policies for revenue recognition in compliance with IFRS15 as
shown in Notes 2 and 4 to the Financial Statements. The Group derives revenue in its UK and USA operations
from the sale of products and services including the receipt of grants and income from contracts. The Group
recognises revenue at the point its performance obligation is met, which may occur at different points in the
revenue cycle dependent on contractual terms and shipping methods.
The Committee receives reports from management and from the auditors to evidence that the policies are
complied with across the Group
The Group’s accounting policy for intangible assets is included within the accounting policies in note 2 and the
components of intangible assets are set out in note 15.
In practice, work that is undertaken in the development of the automated wide area pathogen detection and
development of the Group’s advanced imaging products are expected to give rise to future economic benefit
and are tested against the conditions for capitalisation set out in note 15 to these accounts.
Goodwill and intangible asset impairment calculations (including assumptions about future performance of the
Group) and sensitivities are undertaken at least annually by management and reviewed by the Board and the
Committee.
The Committee also considered and agreed the appropriateness of the sensitivity analysis disclosures.
Included in the Parent Company’s Statement of Financial Position are investments in subsidiaries of £6.1m
(2022: £5.7m) and intercompany receivables of £77.2m (2022: £71.7m).
Management prepared an impairment assessment of these balances which largely related to forecasts of the
subsidiaries’ performance to which these balances are attributable.
The Committee concluded that the investment in subsidiaries and the intercompany receivable in Kromek PLC
is fairly stated and that no impairment exists.
The Group continues to prepare its Financial Statements on a going concern basis, as set out in Note 2 to the
Financial Statements on page 71. Management produces working capital forecasts on a regular basis. The
Board reviews those forecasts at each Board meeting. The Board continues to scrutinise the Group’s detailed
economic forecasts to ensure that all relevant events and conditions are being incorporated that might affect
both short, medium and long-term performance. Having reviewed the forecasts as at the date of this Report,
the Committee concluded that it was appropriate for the Group to continue to prepare its Financial Statements
on a going concern basis.
Shareholders’ attention is drawn to the section titled ‘Key Audit
Matters” in the Report from the independent auditor on pages
60 to 65, about specific areas as reported by the independent
auditor to provide its opinion on the Financial Statements as a
whole.
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
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. The need for an internal audit function
or specific internal audit reviews are considered on an ongoing
basis.
Risk management and internal controls
As described on page 51 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
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
21 July 2023
KROMEK GROUP PLC Annual Report & Accounts 2023 56
Remuneration Committee Report (Unaudited)
As the 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
50%–75% 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 as required to provide guidance on
benchmarks, scheme structures and metrics.
Service contracts
Arnab Basu (CEO), Paul Farquhar (CFO) and Berry Beumer (COO)
have service contracts with a notice period (to the Company) of
nine months in respect of each Executive Director.
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 2023 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 Farquhar
Berry Beumer
30 April 2023
£’000
30 April 2022
£’000
4
14
7
4
13
6
1 In 2023 Mr Basu opted to take part of his contractual pension
contribution entitlement as salary in lieu of contributions to the Company
pension scheme
Directors’ shareholdings
Beneficial interests of the Directors in the shares of the Group are
shown below:
30 April 2023
30 April 2022
Arnab Basu
Rakesh Sharma
Paul Farquhar1
Berry Beumer
Lawrence Kinet
Number
2,988,750
807,539
66,500
80,000
350,000
Jerel Whittingham
364,890
Christopher Wilks
177,941
1 Includes shares owned by family
%
0.7
0.2
0.0
0.0
0.1
0.1
0.0
Number
2,988,750
469,195
66,500
80,000
350,000
364,890
177,941
%
0.7
0.1
0.0
0.0
0.1
0.1
0.0
KROMEK GROUP PLC Annual Report & Accounts 2023 57
Directors’ emoluments for the year ended 30 April 2023
The table below forms part of the audited financial statements:
Non-executive Chairman
Rakesh Sharma
Executive
Arnab Basu1
Paul Farquhar2
Berry Beumer
Non-executive
Lawrence Kinet
Jerel Whittingham
Christopher Wilks
Total
Salary
£’000
Benefits
£’000
Bonus
paid
£’000
Pension
contributions
£’000
Total
emoluments
2023
£’000
Total
emoluments
2022
£’000
80
264
177
243
39
42
42
887
-
3
1
16
-
-
-
20
-
-
-
-
-
-
-
-
-
4
14
7
-
-
1
26
80
271
192
266
39
42
43
933
80
270
180
236
26
28
28
890
1 The 2023 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
2 The 2023 salary of Paul Farquhar includes £6,000 of compensation taken as cash in lieu of a Group car
None of the executive or non-executive Directors exercised any share options in the year ended 30 April 2023 (2022: nil).
Executive Directors’ share incentive scheme (LTIP)
Share incentive scheme for executive Directors
The Remuneration Committee agreed, in December 2022, an incentive award scheme for Arnab Basu, Paul Farquhar and Berry Beumer,
to offer them up to 2,500,000, 1,705,000 and 2,277,270 shares respectively, at a price of 1p per share, to vest based on specified
performance criteria.
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 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 2023, the LTIP incentive option shares issued in fiscal years 2022 and 2023, remained unvested.
Share price during the year
During the year to 30 April 2023, the highest share price was 14.40p (2022: 21.00p) and the lowest share price was 5.02p (2022:
9.98p). The market price of the Group’s shares at 30 April 2023 was 6.50p (30 April 2022: 10.25p).
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.
KROMEK GROUP PLC Annual Report & Accounts 2023 58
Remuneration Committee Report (Continued)
Executive Directors’ share options
Whilst the issue of equity incentives for executive Directors is primarily focused on the LTIP scheme as detailed on the previous page,
the Group does make occasional and targeted use of market price options for executive Directors outside the LTIP.
The following table shows the movement in the total share options that have been granted to executive Directors outside the LTIP; these
options are not linked to any specified performance criteria:
Director
Date of grant
Arnab Basu
20 Nov 2011
Arnab Basu
14 Dec 2020
Arnab Basu
29 April 2021
Arnab Basu
1 May 2021
Exercise
price p
At 30 April
2023
number
At 30 April
2022
number
Expiry date
20.0
12.0
1.0
1.0
1,000,000
1,000,000
20 Nov 2024
1,250,000
1,250,000
14 Dec 2030
110,000
110,000
30 April 2025
400,000
400,000
1 May 2031
Paul Farquhar
15 Oct 2020
12.0
1,000,000
1,000,000
15 Oct 2030
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
1.0
150,000
150,000
1 May 2031
180,000
180,000
1 Jan 2026
1,250,000
1,250,000
14 Dec 2030
150,000
150,000
30 April 2025
150,000
150,000
1 May 2031
1 Awarded to Mr Beumer prior to him being appointed as a Director
Jerel Whittingham
Remuneration Committee Chairman
21 July 2023
KROMEK GROUP PLC Annual Report & Accounts 2023 59
59
4
Financial Statements
60 Independent Auditor’s Report
66 Group Statement of
Comprehensive Income
67 Consolidated Statement of
Comprehensive Income
68 Consolidated Statement of
Financial Position
69 Consolidated Statement of
Changes in Equity
70 Consolidated Statement of
Cash Flows
71 Notes to the Consolidated
Financial Statements
103 Company Financial Statements
KROMEK GROUP PLC Annual Report & Accounts 2023 60
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 2023 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 2023 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.
•
•
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the Group in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Director’s use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our audit procedures to evaluate the Director’s assessment of the
Group’s and the Parent 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;
• 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;
• Obtaining, and reviewing correspondence and other
supporting documentation, between the Group and potential
sources of 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;
• Reviewing post year end bank statements to agree the net
proceeds from the recent equity fundraise in May 2023;
• 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
statements.
The Directors have prepared a detailed cashflow forecast
including a plausible worst-case scenario. The base case
forecasts and plausible worst-case scenario, both indicate a
requirement for the Group to refinance its debt in order to repay
their existing debt facility, to increase their working capital and
also ensure the Group can continue operating as a going concern
throughout the forecast period.
We have obtained third party confirmation that the existing RCF
is not repayable until 31 August 2023. We have also reviewed
documentation that supports the Directors’ view that it’s almost
certain the required financing will be obtained to refinance the
existing RCF. We have reviewed the documentation regarding
potential support from a key shareholder, should the refinancing
period be longer than expected, and are comfortable that this
is an adequate mitigant should it take longer than expected to
refinance the existing RCF.
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.
KROMEK GROUP PLC Annual Report & Accounts 2023 61
Our application of materiality
An overview of the scope of our audit
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
£326,000. This was determined with reference to 5% of the
average normalised loss for the past 5 years. This was selected
as an appropriate measure of materiality on the basis that this
is one of the main KPI’s for the Group and is considered an
important metric for external shareholders.
