Kromek Group plc
Kromek Group plc
Annual report and accounts
Annual report and accounts
for the year ended 30 April 2024
for the year ended 30 April 2024
Contents
1
Preface
4 Financial Summary
5 Operational Highlights
2
Strategic Report
8 Chairman’s Statement
10 Chief Executive Officer’s
Review
14 Chief Financial Officer’s
Review
30 Principal Risks
46 Section 172 Statement
3
Governance
40 Directors’ Biographies
42 Directors’ Report
44 Corporate Governance
Report
48 Audit Committee Report
51 Remuneration Committee
Report
4
Financial Statements
56 Independent Auditor’s
Report
63 Group Statement
of Comprehensive
Income
64 Consolidated Statement of
Comprehensive Income
65 Consolidated Statement of
Financial Position
66 Consolidated Statement of
Changes in Equity
67 Consolidated Statement of
Cash Flows
68 Notes to the Consolidated
Financial Statements
102 Company Financial
Statements
Annual Report & Accounts 2024
Page 1
Countering Imminent
Radiological and Nuclear
Threats
p20
Engaging with
our Community -
Kromek’s Volunteering
Programme
p22
At the leading edge
of digital SPECT
innovation
p18
KROMEK GROUP PLC
Page 2
Multiple new products
and upgrades launched
for CBRN applications.
p24
Bio-sentinels –
the first line of defence
against biological weapons
p28
The detector dogs
protecting our borders
p26
Annual Report & Accounts 2024
Page 3
1
Preface
4 Financial Summary
4 Operational Highlights
KROMEK GROUP PLC
Page 4
Financial Summary
*A reconciliation of adjusted EBITDA can be found in the Financial Review.
2023: £17.3m
12%
Revenue
£19.4m
2023: (£1.0m)
Adjusted
EBITDA*
£3.1m
2023: £1.1m
Cash &
Equivalents
£0.5m
2023: 85%
Product
% of Sales
84%
2023: 51.6%
3.6%
Gross
Margin
55.2%
0
-1
-2
4
1
2
3
-1,157
-978
3,107
FY2022
FY2023
FY2024
Adjusted EBITDA
106%
88%
65%
0
20
40
60
80
100
110
10
FY2022
FY2023
FY2024
% of revenue
Operating Costs
12,055
17,309
19,403
0
2
4
6
8
10
12
14
16
18
20
FY2022
FY2023
FY2024
£'m
Revenue
Annual Report & Accounts 2024
Page 5
Operational Highlights
Advanced Imaging
• Significant progress in medical imaging:
o Entered a collaboration agreement with a blue-chip technology
solutions provider to develop detectors based on cadmium zinc
telluride (“CZT”) for photon counting computed tomography (“PCCT”)
applications in the medical imaging sector
o Commenced work under the landmark collaboration agreements with a
recognised tier 1 OEM and with Analogic that were signed at the end of
the prior year
o Received and largely delivered an order worth $1.4m from a new OEM
customer that is an established player in the medical imaging sector in
Asia
o Spectrum Dynamics Medical has launched the latest addition to its
next-generation digital single photon emission computed tomography
(“SPECT”)/computed tomography (“CT”) imaging portfolio, the
VERITON-CT 300, which uses Kromek’s digital detectors
o Continued to make progress under the ultra-low dose molecular breast
imaging programme funded by Innovate UK
• Secured a new $2.1m order to supply detector component for the
security screening systems of an existing US-based OEM customer in the
homeland security marketplace
KROMEK GROUP PLC
Page 6
CBRN Detection
Manufacturing and IP
Nuclear
•
Geopolitical insecurity continued to drive strong demand in nuclear security
with the winning and delivery of new and repeat orders, including:
o A £1.4m order to supply D3M detectors and associated networkable
solutions for use in the rescEU stockpile being developed by the
European Commission
o A contract, worth up to $2.9m, from a US federal entity for the provision
of Kromek’s D5 RIID, D3M and D3S-ID detectors
o An order from a substantial global defence corporation, which the
Group believes represents a significant opportunity for further sales
o Post year end, awarded a contract worth £2.0m from the Ministry of
Defence for the supply of the Group’s D5 RIID along with its Alpha Beta
probe attachment and ancillary products
o The majority of the above will be delivered in year ending 30 April 2025,
giving the Company good visibility into the new financial year
• Selected under two new UK government frameworks, each lasting four
years, designed to enhance the UK’s systems and capabilities for ensuring
public safety and security
Biological Threat Detection
•
Continued to progress the development of a biological-threat detection
system under a contract that had been awarded in the previous financial
year by a UK government department
• Awarded Kromek’s first contract in biosecurity from the US Department
of Homeland Security, worth $5.9m, for the development of technologies
focusing on an agent agnostic bio-detection system, under a four-year
programme
• Continued to execute on programmes for the expansion of production
capacity and process automation, resulting in greater manufacturing
productivity and cost efficiency
• Applied for 3 new patents and had 7 patents granted across 6 patent
families, with the total number of patents held being in excess of 210
Operational Highlights (Continued)
Annual Report & Accounts 2024
Page 7
2
Strategic Report
8 Chairman’s Statement
10 Chief Executive Officer’s Review
14 Chief Financial Officer’s Review
30 Principal Risks
36 Section 172 Statement
KROMEK GROUP PLC
Page 8
Chairman’s Statement
Strategic Report
Rakesh Sharma
KROMEK GROUP PLC
Page 8
Annual Report & Accounts 2024
Page 9
Kromek turned 21 this year and has come of age. We built on
the success of last year, intent on growing our revenues and
increasing our EBITDA as key KPIs of our operational performance
and growth prospects. I am pleased to report that we achieved
record revenues, as both the advanced imaging and CBRN
detection segments grew. We also reported a blended gross
margin of 55% and we reversed our EBITDA loss of last year to
become EBITDA positive ahead of market expectations. This is
the result of a lot of hard work in the second half of the year by all
at Kromek. They all should be proud of their achievements.
Geopolitically, the world remains in turmoil and there is a real
and pressing need for our CBRN solutions. Also, we see a real
acceleration in the development and commercialisation of nuclear
imaging modalities such as SPECT, CT and BMD that utilise CZT
detectors, as the medical profession is determined to tackle life
threatening diseases that reduce a patient’s quality of life, if not
detected early.
The growth in the CBRN detection segment has come because
of an increase in national defence budgets globally for homeland
defence and security projects. It was pleasing to work with the
UK’s MoD this year as well as to receive orders from the US,
Europe and Asia. After the year end, we received further orders
from a US Government agency, the UK MoD as well as being
selected for two new UK Government framework contracts
to protect citizens and infrastructure from nuclear threats.
Governments remain focussed on investing in developing
biosecurity solutions following the pandemic. Kromek won a
contract from the US Department of Homeland Security for the
development of an agent-agnostic bio-detection system and is
continuing to deliver on the existing development and product
delivery contract from a UK Government agency.
Kromek is 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. OEMs have launched or
are in the process of launching their next generation SPECT
and CT scanners that enhance the image quality that enables
early detection of diseases such as cancer and Alzheimer’s. We
continued to deliver on our contract with Spectrum Dynamics
and commenced work with a recognised tier 1 OEM. Kromek
is actively exploring collaborative opportunities with OEMs to
optimise capital expenditure on advanced imaging contracts. This
strategic approach not only aims to reduce costs for Kromek but
also facilitates the monetisation of the valuable intellectual property
we have developed. The Board is confident that these initiatives
will benefit both Kromek and its shareholders, creating a positive
outlook for growth.
People and Sustainability
Across the Group, we employ over 165 colleagues, who are
critical to Kromek’s success. 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. The new initiative launched in 2023 where
we encouraged our employees to spend up to 20 hours a year
volunteering with a local charity, environmental organisation or any
other kind of community service has had a good response and
post financial year end has seen increased activity.
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 welcomed to the register in our
fundraising during the year– for their support, which is very much
appreciated.
Looking forward
In the coming year we aim to build on the excellent progress of
2024 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 advanced medical diagnostics that will provide better patient
outcomes at a reduced overall 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
Page 10
Chief Executive Officer’s Review
Strategic Report (Continued)
Arnab Basu
KROMEK GROUP PLC
Page 10
Annual Report & Accounts 2024
Page 11
This has been a pivotal year for Kromek. The Group delivered
record revenue, which increased by 12% year-on-year to £19.4m
(2023: £17.3m), but more importantly, Kromek has enhanced its
operations and has signed milestone agreements that position
the Group for strong, sustainable growth moving forwards.
The Group continued to drive through operational efficiencies,
particularly within the advanced imaging manufacturing process,
which, combined with tight cost control, contributed to the Group
delivering adjusted EBITDA ahead of market expectations at
£3.1m (2023: £1.0m loss). In both advanced imaging and CBRN
detection, Kromek has executed on its strategy and entered
agreements with significant customers, including with a global
blue-chip technology solutions provider operating in the medical
imaging sector and, post year end, both the Ministry of Defence
and Home Office in the UK. As the Group’s advanced imaging
and CBRN detection segments continue to grow and mature,
Kromek is working towards reporting on the basis of these two
business segments rather than the current geographic segments
ADVANCED IMAGING
In advanced imaging, Kromek primarily operates 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 Kromek’s
core CZT platform, to enhance imaging quality and enable
better detection of diseases such as cancer and Alzheimer’s,
contamination in industrial manufacture and explosives in
aviation settings. During the year, the Group delivered strong
revenue growth in this segment and, being the only independent
commercial producer of CZT at scale, Kromek is well-positioned
going forward.