On the basis of our risk assessment and review of the Group’s
control environment, performance materiality was set at 75% of
materiality, being £245,000.
The reporting threshold to the Audit and Risk Committee was set
as 5% of materiality, being £16,000. 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 £245,000. 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 0.3% 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 £184,000.
The reporting threshold to the Audit and Risk Committee was
set as 5% of materiality, being £12,250. If in our opinion the
differences below this level warranted reporting on qualitative
grounds, these would also be reported.
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 to group materiality and made 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
during an interim and final audit committee meeting, in adhoc
communications throughout the audit, and through the issue of
our final audit findings report for review at the closing meeting
with the Directors and the Audit Committee.
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.
KROMEK GROUP PLC Annual Report & Accounts 2023 62
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 £17.31m (2022: £12.06m).
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 considered revenue recognition policies adopted
by management for each stream of revenue, as well as reviewing
specific contracts.
This included but was not limited to:
- 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. We also performed product walkthroughs for in-year
revenue to ensure correct adoption of the incoterms applicable
with regards to revenue recognition; and
For all revenue streams, we performed testing of revenue
around the year end to ensure that revenue was recorded
in the correct period. 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 recognise
KROMEK GROUP PLC Annual Report & Accounts 2023 63
Key Audit Matter Description
How the matter was addressed in the audit
Application of IAS 38, Intangible Assets,
and subsequent impairment assessment of
intangible assets under IAS 36
Our audit work focused on assessing the forecasts presented
by management to support the valuation of the capitalised
development costs.
Included in the Group Statement of Financial Position are
capitalised development costs of £29.3m (2022: £26.5m).
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
This included but was not limited to:
- Reviewing each family of assets with reference to internal and
external impairment indicators noted per IAS 36;
- Agreeing future revenues included in the forecast to committed
contracts;
- Verifying the forecast gross margin is appropriate and includes
relevant costs;
- Agreeing pipeline sales to 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 of current 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;
and
- 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 requirements of IAS 38, intangible assets,
we obtained and scrutinised, management’s assessment of
capitalised development cost additions to ensure that these met
the definition criteria of development costs. We challenged various
assumptions made by management and considered alternative
recognition in forming our conclusions
KROMEK GROUP PLC Annual Report & Accounts 2023
64
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 £6.1m (2022: £5.7m)
and intercompany receivables of £77.2m (2022: £71.7m).
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.
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
We obtained and critically assessed management’s impairment
assessment of these balances, which largely related to forecasts
of the subsidiaries’ performance to which these balances are
attributable . This consisted of, but was not limited to:
- Agreeing future revenues included in the forecast to committed
contracts;
- Agreeing pipeline sales to 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 of current 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; and
- Performing our own sensitivity analysis to assess the level
of headroom regarding the balance of investments and
intercompany receivables.
•
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 24 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.
KROMEK GROUP PLC Annual Report & Accounts 2023 65
In preparing the financial statements, the Directors are responsible
for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
•
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
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
21 July 2023
10 Queen Street Place
London
EC4R 1AG
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.
We evaluated management’s incentives and opportunities for
fraudulent manipulation of the financial statements (including
the risk of override of controls) and determined that the principal
risks were related to posting inappropriate journal entries and
management bias in accounting estimates. Audit procedures
performed by the engagement team included:
•
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;
KROMEK GROUP PLC Annual Report & Accounts 2023 66
Group statement of comprehensive income
For the year ended 30 April 2023
Continuing operations
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Change in fair value of derivative
Note
4
5
2023
£’000
2022
£’000
17,309
(8,374)
8,935
121
(612)
(14,570)
77
12,055
(6,419)
5,636
1,410
(551)
(12,208)
-
Operating loss (before exceptional items)
(6,049)
(5,713)
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 per share
- basic (p)
9
10
11
6
12
14
The notes on pages 71 to 102 form part of these financial statements.
-
132
(6,049)
(5,581)
2
(1,245)
34
(582)
(7,292)
(6,129)
1,192
1,211
(6,100)
(4,918)
(1.4)
(1.1)
KROMEK GROUP PLC Annual Report & Accounts 2023 67
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 2023
2023
£’000
2022
£’000
(6,100)
(4,918)
Exchange differences on translation of foreign operations
(166)
2,063
Total comprehensive loss for the year
(6,266)
(2,855)
The notes on pages 71 to 102 form part of these financial statements.
KROMEK GROUP PLC Annual Report & Accounts 2023 68
Consolidated statement of financial position
As at 30 April 2023
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
Derivative financial instruments
Lease obligation
Net current assets
Non-current liabilities
Deferred income
Lease obligation
Borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium account
Merger reserve
Translation reserve
Accumulated losses
Total equity
Note
15
16
17
18
20
21
21
23
25
26
24
23
24
25
27
28
29
30
2023
£’000
1,275
30,554
9,831
3,758
45,418
10,894
5,529
940
1,097
18,460
63,878
(7,436)
(8,318)
(517)
(405)
(16,676)
1,792
(1,021)
(4,089)
(568)
(5,678)
(22,354)
41,524
4,319
72,943
21,853
1,897
(59,488)
41,524
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
The notes on pages 71 to 102 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 21 July 2023. They were signed on its behalf by:
Dr Arnab Basu MBE
Chief Executive Officer
KROMEK GROUP PLC Annual Report & Accounts 2023 69
Consolidated statement of changes in equity
For the year ended 30 April 2023
Share capital
£’000
Share
premium
account
£’000
Merger
reserve
£’000
Translation
reserve
£’000
Retained
losses
£’000
Total
equity
£’000
Balance at 1 May 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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(49,060)
50,055
(4,918)
(4,918)
2,063
-
2,063
2,063
(4,918)
(2,855)
-
236
236
Balance at 30 April 2022
4,319
72,943
21,853
2,063
(53,742)
47,436
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
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,100)
(6,100)
(166)
-
(166)
(166)
(6,100)
(6,266)
-
354
354
Balance at 30 April 2023
4,319
72,943
21,853
1,897
(59,488)
41,524
The notes on pages 71 to 102 form part of these financial statements.
KROMEK GROUP PLC Annual Report & Accounts 2023 70
Consolidated statement of cash flows
For the year ended 30 April 2023
Net cash generated from/(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
New borrowings
Proceeds from the issue of convertible loan notes
Payment of borrowings
Payment of lease liability
Interest paid
Note
31
10
17
16
16
26
32
21
11
2023
£’000
2022
£’000
(3,530)
(3,530)
2
(269)
(183)
(4,821)
(5,271)
1,100
2,840
(1,258)
(692)
(703)
34
(651)
(179)
(5,619)
(6,415)
760
-
(1,340)
(646)
(340)
Net cash generated from/(used in) financing activities
1,287
(1,566)
Net 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 on pages 71 to 102 form part of these financial statements.
(3,787)
5,081
(197)
1,097
(11,511)
15,602
990
5,081
KROMEK GROUP PLC Annual Report & Accounts 2023 71
Notes to the consolidated financial statements
For the year ended 30 April 2023
1.
GENERAL INFORMATION
Kromek Group plc is a company incorporated and domiciled in the United Kingdom under the Companies Act 2006. These financial
statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group
operates. Foreign operations are included in accordance with the policies set out in note 2.
The Group 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.
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The Group’s financial statements have been prepared in accordance with IFRS and International Financial Reporting Interpretations
Committee (“IFRIC”).
The financial statements have been prepared on the historical cost basis modified for assets recognised at fair value on acquisition.
Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies
adopted are set out below.
Basis of consolidation
The consolidated financial statements incorporate the results and net assets of the Group and entities controlled by the Group (its
subsidiaries) made up to 30 April each year. Control is achieved where the Group has the power to govern the financial and operating
policies of an investee entity so as to obtain benefits from its activities.
The results of subsidiaries acquired during the year are included in the consolidated income statement from the effective date of acquisition
or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to results of subsidiaries to bring the
accounting policies used into line with those used by the Group. All intra-Group transactions, balances, income and expenses, and profits
are eliminated on consolidation
Going concern
As at 30 April 2023, the Group had net current assets of £1.8m (30 April 2022: £9.0m) and cash and cash equivalents of £1.1m (30 April
2022: £5.1m) as set out in the consolidated statement of financial position. The Group made a loss before tax of £7,292k in the year
(2022: £6,129k).