Medical Imaging
This year, the Group achieved another important milestone
in advanced imaging in entering a collaboration agreement
with a blue-chip technology solutions provider that has over
100,000 customers globally for a range of applications, including
healthcare. Under the agreement, Kromek will develop CZT-
based detectors for PCCT applications in the medical imaging
sector and will ensure production capability is available to support
commercial demand ramp-up.
Kromek commenced work under the landmark collaboration
agreements that it signed at the end of the prior year 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, comprises a short development phase
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,
the Group is developing CZT-based detector solutions for PCCT
applications in both the medical imaging and security screening
sectors. The work under these collaborations is progressing well
with key deliverables being achieved during the year.
These collaboration agreements, which are with significant global
organisations, are both excellent validations of the Group’s
technology and its strategy, and will be significant drivers of
growth in this segment.
Kromek received and largely delivered an order worth $1.4m from
a new OEM customer that is an established player in the medical
imaging sector in Asia. This was for the provision of the Group’s
CZT-based detector modules to be used in the customer’s next-
generation SPECT systems in niche applications.
In addition to securing new customers and advancing Kromek’s
relationships with OEMs, the Group continued to receive orders
in its regular repeat business, deliver under supply agreements
and progress development programmes. In particular, Spectrum
Dynamics Medical, a long-standing customer, introduced the
latest addition to its next-generation digital SPECT/CT imaging
portfolio, the VERITON-CT 300, which uses Kromek’s digital
detectors.
The ultra-low dose molecular breast imaging programme funded
by Innovate UK, which is being undertaken in collaboration with
Newcastle Upon Tyne Hospital and University College London,
continues to deliver on all its objectives. This technology is aimed
at paving the way for a new screening and diagnostic capability
for the detection of cancer for women with dense breast tissue for
whom mammography is not effective. Legislative changes that are
in motion in the USA will be a key driving force behind wide-scale
adoption of this technology, which will have a vital impact on the
significant proportion of women who currently do not have a viable
option for screening for breast cancer.
Security & Industrial Screening
In security screening, Kromek’s technologies are used in travel,
primarily aviation, settings to enable the Group’s 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. Kromek provides 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, Kromek continued to deliver under its existing
component supply agreements and development programmes.
The Group also secured a new $2.1m order from an existing US-
based OEM customer in the homeland security marketplace. This
was for the supply of key detector components for incorporation
into the customer’s advanced security screening system for the
detection of explosives. In addition, the Group’s collaboration
agreement with Analogic, as noted above, will be for security
applications as well as medical applications.
KROMEK GROUP PLC
Page 12
Chief Executive Officer’s Review (Continued)
Strategic Report (Continued)
Harnessing Artificial Intelligence
For several years Kromek has been exploring the application of
machine learning across its technologies, and has generated
some significant IP and capabilities. During the year, Kromek
entered a collaboration to enhance its expertise in this area and
was awarded a grant of £1.3m under the UK Research and
Innovation Horizon Europe guarantee scheme to participate in the
Intelligent Radiation Sensor Readout System (“i-RASE”) project
to develop a new class of radiation sensor powered by artificial
intelligence (“AI”). The i-RASE project, to be led by DTU Space,
is a collaboration between industrial and academic partners in
Denmark, Germany, Norway and Italy to design, build and test a
new class of radiation sensor based on CZT and other advanced
technologies that leverages the latest developments in AI to
facilitate the retrieval of comprehensive information on incident
radiation to improve measurement accuracy and speed, while
increasing energy efficiency.
CBRN DETECTION
In CBRN detection, Kromek provides nuclear radiation detection
solutions to the global homeland defence and security market,
which are primarily used to protect critical infrastructure, events
and urban environments from the threat of ‘dirty bombs’. Kromek’s
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. The Group’s
revenue in this segment grew significantly over the previous year,
driven by demand for its nuclear security products.
Nuclear Security
Geopolitical insecurity drove strong global demand for the
Group’s products that contribute to ensuring public safety and
security, and which are selected by governments and their
agencies for their best-of-breed features and Kromek’s ability to
deploy rapidly. This enabled the Group to enter, during the year
and subsequently, several milestone agreements that represent
significant strategic execution in nuclear security, receiving orders
from customers in the UK, the US, Europe and Asia – from both
public and private organisations – and most notably, from the UK
Ministry of Defence.
In particular, during the year the Group received a £1.4m order
to supply its D3M detectors and associated networkable
solutions for use in the rescEU stockpile being developed by the
European Commission to help safeguard citizens from disasters
and manage emerging risks. Kromek was awarded a contract,
worth up to $2.9m, from a US federal entity for the provision of
Kromek’s D5 RIID, D3M and D3S-ID detectors. Another notable
order during the year was one received from a new customer that
is a substantial global defence corporation, which management
believe represents a significant opportunity for further sales.
Since year end, the Group has made significant progress in
nuclear security – building on its achievements of the year.
Kromek was awarded a contract worth £2.0m from the Ministry
of Defence for the supply of its D5 RIID along with Alpha Beta
probe attachment and ancillary products. The Alpha Beta probe,
that was launched at the end of the year, connects to the D5 to
enable alpha and beta radiation to also be detected, allowing the
single, small form factor upgraded device to detect all types of
radioactive material. This contract was awarded after a rigorous
tender process, providing excellent endorsement of the strength of
Kromek’s solution as well as great validation of the new probe so
soon after its launch.
Kromek has been selected under two new UK government
frameworks, each lasting four years, designed to enhance the UK’s
systems and capabilities for ensuring public safety and security. This
includes being approved as a supplier under the Radiological Nuclear
Detection Framework for the procurement of radiological nuclear
detection equipment and supporting services for the Home Office.
Kromek applied for three of the four framework categories, covering
the supply of handheld, wearable and large volume static radiation
detectors, and was successfully approved thereby becoming qualified
to receive orders in these categories under the framework, which
have a combined maximum procurement value of £84m.
Alongside this, Kromek’s D3M was selected for the UK
Government Resilience Framework, being the only personal
radiation detector to be named under the framework. This means
that all blue light service operators in the UK, such as fire, police,
ambulance and first responders, can purchase the D3M detector
for projects under the framework. The Group has already received
its first orders under this framework.
Civil Nuclear
Business in the civil nuclear market continued as expected, with
regular sales through Kromek’s distributor network and direct to
customer. In this sector, Kromek’s products are used by over 500
customers around the globe.
During the year, the Group was awarded a $1.5m contract by one
of its distribution partners in Asia, which is for the supply of a new
product that it had developed based on its existing technology.
The development of this new product was funded by the partner.
Kromek launched Raymon, a new product that provides
spectroscopic detection and identification capability in a wide
range of civil nuclear applications. This product is a variation
of the existing Raymon10, with two additional probes based
on large volume scintillators and for the detection of alpha and
beta particles. The product has already seen early adoption
in international markets and has been well received within the
distribution network.
BIOLOGICAL-THREAT DETECTION
Kromek is developing biosecurity solutions that 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.
Annual Report & Accounts 2024
Page 13
OUTLOOK
With a number of key contracts won in FY 2024, its leading
market position and the continued delivery of long-term
contracts previously signed, Kromek expects to deliver another
year of significant revenue growth and positive EBITDA in FY
2025.
Geopolitically, the world remains in turmoil and there is a real
and pressing need for Kromek’s CBRN solutions. The award
of the UK Ministry of Defence contract, being selected under
two significant UK Government framework programmes as well
as the completion of orders received from the US, Europe and
Asia are expected to be the key drivers of growth in the CBRN
detection segment throughout FY 2025.
Kromek is the only independent commercial supplier of CZT
at scale, which is recognised as the enabling technology
for next-generation medical imaging. In FY 2025, the Group
expects revenue growth in the advanced imaging segment to
come from continued delivery of its contracts previously signed
with Spectrum Dynamics and a tier 1 OEM. Also, Kromek is
actively engaged with OEMs to drive delivery of products and
monetisation of the valuable intellectual property the Group
has developed in this area. The Board is confident that these
initiatives will benefit the Group and drive a significant increase
in both revenue and cash generation in the second half of FY
2025.
Kromek remains very focussed on controlling costs across
the Group and in increasing efficiency, particularly within the
advanced imaging manufacturing process. This, combined
with the collaborative opportunities being explored that are
anticipated to accelerate growth in the second half of the year,
is expected to result in Kromek becoming cash flow positive for
H2 2025 and enable the Group to report a positive cash flow
across FY 2025. The move towards cash generation, coupled
with the continued support from Polymer N2 Ltd, means that
Kromek is very well funded to drive further growth from what is a
strong and growing revenue base.
As a result, the Board looks to the future with confidence.
Major governments have continued to show a sustained focus on
developing stronger and more resilient biosecurity and biodefence
strategies, both in the wake of the pandemic and in the face of
the reality that bio-threats pose a significant risk in a modern,
geopolitically unstable environment. Both the UK and US have
released updated national biosecurity plans since 2022. This
was then further underscored by the announcement of a new
transatlantic strategic dialogue on biological security released
in January 2024. The solutions the Group is developing in this
area have a vital role to play in supporting these initiatives as
governments improve their readiness against these emerging
threats.
During the year, Kromek continued to progress the development
of a biological-threat detection system under a contract that had
been awarded in the previous financial year by a UK government
department. Under the three-year programme, which is worth a
total of £4.9m, the Group will develop and supply the system, with
the contract also including an option for extended maintenance
services after the initial term. A significant advancement was made
when the Group was awarded its first contract in biosecurity
from the US Department of Homeland Security, worth $5.9m.