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 Group has a £5.0m revolving credit facility (RCF) with HSBC. The expiry date of this facility was 11 March 2023, although the Bank
has extended this date to 31 August 2023. In both the original and the severe but plausible scenario forecasts, the Directors indicate
that this facility will be replaced by alternative borrowing and additional financing will be available to the Group. In addition, post year end,
the Group successfully concluded a placing, subscription and open offer which raised £7.4m net of fundraising costs. Accordingly, the
Board has concluded that it is almost certain that the required mitigating financing will be secured, allowing the Group to repay the RCF
by the agreed payment date. The Board has received a confirmation of financial support from one of the Group’s largest shareholders,
in the event that refinancing the debt takes longer than expected and the HSBC facility needs to be repaid prior to a new facility being
in place. 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.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
KROMEK GROUP PLC Annual Report & Accounts 2023 72
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.
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
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.
KROMEK GROUP PLC Annual Report & Accounts 2023 73
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and profit recognition (continued)
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.
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.
KROMEK GROUP PLC Annual Report & Accounts 2023 74
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
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
KROMEK GROUP PLC Annual Report & Accounts 2023 75
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Taxation (continued)
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. Assets that have been developed are not amortised until they are available for use and
commercial sale. Provision is made for any impairment.
Amortisation of the intangible assets recognised on the acquisitions of NOVA R&D, Inc. and eV Products, Inc. are recognised in the
income statement on a straight-line basis over their estimated useful lives of between five and fifteen years.
Patents and trademarks
Patents and trademarks are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives.
Impairment of tangible and intangible assets, excluding goodwill
At each statement of financial position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that
are independent from other assets, the Group estimates the recoverable amount of the cash generating unit (CGU) to which the asset
belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs,
or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.
An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset
may be impaired.
KROMEK GROUP PLC Annual Report & Accounts 2023
76
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of tangible and intangible assets, excluding goodwill
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 10.25% (2022: 11.35%) 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
(i) Recognition and initial measurement
Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially
recognised when the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured
at fair value plus, for an item not at Fair Value Through Profit or Loss (FVTPL), transaction costs that are directly attributable to
its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
(ii) Classification and subsequent measurement
Financial assets
(a) Classification
On initial recognition, a financial asset is classified as measured at: amortised cost; Fair Value through Other Comprehensive
Income (FVOCI) – debt investment; FVOCI – equity investment; or FVTPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for
managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period
following the change in the business model.
A financial asset is measured at amortised cost if it meets both of the following conditions:
•
•
It is held within a business model whose objective is to hold assets to collect contractual cash flows; and
Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent
changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL.
Investments in subsidiaries are carried at cost less impairment.
Cash and cash equivalents comprise cash balances and call deposits.
(b) Subsequent measurement and gains and losses
Financial assets at FVTPL – these assets (other than derivatives designated as hedging instruments) are subsequently measured
at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.
KROMEK GROUP PLC Annual Report & Accounts 2023 77
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments (continued)
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.
Convertible loan notes
The convertible loan issued by the Group is a hybrid financial instrument, whereby a debt host liability component and an
embedded derivative liability component was determined at initial recognition. The conversion option did not satisfy the fixed
for fixed equity criterion (fixed number of shares and fixed amount of cash). Conversion features that are derivative liabilities are
accounted for separately from the host instrument. The embedded derivative is accounted for as a financial instrument through
profit or loss and is initially measured at fair value, and changes therein are recognised in profit or loss. The debt host liability is
accounted for at amortised cost. In the case of a hybrid financial instrument, IFRS 9 requires that the fair value of the embedded
derivative is calculated first and the residual value (residual proceeds) is assigned to the host financial liability. The initial recognition
of the embedded derivative conversion feature has been recognised as a liability on the balance sheet with any changes to the
fair value of the derivative recognised in the income statement. It has been fair valued using a Black Scholes simulation which was
performed at the transaction date and the period end date.
The debt host liability will be accounted for using the amortised cost basis with an effective interest rate of 16%. The Group will
recognise the unwinding of the discount at the effective interest rate, until the maturity date, the carrying amount at the maturity
date will equal the cash payment required to be made.
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.
KROMEK GROUP PLC Annual Report & Accounts 2023 78
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intra-Group financial instruments (continued)
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.
3.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 2, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision
affects both current and future periods.
Critical judgements in applying the Group’s accounting policies
The following are the critical judgements that the Directors have made in the process of applying the Group’s accounting policies and that
have the most significant effect on the amounts recognised in the financial statements.
Development costs
As described in note 2, Group expenditure on development activities is capitalised if it meets the criteria as per IAS 38. Management have
exercised and applied judgement when determining whether the criteria of IAS 38 is satisfied in relation to development costs. As part
of this judgement process, management establish the future Total Addressable Market relating to the product or process, evaluate the
operational plans to complete the product or process and establish where the development is positioned on the Group’s technology road
map and asses the costs against IAS 38 criteria. This process involves input from the Group’s Chief Technical Officer plus the operational,
financial and commercial functions and is based upon detailed project cost analysis of both time and materials.
Performance obligations arising from customer contracts
As described in note 2, the Group recognises revenue as performance obligations are satisfied when control of the goods and services
is transferred to the customer. Management have exercised and applied judgment in determining what the performance obligations
are and whether they are satisfied over time or at a point in time. In applying this judgement, management considers the nature of the
overall contract deliverable, legal form of the contract and economic resources required for the performance obligation to be satisfied.
Management disaggregate revenues by sales of goods and services, revenue from development grants (such as Innovate UK) and
revenue from contract customers. Typically, revenue from the sales of goods and services is recognised at a point in time. Revenue from
development grants and contract customers are recognised either over time or at a point in time depending on the characteristics of the
specific contract when applying IFRS15.
KROMEK GROUP PLC Annual Report & Accounts 2023 79
3.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)
Cash Generating Units
Management have exercised judgement in determining the number of CGUs. As set out in note 15, An asset’s CGU is the smallest
identifiable group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other
assets or groups of assets. An asset or group of assets must be identified as a cash-generating unit where an active market exists for the
output produced by that asset or group of assets, even if some or all of the output is used internally. This is because the asset or group
of assets could generate cash inflows that would be largely independent of the cash inflows from other assets or group of assets. The
smallest identifiable group of assets identified by management can be split into three markets: advanced imaging, CBRN and biological
threat detection. CGUs are not necessarily consistent with the way management monitors the business. Management continues to
oversee and monitor the business as two separate operating segments – UK and US and as three separate CGUs as noted above.
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.
Contract revenue
ii)
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.
R&D Tax credit
iii)
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 £893k.
Recoverability of receivables and amounts recoverable on contract (“AROC”)
iv)
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 £45,418k 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. 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.
Calculation of share-based payment charges
vi)
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.
The simplest option pricing model is the Black-Scholes model, which tends to be suitable for simple forms of share awards, in
particular where there are no market-based performance conditions. More complex share schemes require the use of a more
complex model such as the Monte Carlo Model. Judgement is applied in determining the most appropriate valuation model and
estimates are used in determining the inputs to the model. The Group have engaged a third-party expert in FY23 to value the LTIPs
granted in year using the Monte Carlo Model.
Convertible loan notes
vii)
The Group issued £2.8m of convertible loan notes during the year. The convertible loan is a hybrid financial instrument, whereby a
debt host liability component and an embedded derivative liability component was determined at initial recognition. The conversion
option did not satisfy the fixed for fixed equity criterion (fixed number of shares and fixed amount of cash).
For convertible notes with embedded derivative liabilities, the fair value of the embedded derivative liability is determined first and
the residual amount is assigned to the debt host liability.
The embedded derivative has been fair valued using a Black Scholes simulation which was performed at the transaction date
and the period end date. The future expected market share price of the Group and the volatility of the share price are the key
KROMEK GROUP PLC Annual Report & Accounts 2023 80
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
3.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)
Key sources of estimation uncertainty (continued)
vii)
Convertible loan notes (continued)
estimates that are critical in the determination of the fair value of the embedded derivative and subsequently the debt host liability
of the convertible loan notes.
4.
OPERATING SEGMENTS
Products and services from which reportable segments derive their revenues
For management purposes, the Group is organised into two geographical business units from which the Group currently operates (US
and UK) and it is these operating segments for which the Group is providing disclosure. Whilst there are two operating segments (US and
UK), the Group recognises three CGUs (CBRN, medical imaging and biological threat detection) on the basis that operating segments
can consist of multiple CGUs. Both operating segments serve the three principal key markets. However, typically, the US business unit
focuses principally on advanced imaging and the UK focuses on CBRN and biological threat detection. However, this arrangement is
flexible and can vary based on the geographical location of the Group’s customer.