The contract is for the development of technologies focusing
on an agent agnostic bio-detection system, under a four-year
programme. These programmes are continuing to deliver
milestones and meet customer expectations. The Group is also
pursuing several other customer engagements in this area.
MANUFACTURING AND IP
Kromek continued to execute on its programmes for the
expansion of production capacity and increased process
automation, with particular progress being made at its CZT
manufacturing facility in the US. These programmes are resulting
in greater manufacturing productivity and cost efficiencies,
which made an important contribution to the Group’s EBITDA
performance. Kromek has dedicated teams that are focussed
on targeted improvements for every step in the manufacturing
process, which directly contributes to yield and cost improvement.
In FY 2024, Kromek applied for three new patents and had seven
patents granted across six patent families, with the total number
of patents held being in excess of 210.
KROMEK GROUP PLC
Page 14
Strategic Report (Continued)
Paul Farquhar
Chief Financial Officer’s Review
KROMEK GROUP PLC
Page 14
Annual Report & Accounts 2024
Page 15
I am pleased to present my Chief Financial Officer’s Review for the
year ended 30 April 2024.
The revenue growth achieved in 2023 and the momentum in both
the advanced imaging and CBRN detection segments of the
business continued into 2024 resulting in revenue of £19.4m, an
increase of 12% year-on-year. This again reflected our highest ever
revenue in both segments of the business.
As outlined in the Chief Executive Officer’s Review, we continued
to execute our growth strategy of securing supply agreements
with blue-chip customers in both our advanced imaging and
CBRN detection segments. In advanced imaging, we entered into
a collaboration agreement with a significant blue-chip technology
solutions provider that has over 100,000 customers globally for
a range of applications, including healthcare. In CBRN detection,
where we provide nuclear radiation detection solutions to the
global homeland defence and security market, we won a number
of substantial contracts in 2024 from both public and private
organisations in the UK, the US, Europe and Asia. These included
contract awards from the UK Ministry of Defence, a US federal
entity and the European Commission with the latter to supply our
D3M detectors and associated networkable solutions for use in
the rescEU stockpile to help safeguard citizens from disasters and
manage emerging risks.
Revenue for the year was £19.4m (2023: £17.3m), an increase
of £2.1m from the prior year, and gross profit was £10.7m (2023:
£8.9m). Due to the higher gross profit and a £2.6m reduction in
distribution and administrative expenses, adjusted EBITDA was
£3.1m compared with an EBITDA loss of £1.0m for the prior year,
an improvement year-on-year of £4.1m. A reconciliation between
adjusted EBITDA and results from operations is detailed opposite.
Revenue
Revenue for the year was £19.4m (2023: £17.3m), a 12% increase
over the prior year and reflecting the highest ever revenue in
both the advanced imaging and CBRN detection segments. The
split between product sales and revenue from R&D contracts is
detailed in the table below:
Revenue Mix
2024
2023
£’000
% share
£’000
% share
Product
16,351
84%
14,768
85%
R&D
3,052
16%
2,541
15%
Total
19,403
17,309
Gross Margin
Gross profit at £10.7m (2023: £8.9m) represented a margin of 55.2%
(2023: 51.6%). The increase in gross margin, particularly in the
second half of 2024, is attributable to the higher volume of products
shipped in the year and a favourable change in product mix.
Distribution and Administrative Expenses
Distribution and administrative expenses decreased by £2.6m to
£12.6m (2023: £15.2m). This decrease is substantially the net
result of:
•
a credit of £1.0m relating to a US IRS Employee Retention
Credit, which is netted off staff costs and is presented within
other receivables at 30 April 2024;
•
a reduction of £1.0m in bad debt expense compared with
2023;
•
lower depreciation and amortisation of £0.3m due to assets
coming to the end of their depreciable life;
•
a £0.2m Research and Development Expenditure Credit; and
•
a net decrease of £0.1m relating to all other expense items,
which includes a favourable foreign exchange impact from
translating USD denominated expenses to Pounds.
Adjusted EBITDA* and Result from Operations
Adjusted EBITDA was £3.1m for 2024 compared with a loss of
£1.0m for the prior year as set out in the table below:
2024
£’000
2023
£’000
Revenue
19,403
17,309
Gross profit
10,710
8,935
Gross margin (%)
55.2%
51.6%
Loss before tax
(3,455)
(7,292)
EBITDA Adjustments:
Net interest
1,834
1,243
Depreciation of PPE and right-of-use assets
1,751
1,903
Amortisation
2,758
2,891
Share-based payments
490
354
Change in fair value of derivative
(517)
(77)
Exceptional Item
246
-
Adjusted EBITDA*
3,107
(978)
*Adjusted EBITDA is defined as earnings before interest, taxation,
depreciation, amortisation, exceptional items, 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 significant improvement in the loss before tax for the year and
adjusted EBITDA compared with the prior year, largely reflects
the higher revenue and gross margin, and the £2.6m reduction in
distribution and administrative expenses as outlined above.