The chief operating decision maker is the Board of Directors, 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
Other
Total revenue
2023
£’000
3,944
6,110
2,071
5,031
153
2022
£’000
2,033
5,807
1,556
2,601
58
17,309
12,055
The Group has aggregated its CGUs, being CBRN, advanced imaging and biological threat detection, 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 PLC Annual Report & Accounts 2023 4.
OPERATING SEGMENTS (CONTINUED)
Analysis by geographical area (continued)
A geographical analysis of the Group’s revenue by origin is as follows:
Year ended 30 April 2023
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
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
Change in fair value of derivative
Share-based payment charge
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
81
UK Operations
£’000
US Operations
£’000
Total for Group
£’000
11,530
226
2,164
13,920
(8,529)
5,391
(1,881)
2
(975)
(2,854)
1,192
(1,662)
973
(1,192)
1,004
1,558
(77)
354
958
42
2,133
1,004
(44)
2,761
1,558
35,687
(16,433)
14,844
-
51
14,895
(2,977)
11,918
(4,168)
-
(270)
(4,438)
-
(4,438)
270
-
899
1,333
-
-
(1,936)
227
3,752
899
-
2,243
1,333
28,191
(5,921)
26,374
226
2,215
28,815
(11,506)
17,309
(6,049)
2
(1,245)
(7,292)
1,192
(6,100)
1,243
(1,192)
1,903
2,891
(77)
354
(978)
269
5,885
1,903
(44)
5,004
2,891
63,878
(22,354)
KROMEK GROUP PLC Annual Report & Accounts 2023 82
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
4.
OPERATING SEGMENTS (CONTINUED)
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
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)
34
(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
9,013
-
245
9,258
(2,548)
6,710
(1,981)
-
(234)
132
(2,083)
(17)
(2,100)
234
17
741
1,021
-
(132)
(219)
527
3,458
741
-
1,599
1,021
18,049
646
1,472
20,167
(8,112)
12,055
(5,713)
34
(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
39,494
(13,376)
27,929
(6,611)
67,423
(19,987)
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 PLC Annual Report & Accounts 2023 4.
OPERATING SEGMENTS (CONTINUED)
Revenues from major products and services
The Group’s revenues from its major products and services were as follows:
Product revenue
Research and development revenue
Consolidated revenue
2023
£’000
14,768
2,541
17,309
83
2022
£’000
9,935
2,120
12,055
Information about major customers
Included in revenues arising from US operations are revenues of approximately £4,688k (2022: £2,178k) that arose from the Group’s
largest commercial customer. Included in revenues arising from UK operations are revenues of approximately £1,243k (2022: £955k) that
arose from a major commercial customer.
5.
OTHER OPERATING INCOME
Coronavirus Job Retention Scheme
Miscellaneous
PPP loan forgiveness
Total other operating income
2023
£’000
-
121
-
121
2022
£’000
19
17
1,374
1,410
Miscellaneous income relates to work undertaken during the financial year on a duty saving project. An Advance Tariff Ruling application
was granted, which resulted in a retrospective duty claim dating back three years.
Other operating income from the prior year 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.
6.
LOSS BEFORE TAX FOR THE YEAR
Loss before tax for the year has been arrived at after charging/(crediting):
Net foreign exchange (gains)/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 of trade receivables and AROC (see note 9)
Staff costs (see note 8)
2023
£’000
(98)
882
1,910
(44)
2,891
4,858
-
11,166
2022
£’000
155
1,308
1,751
(44)
2,569
3,003
(132)
9,543
KROMEK GROUP PLC Annual Report & Accounts 2023 84
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
7.
AUDITOR’S REMUNERATION
The analysis of the auditor’s remuneration is as follows:
Fees payable to the Company’s auditor and their associates for other services to the Group
– The audit of the Company and its subsidiaries
Total audit fees
8.
STAFF COSTS
The average monthly number of employees (excluding non-executive directors) was:
Directors (executive)
Research and development, production
Sales and marketing
Administration
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Pension scheme contributions
Share-based payments
2023
£’000
150
150
2022
£’000
120
120
2023
Number
2022
Number
3
149
8
13
173
2023
£’000
9,418
824
570
354
11,166
3
133
5
13
154
2022
£’000
8,069
739
499
236
9,543
The total Directors’ emoluments (including non-executive Directors) was £933k (2022: £890k). The aggregate value of contributions
paid to money purchase pension schemes was £26k (2022: £24k) in respect of four Directors (2022: four Directors). For a breakdown
of remuneration by Director, refer to the Directors’ emoluments table on page 37. There has been no exercise of share options by the
Directors in the period and therefore no gain recognised in the year (2022: nil).
The highest paid Director received emoluments of £270k (2022: £270k) and amounts paid to money purchase pension schemes was
£4k (2022: £4k).
Key management compensation:
Wages and salaries and other short-term benefits
Social security costs
Pension scheme contributions
Share-based payment expense
2023
£’000
1,096
117
33
273
1,519
2022
£’000
1,050
112
32
146
1,340
Key management comprise the Executive Directors, Non-Executive Directors and senior operational staff. There were three Executive
Directors in 2023 (2022: three); four Non-Executive Directors in 2023 (2022: four) and two senior operational staff in 2023 (2022: two).
KROMEK GROUP PLC Annual Report & Accounts 2023 9.
EXCEPTIONAL ITEMS
Exceptional items, booked to operating costs, comprised the following:
Reversal of trade receivables and AROC
Total exceptional items
2023
£’000
-
-
85
2022
£’000
(132)
(132)
The Group has reversed £nil in 2023 (2022: £132k) 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 £13.1m was
recognised in FY2020 as an exceptional item arising as a result of the impact 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 recovery 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 2022 and 2023 on the basis that
the recoverability of this receivable remains uncertain.
10.
FINANCE INCOME
Bank deposits
Total finance income
11.
FINANCE COSTS
Interest on bank overdrafts, loans and borrowings
Interest expense for lease arrangements
Interest on convertible loan notes
Total interest expense
2023
£’000
2
2
2023
£’000
703
262
280
1,245
2022
£’000
34
34
2022
£’000
340
242
-
582
KROMEK GROUP PLC Annual Report & Accounts 2023 86
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
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
2023
£’000
940
252
-
2022
£’000
942
286
(17)
1,192
1,211
-
-
-
-
-
-
Total tax credit in income statement
1,192
1,211
The main rate of UK corporation tax for the financial year was 19.49% (2022: 19%) whilst the US federal corporate tax rate is 21%. The
deferred tax asset at 30 April 2023, which has not been recognised, has been calculated at 19.49% (2022: 19%).
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 19.49% (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
2023
£’000
(7,292)
1,422
36
396
63
-
(1,251)
252
274
1,192
2022
£’000
(6,129)
1,165
(184)
456
124
-
(815)
286
179
1,211
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 19.49% (2022: 19%). 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 (2022: £nil).
KROMEK GROUP PLC Annual Report & Accounts 2023 87
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
2023
£’000
(6,100)
2023
Number
2022
£’000
(4,918)
2022
Number
Weighted average number of ordinary shares for the purposes of basic losses per share
431,851,820
431,851,820
Effect of dilutive potential ordinary shares:
Share options
312,909
350,556
Weighted average number of ordinary shares for the purposes of diluted losses per share
432,164,729
432,202,376
Basic (p)
2023
(1.4)
2022
(1.1)
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 2022 and 30 April 2023
Accumulated impairment losses
At 1 May 2022 and 30 April 2023
Carrying amount
At 1 May 2022 and 30 April 2023
£’000
1,275
-
1,275
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit
from that business combination. Before recognition of impairment losses, the carrying amount of goodwill had been allocated as follows:
CGU
Advanced Imaging
CBRN
Biological Threat Detection
Total
Goodwill
£’000
1,275
-
-
1,275
Intangibles
£’000
13,813
7,218
9,523
30,554
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 the advanced imaging CGU.
KROMEK GROUP PLC Annual Report & Accounts 2023 88
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
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. In undertaking the impairment test, management
considered both internal and external sources of information. The impairment testing did not identify any impairments in each of the CGUs.
Forecast cash flows
Management has prepared cash flow forecasts for 10 years (CBRN/biological threat detection) and 15 years (advanced imaging) 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.
Advanced Imaging
The key assumptions to the value in use calculations are set out below:
- Growth rate. The 2023 model includes a prudent 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 advanced imaging CGU operates in. No growth is assumed after 10 years.
- Discount rates. Management have derived a pre-tax discount rate of 8.85% (2022: 11.35%) using the latest market assumptions
for the risk-free rate, the equity premium and the net cost of debt, which are all based on publicly available sources, as well as
adjustments for forecasting risk for which management considered the historical growth of the entity as well as the visibility of
cash flows from a contracted perspective, which are all based on publicly available sources. The discount rate is lower than
that used in 2022. 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 advanced imaging forecast:
• Revised year 1 and year 2 cashflows to match the severe but plausible budget conducted as part of the Going Concern review.
• Modelled a smoother increase in revenues from the year 1 and year 2 budgets to year 15 whilst taking into consideration
potential capacity constraints.
CBRN
- Growth rate. The 2023 model includes a prudent growth rate of 25% per annum which is reflective of recent growth in this
particular sector of the business. This growth rate considers 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 CBRN CGU operates in. No growth is
assumed after 10 years.
- Discount rates. Management have derived a pre-tax discount rate of 10.92% (2022: 10.50%) 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 2022. 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 scenarios incorporates the following into the CBRN forecast:
• Revised year 1, 2 and 3 cashflows to match the severe but plausible budget conducted as part of the Going Concern review.
• Modelled a smoother increase in revenues from the year 1 and year 2 budgets to year 10.
Biological Threat Detection
- Growth rate. The 2023 model is based on management’s assumption of future programme revenue and product delivery. The
forecast revenue consists of known revenue opportunities across four key areas. For prudency additional upside revenue from
other known opportunities has been excluded.
- Discount rates. Management have derived a pre-tax discount rate of 10.92% (2022: 10.50%) 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 Challenge Model Base Case scenarios incorporates the following into the biological threat detection forecast:
• Modelled a smoother increase in revenues from the year 1 and year 2 budgets to year 10.
KROMEK GROUP PLC Annual Report & Accounts 2023 89
15.
INTANGIBLE ASSETS INCLUDING GOODWILL (CONTINUED)
Sensitivities
The headroom in the base case models for each CGU are noted below:
Base model
Combination of Discount Rate +2% and Challenge model
Combination of Discount Rate -2% and Challenge model
£20,268k
£15,064k
£26,297k
£15,999k
£12,290k
£20,391k
£28,103k
£23,134k
£33,954k
Advanced Imaging
headroom
CBRN
headroom
Biological Threat Detection
headroom
The table below sets out the headroom in the challenge base model for each CGU:
Challenge base model
Combination of Discount Rate +2% and Challenge model
Combination of Discount Rate -2% and Challenge model
£11,718k
£6,032k
£18,674k
£2,286k
£125k
£4,860k
£18,780k
£15,681k
£22,366k
Advanced Imaging
headroom
CBRN
headroom
Biological Threat Detection
headroom
The Directors have reviewed the recoverable amount of the CGU and do not consider there to be any impairment in 2023 or 2022
16. OTHER INTANGIBLE ASSETS
Cost
At 1 May 2022
Additions
Exchange differences
At 30 April 2023
Amortisation
At 1 May 2022
Charge for the year
Exchange differences
At 30 April 2023
Carrying amount
At 30 April 2023
At 30 April 2022
Development
costs
£’000
Patents,
trademarks &
other intangibles
£’000
35,880
4,821
4
40,705
9,296
2,325
(46)
11,575
29,130
26,584
7,913
183
1
8,097
6,122
566
(15)
6,673
1,424
1,791
Total
£’000
43,793
5,004
5
48,802
15,418
2,891
(61)
18,248
30,554
28,375
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 the 30 April
2023 was £182k (2022: £357k), with amortisation to be charged over the remaining useful lives of these assets which is between 3 and
13 years.
The amortisation charge on intangible assets is included in administrative expenses in the consolidated income statement.
Further details on impairment testing are set out in note 15.
KROMEK GROUP PLC Annual Report & Accounts 2023
90
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
17.
PROPERTY, PLANT AND EQUIPMENT
Cost or valuation
At 1 May 2022
Additions
Exchange differences
At 30 April 2023
Accumulated depreciation and impairment
At 1 May 2022
Charge for the year
Exchange differences
At 30 April 2023
Carrying amount
At 30 April 2023
At 30 April 2022
Lab
Equipment
£’000
Computer
Equipment
£’000
Plant and
Machinery
£’000
Fixtures and
Fittings
£’000
210
-
-
210
75
42
-
1,463
18,621
34
-
226
2
1,497
18,849
1,189
118
(3)
8,358
1,182
(8)
117
1,304
9,532
93
135
193
274
9,317
10,263
619
9
-
628
347
54
(1)
400
228
272
18.
RIGHT-OF-USE ASSETS
Details of the Group’s right-of-use assets and their carrying amount are as follows:
Cost
Cost at 1 May 2022
Additions
Effect of movements in exchange rates
Cost at 30 April 2023
Depreciation
Depreciation at 1 May 2022
Charge for the year
Exchange differences
Depreciation at 30 April 2023
Carrying amount
At 30 April 2023
At 30 April 2022
19.
SUBSIDIARIES
Total
£’000
20,913
269
2
21,184
9,969
1,396
(12)
11,353
9,831
10,944
£’000
5,506
392
(13)
5,885
1,632
507
(12)
2,127
3,758
3,874
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 PLC Annual Report & Accounts 2023 20.
INVENTORIES
Raw materials
Work-in-progress
Finished goods
91
2022
£’000
3,554
6,304
645
2023
£’000
2,204
8,321
369
10,894
10,503
The cost of inventories recognised as an expense during the year in respect of continuing operations was £4,858k (2022: £5,006k).
The write-down of inventories to net realisable value amounted to £1,226k (2022: £852k). The reversal of write-downs amounted to
£271k (2022: £94k).
21.
AMOUNTS RECOVERABLE ON CONTRACTS AND TRADE AND OTHER RECEIVABLES
Trade and Other Receivables
Amount receivable for the sale of goods
Other receivables
Prepayments and accrued income
Current tax assets
2023
£’000
4,568
244
717
940
6,469
2022
£’000
4,860
542
1,027
942
7,371
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 60 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.
Management assessed the requirement for a general bad debt provision under IFRS 9. The expected loss rates are based on the
combination of the Group’s historical credit losses experienced over a year period coupled with forward looking information. Management
also note that the Group generally has a consistent recovery rate on trade and other receivables, due to a significant amount of work being
completed for reputable businesses. However, Management does note that dealings with businesses can be difficult at times to recover
funds owed and as such, provisions have been raised on historic knowledge of each customer’s credit risk. During the year, the Group
provided for certain accounts receivable balances where the collection of the outstanding amounts in uncertain.
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.
KROMEK GROUP PLC Annual Report & Accounts 2023 92
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
21.
AMOUNTS RECOVERABLE ON CONTRACTS AND TRADE AND OTHER RECEIVABLES (CONTINUED)
Amount receivable for the sale of goods (continued)
At 30 April 2023, trade receivables are shown net of an impairment allowance of £2,496k (2022: £1,460k) 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
2023
£’000
1,460
1,145
(109)
-
2,496
2022
£’000
1,158
321
(139)
120
1,460
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.
As at 30 April 2023, the lifetime expected loss provision for trade receivables is:
Expected loss rate
Gross carrying amount
Loss provision
Current
£’000
14%
3,747
508
More than 30
days past due
£’000
More than 60
days past due
£’000
More than 90
days past due
£’000
More than 120
days past due
£’000
18%
358
63
64%
0%
83
53
-
-
1,872
2,496
As at 30 April 2022, the lifetime expected loss provision for trade receivables is:
Current
£’000
13%
2,601
347
Expected loss rate
Gross carrying amount
Loss provision
22. DEFERRED TAX LIABILITIES
More than 30
days past due
£’000
More than 60
days past due
£’000
More than 90
days past due
£’000
More than 120
days past due
£’000
22%
544
117
50%
0%
4
2
-
-
995
1,460
Total
£’000
-
7,064
Total
£’000
-
7,064
65%
2,876
33%
3,054
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 2022
(Credit)/charge to profit or loss
At 30 April 2023
Fair value
revaluation of
acquired
intangibles
£’000
Accelerated
capital
allowances
£’000
Short-term
timing
differences
£’000
Tax
losses
£’000
Total
£’000
389
-
389
6,806
(648)
(6,547)
400
(8)
(392)
7,206
(656)
(6,939)
-
-
-
KROMEK GROUP PLC Annual Report & Accounts 2023 93
22. DEFERRED TAX LIABILITIES (CONTINUED)
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
2023
£’000
6,939
(6,939)
2022
£’000
6,547
(6,547)
-
-
At the statement of financial position date, the Group has unused tax losses of £56,129k (2022: £49,862k) available for offset against
future profits. A deferred tax asset has been recognised in respect of £6,539k (2022: £6,547k) 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 £49,582k (2022: £43,315k) as it is not yet considered sufficiently certain that there will be future taxable profits
available. All losses may be carried forward indefinitely subject to a significant change in the nature of the Group’s trade with US losses
having a maximum life of 20 years.