KROMEK GROUP PLC
Page 16
Strategic Report (Continued)
Chief Financial Officer’s Review (Continued)
During H1 2024, the Group recognised an exceptional charge of
£0.2m relating to the cost of refinancing a £5.0m revolving credit
facility with HSBC. That loan was repaid from the proceeds of a
new secured £5.5m term loan facility provided by Polymer N2 Ltd,
a significant shareholder in the Company.
Tax
The Group recorded a net tax credit to the income statement of
£0.2m for the year (2023: £1.2m credit). The tax benefit in 2024
represented the net of a £0.4m R&D tax credit less a deferred tax
charge in the year of £0.2m. In 2023, the tax benefit of £1.2m
represented the R&D tax credit only as there was no deferred tax
recognised in the prior year.
The Group benefits from the UK Research and Development
Tax Credit regime as it continues to invest in developments of
technology and exercises the option of surrendering tax losses in
the years that qualify for cash credit, rather than carrying forward
the tax losses to set against future taxable profits. The significant
reduction in the R&D credit year-on-year is predominantly due to
the UK Government’s changes to the R&D regime, effective from
1 April 2023. The changes meant that businesses claiming under
the R&D SME scheme now receive a lower rate of tax relief, while
larger, non-SME businesses, claiming R&D Expenditure Credit
(“RDEC”) secure more generous rates. The Group mainly benefited
in previous years from the R&D SME scheme rather than the
RDEC scheme.
The Group’s deferred tax provision for the year was £0.2m (2023:
£nil). The £0.2m charge reflects a deferred tax provision of £0.5m
in respect of accelerated capital allowances and tax losses less
the recognition of a deferred tax asset of £0.3m in respect of
short-term timing differences and share-based payments.
Earnings per Share (“EPS”)
Due to the reduction in loss after tax, EPS for the year on a basic
and diluted basis was 0.6p loss per share compared with 1.4p
loss per share (after excluding exceptional items) in 2023.
R&D
The Group invested £4.6m in the year (2023: £4.8m) 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.
During the year, the Group undertook expenditure on patents and
trademarks of £0.3m (2023: £0.2m) with three new patents filed
and seven patents granted across six patent families, with the total
number of patents held at 30 April 2024 being in excess of 210.
Other Income
The Group generated total other operating income of £nil (2023:
£0.1m). The income recognised in the prior year related to a
retrospective Customs Duty claim granted by HMRC.
Capital Expenditure
Capital expenditure in the year, comprising property, plant and
equipment and investments in patents and trademarks, amounted
to £0.4m (2023: £0.5m). The expenditure primarily relates to
modest capital expenditure across lab and computer equipment,
IT and manufacturing projects.
Financing Activities
The Group issued £2.8m of convertible loan notes (“CLNs”),
largely to existing shareholders, in H2 2023. The loan notes had a
term of 18 months, carried a coupon of 8% per annum and had
conversion dates in January and February 2024. In H1 2024, three
noteholders, holding £1.7m of the notes, each converted 15% of
their holding to equity together with accrued interest to the date
of conversion; the total amount converted being £0.4m, including
£0.1m of interest. In H2 2024, four noteholders converted all of
their residual holding, together with accrued interest to the date
of conversion; the total amount converted being £2.7m, including
£0.2m of interest. There was a remaining loan note liability of £34k
at 30 April 2024, which, post year-end in H1 2025, was converted
to equity, together with accrued interest to the date of conversion.
As a consequence, the Group now has no CLNs outstanding.
At 30 April 2024, the Group had a £5.5m secured term loan
provided by Polymer N2 Ltd. The facility has a repayment date
for the principal sum of 27 March 2025, with an option by the
lender to extend for a further period of 12 months. The lender has
confirmed to the Group that it will take up its option of extending
the period of the term loan for a further 12 months from March
2025 if the Group is not able to repay the loan at that time.
The loan carries a fixed interest rate of 9.5%, which is payable
quarterly, and Kromek has the option to pay the interest through
the issue of new ordinary shares of 1p each in the Company at the
trailing 10-day volume weighted average price of the Company’s
ordinary shares on the date that payment falls due. Further details
of the Group’s borrowings are available at note 15.
Annual Report & Accounts 2024
Page 17
Cash Balance
Cash and cash equivalents were £0.5m as of 30 April 2024 (30
April 2023: £1.1m). The £0.6m decrease in cash during 2024 was
due to the combination of the following cash inflows and outflows:
• Cash used in operations, including changes in working capital,
of £(3.9)m
• R&D tax receipts of £1.1m
• Investment in product development and other intangible
assets, with capitalised development costs of £(4.6)m and IP
additions of £(0.3)m
• Capital expenditure of £(0.1)m
• Net cash generated from financing activities of £7.2m
(including £7.5m proceeds from the issue of shares, £1.2m
net proceeds of new borrowings after repayment of the HSBC
term loan, less £1.5m lease repayments and loan interest
payments)
KROMEK GROUP PLC
Page 18
We’re also at the leading edge of patient care
SPECT’s increased sensitivity offers particular benefits,
especially for higher risk individuals such as children
(who are more sensitive to radiation) and patients who
require frequent scans...