23.
TRADE AND OTHER PAYABLES
Payable within one year:
Trade payables and accruals
Deferred income
Payable in more than one year:
Deferred income
2023
£’000
7,326
110
7,436
2023
£’000
1,021
1,021
2022
£’000
7,524
331
7,855
2022
£’000
1,131
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 71 days. For all suppliers, no interest is charged on the trade payables. The Group has financial risk
management policies in place to ensure that all payables are paid within the pre-agreed credit terms.
Deferred income relates to government grants received which have been deferred until the conditions attached to the grants are met.
The Directors consider that the carrying amount of trade payables approximates to their fair value.
KROMEK GROUP PLC Annual Report & Accounts 2023 94
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
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
2023
£’000
4,536
392
-
262
(692)
(4)
4,494
405
4,089
4,494
2022
£’000
4,655
-
-
242
(646)
285
4,536
375
4,161
4,536
Rental charges associated with other low value leased assets that fall within the expedient threshold have been expensed to the profit
and loss accounts £40k (2022: £46k).
25.
BORROWINGS
Secured borrowing at amortised cost
Revolving credit facility and capex facility
Other borrowings
Convertible loan notes (see note 26)
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
2023
£’000
5,000
1,357
2,529
8,886
8,318
568
2022
£’000
4,500
1,965
-
6,465
5,716
749
The Group has a £5.0m revolving credit facility (RCF) with HSBC, the repayment date for which has been extended from 11 March 2023
to 31 August 2023. Post year end, the Group deposited £4.5m with HSBC over which the bank has a legal charge in the event that the
RCF is not repaid by 31 August 2023. At the date of this report, the Group are finalising the terms of an alternative borrowing facility to
replace the HSBC RCF and the Board are confident that this facility will be secured to repay the RCF by 31 August 2023.
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 2023, the total loan due to the landlord was
£0.2m (2022: £0.4m). Of this, £0.2m is due within 12 months (2022: £0.2m) and £nil (2022: £0.2m) 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.
The Group secured an additional £0.5m loan in September 2022 and a £0.1m loan in February 2023. These were to aid with working
capital requirements. Both loans were repaid post year end.
Convertible loan notes of £2.8m were securing during the year. This is discussed further in note 26.
Finance lease liabilities are secured by the assets leased. The borrowings are at a fixed interest rate with repayment periods not exceeding
five years.
KROMEK GROUP PLC Annual Report & Accounts 2023 25.
BORROWINGS (CONTINUED)
The weighted average interest rates paid during the year were as follows:
Revolving credit facility
Other borrowing facilities
26. CONVERTIBLE LOAN NOTES
95
2022
%
2.80
6.60
2023
%
6.90
3.40
During the year, the Group issued convertible loan notes to the value of £2.8m at an interest rate of 8% per annum, with interest accruing
monthly.
The convertible loan is a hybrid financial instrument, whereby a debt host liability component and an embedded derivative liability
component was determined at initial recognition. The conversion option did not satisfy the fixed for fixed equity criterion (fixed number of
shares and fixed amount of cash) and hence these instruments are not considered to contain an equity element.
For convertible notes with embedded derivative liabilities, the fair value of the embedded derivative liability is determined first and the
residual amount is assigned to the debt host liability. The initial recognition of the embedded derivative conversion feature has been
recognised as a liability on the balance sheet with any changes to the fair value of the derivative recognised in the income statement. It
has been fair valued using a Black Scholes model which was performed at the transaction date and the period end date. The inputs into
the Black-Scholes model at the year-end are as follows:
Weighted average share price
Expected volatility
Expected life
Risk-free rate
Expected dividend yields
2023
6.6p
40.97%
1 year
0.031
0%
The debt host liability will be accounted for using the amortised cost basis with an effective interest rate of 16%. The Group will recognise
the unwinding of the discount at the effective interest rate, until the maturity date, the carrying amount at the maturity date will equal the
cash payment required to be made.
594
-
(77)
517
Initial recognition
Unwinding of discount
Change in fair value
27.
SHARE CAPITAL
Allotted, called up and fully paid:
Balance at 1 May 2022: 431,851,820 (2022: 431,851,820) Ordinary shares of £0.01 each
Issued in the Year: nil (2022: nil) Ordinary shares of £0.01 each
Balance at 30 April 2023: 431,851,820 (2022: 431,851,820) Ordinary shares of £0.01 each
During the year, no shares (2022: no shares) were allotted under share option schemes.
Embedded
derivative
£’000
Convertible
loan note
£’000
Total
£’000
2,840
280
(77)
2,249
280
-
2,529
3,043
£’000
4,319
-
4,319
KROMEK GROUP PLC Annual Report & Accounts 2023 96
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
28.
SHARE PREMIUM ACCOUNT
Balance at 30 April 2023 and 1 May 2022
29.
TRANSLATION RESERVE
Balance at 1 May 2022
Exchange differences on translating the net assets of foreign operations
Balance at 30 April 2023
£’000
72,943
£’000
2,063
(166)
1,897
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 2022
Net loss for the year
Effect of share-based payment credit
Balance at 30 April 2023
31.
NOTES TO THE CASH FLOW STATEMENT
Loss for the year
Adjustments for:
Finance income
Finance costs
Change in fair value of derivative
Income tax credit
Depreciation of property, plant and equipment and ROU
Amortisation of intangible assets
Share-based payment expense
PPP loan forgiveness
Operating cash flow before movements in working capital
Increase in inventories
Decrease in receivables
(Decrease)/increase in payables
Cash used in operations
Income taxes received
Net cash used in operating activities
£’000
(53,742)
(6,100)
354
(59,488)
2022
£’000
(4,918)
(34)
582
-
(1,211)
1,751
2,569
236
(1,443)
(2,468)
(4,301)
215
1,741
(4,813)
1,283
(3,530)
2023
£’000
(6,100)
(2)
1,245
(77)
(1,192)
1,903
2,891
354
-
(978)
(391)
900
(529)
(998)
1,195
197
KROMEK GROUP PLC Annual Report & Accounts 2023 31. NOTES TO THE CASH FLOW STATEMENT (CONTINUED)
Cash and cash equivalents
Cash and bank balances
97
2023
£’000
1,097
2022
£’000
5,081
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.
32.
RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
Balance at 1 May 2022
Cash flows;
- Repayments
- Additions and modifications
Non-cash
- Additions and modifications
- Effect of exchange rates
-
Interest applied
Balance at 30 April 2023
33.
SHARE-BASED PAYMENTS
Borrowings
£’000
6,465
(1,258)
3,349
-
97
233
8,886
Lease
liability
£’000
4,536
(692)
-
392
(6)
262
4,492
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
2023
Weighted average
exercise price (£)
Number
of share
options
2022
Weighted average
exercise price (£)
20,033,991
-
1,202,700
-
(1,135,583)
20,101,108
11,446,740
0.21
-
0.10
-
0.16
0.15
0.21
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
KROMEK GROUP PLC Annual Report & Accounts 2023 98
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
33.
SHARE-BASED PAYMENTS (CONTINUED)
Equity-settled share option scheme (continued)
The weighted average share price at the date of exercise for share options exercised during the year was £nil (2022: £nil). The options
outstanding at 30 April 2023 had a weighted average exercise price of £0.15 (2022: £0.15) and a weighted average remaining contractual
life of six years (2022: four years). The range of exercise prices for outstanding share options at 30 April 2023 was 1p to 39p (2022: 1.5p
to 73p). In 2023, the aggregate of the estimated fair values of the options granted was £134k (2022: £159k). 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
2023
10p
10p
42.87%
5 years
1.53
0%
2022
10p
10p
40.21%
5 years
0.36
0%
Expected volatility was determined by calculating the historical volatility of similar listed businesses over the previous three years. The
expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions, and behavioural considerations.
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
2023
Weighted average
exercise price (£)
Number
of share
options
2022
Weighted average
exercise price (£)
4,363,665
-
7,421,740
-
(2,150,664)
9,634,741
-
0.01
0.01
0.01
0.01
0.01
0.01
0.01
3,440,344
(350,000)
2,213,001
-
(939,680)
4,363,665
-
0.01
-
0.01
0.01
0.01
0.01
0.01
During 2023, 7,421,740 (2022: 2,213,001) options were granted under the 2018 LTIP to a number of key employees, including three
(2022: three) executive Directors of the Group. The fair value of these options granted was £161k (2022: £31k). The amounts recognised
as a share-based payment LTIP expense for the year ended 30 April 2023 was £220k (2022: £77k).
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
2023
15p
1p
35.00%
3 years
0.32
0%
2022
15p
1p
35.00%
3 years
0.32
0%
In 2023 an assessment of the LTIP’s issued in FY2023 was carried out by an external valuer. As noted in note 3, management believe an
external valuation should be carried out every two to three years.