Annual Report & Accounts 2024
Page 19
At the leading edge of digital
SPECT innovation
Digital Single Photon Emission Computed Tomography (SPECT) is a powerful imaging
modality used in nuclear medicine for functional imaging of the body.
Kromek’s detector platforms are at the leading edge of digital SPECT innovation. They
enable nuclear medicine imaging solutions that lead to significantly enhanced patient
outcomes.
The introduction of Cadmium Zinc Telluride (CZT) detectors has revolutionized digital
SPECT technology, providing numerous advantages over traditional sodium iodide (NaI)
detectors. These include enhanced image quality, improved sensitivity, lower radiation
dose, and greater operational efficiency.
CZT technology enables precise measurement of the energy of individual photons. This
capability allows for better differentiation between gamma emissions from the radiotracer
and background noise. As a result, clinicians can obtain clearer images with less
interference, leading to more accurate diagnoses and improved assessment of various
conditions, such as cancer and cardiovascular diseases.
In addition to enhanced image quality, CZT detectors significantly improve the sensitivity
of SPECT scanners. This increased sensitivity enables the use of lower doses of
radiotracers while still achieving high-quality images. This offers particular benefits,
especially for higher risk individuals such as children (who are more sensitive to
radiation), patients who require frequent scans, and people who are overweight or obese
where minimizing radiation exposure is critical.
These high-efficiency detectors means that shorter scan times are needed to achieve
diagnostic-quality images. Shorter scan time is beneficial for both patients and
healthcare providers, as it minimizes discomfort for patients and increases patient
throughput in clinical settings. Faster imaging times lead to improved patient experience
and more efficient use of medical resources.
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.
The SPECT detector module
Low Dose Molecular Brest Imaging (MBI) Camera
KROMEK GROUP PLC
Page 20
A network of Static Nodes provides
continuous radiation monitoring of
national infrastructure from fixed
locations. Designed to be used in
conjunction with the SIGMA platform,
they provide comprehensive monitoring
of radioactive activity.
Kromek’s early warning system provides the State Emergency Services of Ukraine (SES) with the
autonomous, real-time, actionable intelligence necessary to track the dynamics of any radiological or
nuclear event nationwide, helping to protect their people and infrastructure.
Kromek’s early warning system provides Ukraine
with continuous monitoring and continued protection
Illustration showing how the Static
Node network provides coverage
across Ukraine
Annual Report & Accounts 2024
Page 21
In Ukraine, the risk of a radiological or nuclear incident occurring is escalating,
exacerbated by their extensive nuclear power industry.
Previously, only a small part of the State Emergency Service of Ukraine (SES) had
access to a single modern radiation detector. Kromek has delivered an advanced ‘early
warning system to Ukraine comprising a network of Static Nodes and D3M personal
radiation detectors (PRDs) meaning the SES is now fully equipped to monitor radiation
levels nationally, significantly increasing their emergency response capabilities.
Real-time data 24/7
The network of Static Nodes provides continuous radiation monitoring of key national
infrastructure, such as power stations and border areas, providing the SES with real-
time accurate dose and spectroscopic data via the secure SIGMA network. These
discreet units are comparatively small yet highly sensitive to any potential threats and
automatically send rapid response spectrometry to remote decision-makers where they
help to facilitate the coordination of context-specific civilian CBRN and military efforts.
Because of the unpredictability of the theatre of deployment, the Static Nodes are
equipped with both local and additional power supplies that ensure the system will
continue to collect data for an extended period should there be any disruption.
Rapid, reliable radiological detection
When the SES arrive at the scene of an incident, they are immediately alerted to the
presence of gamma and neutron sources by the highly sensitive D3M PRD. Even
sources with very low levels of activity, such as shielded fissile or special nuclear
material, are detectible.
Many of the D3M detectors were provided with accompanying smartphones, enabling
both on-site (local) and remote (SIGMA network) real-time isotope identification.
The ultra-high quality spectral data can also be extracted post-event for secondary
adjudication by a CBRN specialist team.
Countering Imminent Radiological
and Nuclear Threats
Many D3M detectors were provided with
accompanying smartphones, enabling
real-time on-site aswell as remote isotope
identification.
Kromek’s D3M is a high-performance
Personal Radiation Detector (PRD)
that constantly monitors the environment
protecting personnel against exposure to
nuclear materials.
KROMEK GROUP PLC
Page 22
Educational Establishments
The team also undertook projects
with a number of schools
including: Hartlepool Sixth Form
College, Redhouse School, St
Charles Catholic Primary School,
Cockerton CoE Primary School,
Hutton Rudby Primary School and
St Helen Auckland Community
Primary School.