KROMEK GROUP PLC Annual Report & Accounts 2023 33.
SHARE-BASED PAYMENTS (CONTINUED)
The Kromek Group Plc 2013 Long Term Incentive Plan (continued)
The key inputs are as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend yields
99
2023
10.1p
1p
55.00%
3 years
0.034
0%
The Group recognised a total expense in the year of £354k (2022: £236k) 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 £570k (2022: £496k) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at 30 April 2023, contributions of £143k (2022: £51k) due in respect of the current reporting
period had not been paid over to the scheme.
35.
FINANCIAL INSTRUMENTS
Financial Instruments
The Group’s principal financial instruments are cash and trade receivables.
The Group has exposure to the following risks from its operations:
Capital risk
The Group manages its capital to ensure that each entity in the Group will be able to continue as a going concern whilst maximising
the return to shareholders through the optimisation of the balance between debt and equity. The Group’s overall strategy has remained
unchanged between 2022 and 2023.
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 £5.0m (2022: £4.5m). 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.
KROMEK GROUP PLC Annual Report & Accounts 2023 100
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
35.
FINANCIAL INSTRUMENTS (CONTINUED)
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)
2023
£’000
2,215
(1,390)
272
2022
£’000
5,366
(601)
316
Had the foreign exchange rate between sterling, US$ and € changed by 9% (2022: 1%), this would affect the loss for the year and net
assets of the Group by £379k (2022: £16k). 9% (2022: 1%) is considered a reasonable assessment of foreign exchange movement as
this has been the movement noted between 2022 and 2023 (2021 and 2022).
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.
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
£nil in 2023 (£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.
KROMEK GROUP PLC Annual Report & Accounts 2023 101
35.
FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity risk (continued)
Weighted
average
effective
interest rate
%
Less
than
1 month
£’000
1-3
months
£’000
3 months
to 1 year
£’000
1-5 years
£’000
5+ years
£’000
Total
£’000
Revolving Credit and Capex
Facility at 30 April 2022
Other Borrowing Facilities
at 30 April 2022
Lease Obligations
at 30 April 2022
Revolving Credit and Capex
Facility at 30 April 2023
Other Borrowing Facilities
at 30 April 2023
Lease Obligations
at 30 April 2023
Convertible loan notes
at 30 April 2023
2.8
6.6
5.0
6.9
3.4
5.0
16.0
-
13
33
46
-
-
27
65
92
-
116
531
35
-
73
-
4,500
-
-
4,500
1,176
246
503
1,965
277
1,785
2,376
4,536
5,953
5,000
142
298
2,031
2,879
11,001
-
83
-
5,000
485
1,357
1,456
2,632
4,494
2,529
-
-
2,529
151
604
7,969
1,539
3,117
13,380
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.
Categories of financial instruments
Financial assets
Cash and bank balances
Loans and receivables
Financial liabilities
Amortised cost
2023
£’000
1,097
4,812
2022
£’000
5,081
5,375
(22,315)
(19,769)
Fair Values of Financial Assets and Financial Liabilities
The following hierarchy classifies each class of financial asset or liability depending on the valuation technique applied in determining its
fair value:
Level 1: The fair value is calculated based on quoted prices traded in active markets for identical assets of liabilities.
Level 2: The fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. The fair value of a financial instrument is the price that would be received to sell and asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
Level 3: The fair value is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs).
In these financial statements, all of the above financial instruments are considered to be Level 2 in the fair value hierarchy. There have
been no transfers between categories in the current or preceding year. The fair value of financial instruments held at fair value have been
determined based on available market information at the balance sheet date of 30 April 2023.
KROMEK GROUP PLC Annual Report & Accounts 2023 102
Notes to the consolidated financial statements (continued)
For the year ended 30 April 2023
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.
37.
EVENTS AFTER THE BALANCE SHEET DATE
Post year end, the Company successfully announced the Placing, Subscription and Open Offer to raise £8m before expenses. The
Company raised £7m through the issue of 140,000,000 Placing Shares and an additional £1m through the Open Offer which resulted in
the issue of 20,564,372 shares. Net proceeds post fundraising costs amount to £7.4m.
KROMEK GROUP PLC Annual Report & Accounts 2023 Company statement of financial position
As at 30 April 2023
103
2023
£’000
6,090
77,205
83,295
100
1,919
2,019
2022
£’000
5,736
71,668
77,404
229
4,538
4,767
85,314
82,171
(698)
(517)
(8,129)
(9,344)
(7,325)
75,970
4,319
72,943
3,221
(4,513)
75,970
(417)
-
(4,500)
(4,917)
(150)
77,254
4,319
72,943
3,221
(3,229)
77,254
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
Embedded derivative
Borrowings
Total liabilities
Net current (liabilities)
Net assets
Equity
Share capital
Share premium account
Merger reserve
Accumulated losses
Total Equity
Note
3
5
6
8
7
12
13
14
The loss for the year was £1,638k (2022: loss £952k).
The notes on pages 106 to 110 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 21 July 2023. They were signed on its behalf by:
Dr Arnab Basu MBE
Chief Executive Officer
21 July 2023
KROMEK GROUP PLC Annual Report & Accounts 2023 104
Company statement of changes in equity
For the year ended 30 April 2023
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 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
Total comprehensive loss for the year
-
-
-
(1,638)
(1,638)
Settled share-based payment transactions
354
354
Balance at 30 April 2023
4,319
72,943
3,221
(4,513)
75,970
The notes on pages 106 to 110 form part of these financial statements.
KROMEK GROUP PLC Annual Report & Accounts 2023 105
Company statement of cash flows
For the year ended 30 April 2023
Note
11
Net cash used in operating activities
Investing activities
Interest received
Net cash used in investing activities
Financing activities
Borrowings received
Convertible loan notes received
Borrowings repaid
Loans made to Group companies
Net interest paid on bank loans
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
2023
£’000
(573)
-
(573)
1,100
2,840
-
(5,537)
(449)
(2,046)
(2,619)
4,538
2022
£’000
(818)
33
(785)
400
-
(800)
(6,980)
(194)
(7,574)
(8,359)
12,897
Cash and cash equivalents at end of year
1,919
4,538
The notes on pages 106 to 110 form part of these financial statements.
KROMEK GROUP PLC Annual Report & Accounts 2023 106
Notes to the Company financial statements
For the year ended 30 April 2023
1.
SIGNIFICANT ACCOUNTING POLICIES
The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the
separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the
European Union.
The financial statements have been prepared on the historical cost basis except for the remeasurement of certain financial instruments
to fair value. The principal accounting policies adopted are the same as those set out in note 2 to the consolidated financial statements
except as noted below.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
The Company’s financial statements are included in the consolidated financial statements of Kromek Group plc. Accordingly, the Company
has taken advantage of the exemption from publishing an income statement, and the losses for the Company are shown within the
Company Statement of Financial Position.
2.
AUDITOR’S REMUNERATION
The auditor’s remuneration for audit and other services is disclosed in note 7 to the consolidated financial statements
3.
SUBSIDIARIES
Details of the Company’s direct and indirect subsidiaries as at 30 April 2023 are as follows:
Name
Kromek Limited (Direct)
Kromek Germany Limited
(Indirect through Kromek Limited)
Kromek, Inc.
(Indirect through Kromek Limited)
NOVA R&D, Inc.
(Indirect through Kromek Limited)
eV Products, Inc.
(Indirect through Kromek Limited)
Place of incorporation
(or registration) and operation
NETPark, Sedgefield,
TS21 3FD, United Kingdom
NETPark, Sedgefield,
TS21 3FD, United Kingdom
143 Zehner School Road,
Zelienople, PA 16063,
United States of America
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
Ordinary
Ordinary
Proportion
of ownership
interest %
100
100
100
Ordinary
100
Ordinary
Ordinary
100
100
Activity
Scientific research
and development
Dormant company
Holding company
Scientific research
and development
Scientific research
and development
Dormant company
The Company owns 100% of the share capital in Kromek Limited. Kromek Limited owns 100% of the share capital in Kromek Inc. and 100%
of the share capital in Kromek (Germany) Limited. Kromek Inc. owns 100% of the share capital in eV Products Inc. and NOVA R&D Inc.
The investments in subsidiaries are all stated at cost.
At 1 May 2022
Share option charge
At 30 April 2023
£,000
5,736
354
6,090
Management have considered the current market conditions 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 2023 the Company was owed £77.2m (2022: £71.7m) 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 2023 or 2022. The loan is unsecured and interest
free.
Amounts owed by Group undertakings have been assessed in line with IFRS 9 and an assessment is made of the expected credit loss.
No expected credit loss was identified based on the future cash inflows of receivables.
Amounts due from subsidiary undertakings are unsecured, interest free and repayable on demand.
KROMEK GROUP PLC Annual Report & Accounts 2023 107
4.
STAFF COSTS
The average monthly number of employees (excluding non-executive directors) was:
2023
Number
2022
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 (2022: none).
5.
TRADE AND OTHER RECEIVABLES
Prepayments and accrued income
6.
TRADE AND OTHER PAYABLES
Trade payables and accruals
Social security and other taxation
2
1
4
7
2023
£’000
487
64
61
612
2023
£’000
100
100
2023
£’000
589
109
698
2
1
4
7
2022
£’000
494
56
47
597
2022
£’000
229
229
2022
£’000
345
72
417
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 75 days. For all suppliers no interest is charged on the trade payables. The Group has financial risk
management policies in place to ensure that all payables are paid within the pre-agreed credit terms. The Directors consider that the
carrying amount of trade payables approximates to their fair value.
7.
BORROWINGS
Details regarding the borrowings of the Company are disclosed in note 25 to the consolidated financial statements.
KROMEK GROUP PLC Annual Report & Accounts 2023 108
Notes to the Company financial statements
For the year ended 30 April 2023
8.
CONVERTIBLE LOAN NOTES
During the year, the Company issued convertible loan notes to the value of £2.8m at an interest rate of 8% with interest accruing monthly.
The convertible loan is a hybrid financial instrument, whereby a debt host liability component and an embedded derivative liability
component was determined at initial recognition. The conversion option did not satisfy the fixed for fixed equity criterion (fixed number of
shares and fixed amount of cash).
For convertible notes with embedded derivative liabilities, the fair value of the embedded derivative liability is determined first and the
residual amount is assigned to the debt host liability. The initial recognition of the embedded derivative conversion feature has been
recognised as a liability on the balance sheet with any changes to the fair value of the derivative recognised in the income statement. It has
been fair valued using a Black Scholes simulation which was performed at the transaction date and the period end date. Details regarding
the inputs into the Black Scholes model are disclosed in note 26 to the consolidated financial statements.
The debt host liability will be accounted for using the amortised cost basis with an effective interest rate of 16%. The Group will recognise
the unwinding of the discount at the effective interest rate, until the maturity date, the carrying amount at the maturity date will equal the
cash payment required to be made.
Initial recognition
Unwinding of discount
Change in fair value
9.
FINANCIAL ASSETS
594
-
(77)
517
Embedded
derivative
£’000
Convertible
loan note
£’000
Total
£’000
2,840
280
(77)
2,249
280
-
2,529
3,043
Intercompany balances
The carrying amount of these assets approximates their fair value. There are no past due or impaired receivable balances.
Cash and cash equivalents
These comprise cash held by the Company and short-term bank deposits with an original maturity of three months or less. The carrying
amount of these assets approximates their fair value.
10.
FINANCIAL LIABILITIES
Trade and other payables
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for
trade purchases is 75 days. The carrying amount of trade payables approximates to their fair value.
11.
NOTES TO THE STATEMENT OF CASH FLOWS
Loss for the year
Adjustments for:
Change in fair value of derivative
Finance costs
Operating cash flows before movements in working capital
Decrease/(increase) in receivables
Increase in payables
Net cash used in operating activities
2023
£’000
(1,638)
(77)
732
(983)
129
281
(573)
2022
£’000
(952)
-
161
(791)
(37)
10
(818)
KROMEK GROUP PLC Annual Report & Accounts 2023 12.
SHARE CAPITAL
Allotted, called up and fully paid:
Balance at 1 May 2022: 431,851,820 (2022: 431,851,820) Ordinary shares of £0.01 each
Issued in the Year: nil (2022: nil) Ordinary shares issued at £0.01 each
Balance at 30 April 2023: 431,851,820 (2022: 431,851,820) Ordinary shares of £0.01 each
109
£’000
4,319
-
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.
13. SHARE PREMIUM ACCOUNT
Balance at 1 May 2022 and 30 April 2023
14. ACCUMULATED LOSSES
Balance at 1 May 2022
Net loss for the year
Settled share-based payments
Balance at 30 April 2022
£’000
72,943
£’000
(3,229)
(1,638)
354
(4,513)
15. FINANCIAL INSTRUMENTS
The Company’s principal financial instruments are cash and trade receivables.
The Company has exposure to the following risks from its operations:
Capital risk
The Company manages its capital to ensure that each entity in the Company will be able to continue as a going concern while maximising
the return to shareholders through the optimisation of the balance between debt and equity.
The capital structure of the Company consists of equity attributable to equity holders of the Company, comprising issued capital, reserves
and accumulated losses as disclosed in notes 27 to 30 to the consolidated financial statements.
The Company is not subject to any externally imposed capital requirements.
Cash flow is controlled by ongoing justification, monitoring and reporting of capital investment expenditures and regular monitoring and
reporting of operating costs.
The Company considers that the current capital structure will provide sufficient flexibility to ensure that appropriate investment can be
made, if required, to implement and achieve the longer-term growth strategy of the Company.
Market risk
The Company may be affected by general market trends, which are unrelated to the performance of the Company itself. The Company’s
success will depend on market acceptance of the Company’s products and there can be no guarantee that this acceptance will be
forthcoming.
Market opportunities targeted by the Company may change and this could lead to an adverse effect upon its revenue and earnings.
Foreign currency risk
The Company currently does not undertake transactions denominated in foreign currencies.
KROMEK GROUP PLC Annual Report & Accounts 2023 110
Notes to the Company financial statements
For the year ended 30 April 2023
15.
FINANCIAL INSTRUMENTS (C0NTINUED)
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The
Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate,
as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent
of investment grade and above. This information is supplied by independent rating agencies where available, and if not available, the
Company uses other publicly available financial information and its own trading records to rate its major customers. The Company’s
exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is
spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the
risk management committee annually.
The Company’s management considers that all the above financial assets that are not impaired or past due for each of the reporting
dates under review are of good quality.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity
risk management framework for the management of the Company’s short-, medium- and long-term funding and liquidity management
requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities,
by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment
periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which
the Group can be required to pay. The table includes both interest and principal cash flows. The contractual maturity is based on the
earliest date on which the Group may be required to pay.
Weighted
average
effective
interest rate
%
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 2022
Revolving Credit Facility and
Capex Facility at 30 April 2023
Other Borrowing Facilities
at 30 April 2023
Convertible loan notes
at 30 April 2023
2.8
6.9
2.9
16.0
-
-
100
-
100
-
-
4,500
5,000
500
-
-
2,529
500
7,529
-
-
-
-
-
-
-
-
-
-
Total
£’000
4,500
5,000
600
2,529
8,129
16.
ULTIMATE CONTROLLING PARENT AND PARTY
In the opinion of the Directors, there is no ultimate controlling parent or party.
17.
EVENTS AFTER THE BALANCE SHEET DATE
Post year end, the Company successfully announced the Placing, Subscription and Open Offer to raise £8m before expenses. The
Company raised £7m through the issue of 140,000,000 Placing Shares and an additional £1m through the Open Offer which resulted in
the issue of 20,564,372 shares. Net proceeds post fundraising costs amount to £7.4m.
KROMEK GROUP PLC Annual Report & Accounts 2023 Directors, Secretary and Advisers
DIRECTORS
Dr A Basu
Mr A Beumer
Mr P N Farquhar
Mr R Sharma
Mr L H N Kinet
Mr J H Whittingham
Mr C Wilks
COMPANY SECRETARY
Mr P N Farquhar
REGISTERED OFFICE
BANKERS
NETPark
Thomas Wright Way
Sedgefield
TS21 3FD
NOMINATED ADVISER AND
JOINT BROKER
finnCap Capital Markets
One Bartholomew Close
London
EC1A 7BL
JOINT BROKER
Cenkos Securities plc
6.7.8. Tokenhouse Yard
London
EC2R 7AS
REGISTRAR
Link Group
10th Floor, Central Square
29 Wellington Street
Leeds
LS1 4DL
HSBC Bank plc
1 Saddler Street
Durham
DH1 3NR
AUDITOR
Haysmacintyre LLP
10 Queen Street Place
London
EC4R 1AG
LEGAL ADVISER
Hill Dickinson
9 Bond Court
Leeds
LS1 2JZ
FINANCIAL PR ADVISER
Gracechurch Group
48 Gracechurch Street
London
EC3V 0EJ
Kromek Group plc
NETPark, Thomas Wright Way,
Sedgefield, County Durham, TS21 3FD, UK