Left: the Kromek designed
lantern, assembled, customised
and personalised by primary
school children across County
Durham, and, right the finished
display.
St Margaret’s Centre (a mental health charity)
Staff donated over £500 through fundraising events; redecorated the arts and crafts centre, offices and
the counselling suite. Major work was also undertaken on the charity’s allotments, the produce from
which is used in the Centre’s café and for supporting service users.
Football in the Commnity
One of the Kromek Team undertaking
‘Coaching in the Community’.
St Margaret’s Centre
Part of the Kromek Team of painters and
gardners at the Centre
Feeding Families (charity foodbank)
Staff have attended fundraising lunches, have worked packing and delivering essential
food boxes and raised over £300 through events and activities.
Annual Report & Accounts 2024
Page 23
Engaging with our Community -
Kromek’s Volunteering Programme
As a socially responsible organisation, Kromek has reaffirmed its commitment to being a
force for good within its local community, by introducing a Company-supported voluntary
community engagement programme.
The Company is supporting volunteering activities with organisations that are compatible
with its vision and values. Staff can volunteer up to 20 hours to the programme each
calendar year and so far, the uptake has been universal.
Partner organisations so far have been charities, not-for-profit organisations, and a variety
of educational establishments, promoting the development of STEM (Science, Technology,
Engineering and Mathematics) studies and careers; applying professional skills for the benefit
of the community or simply fundraising events and activities for community projects.
Mutually Beneficial
The community engagement programme is mutually beneficial to all parties involved.
For the recipients, it provides access to skillsets that the organisation might not have readily
available and enhances ability to deliver their services to the benefit of the community.
For some employee volunteers it can be the personal satisfaction from giving back to
the community, building and strengthening relationships and networking. Others take the
opportunity to develop personal skills or enhance professional development, improving their
long-term employability.
For Kromek, it strengthens our local reputation and creates positive brand awareness and
builds relationships with the wider community. It increases employee engagement, enhances
individual skills and develops team spirit. The whole programme has driven collaboration
and inclusion and broadens employees’ horizons as they work with people from different
backgrounds and sectors. But above all, has aided or recruitment and retention as people
want to work in a socially responsible organisation.
When innovation, art, and education collide …
In 2023, a Kromek designed the lantern became
the centre of an extra-special installation at
Durham Lumiere.
Beautifully created by local artist Mick
Stephenson, the diamond installation created an
illuminated diamond garden, surrounded by solar-
powered lanterns assembled and customised
by primary school children from across County
Durham.
Kromek collaborated with Artichoke to deliver
the community project, aimed at teaching young
people about renewable energy.
KROMEK GROUP PLC
Page 24
The AlphaBeta probe undergoing field trials
with the Kromek D5 RIID
The new RayMon being demonstrated to Kromek
distributors as partt of the launch campaign.
Annual Report & Accounts 2024
Page 25
Multiple new products and upgrades
launched for CBRN applications
The last financial year saw the launch of several new products with multiple applications
in the CBRN segment. The first was a new Alpha Beta probe attachment to our ground-
breaking handheld D5 RIID that enables all types of isotopes to be detected by a single
portable device. The second was the launch of the new generation RayMon detector, a high-
performance handheld spectrometer with an all-new set of interchangeable probes.
The introduction of the Alpha Beta Probe makes the D5 RIID the most versatile handheld
radiation detector available today. Conforming to the most rigorous British and American
military, environmental and technical standards and with an exceptional degree of sensitivity
and survivability, the device is suitable for use in the most challenging situations to detect all
types of radioactive material.
The D5 RIID can operate in different modes while scanning and monitoring all radiation types:
In Search Mode for example, the user can view real time counts per second with Alpha and
Beta counts, shown alongside Gamma and Neutron counts.
The RayMon’s capabilities have been significantly enhanced with the introduction of three
new probes: a high resolution CZT probe that provides precise identification of radionuclides,
even when faced with mixed or shielded sources; a high sensitivity NaI (sodium iodide) smart
probe designed for collecting count data in low-dose environments, and an Alpha Beta
smart probe.
The new detectors were showcased at the ‘Kromek Futures’ (emerging technologies) annual
event in London in January and a series of distributor events at our Sedgefield HQ.
The RayMon’s capabilities have been significantly
enhanced with the introduction of three new
probes: a high resolution CZT probe; a high
sensitivity NaI (sodium iodide) smart probe and
an Alpha Beta smart probe.
RayMon Tablet
AlphaBeta Probe
NaI Probe
CZT Probe
KROMEK GROUP PLC
Page 26
D3S ID - The most complete radiation
detection solution in a single device with two
modes of operation: PRD and RIID - at the
touch of a button
Dogs carry the phoned-sized
D3S ID and patrol 30m ahead
of their handlers
Ruggedised footwear
Combat
harness
Eye protection
30m
D3S ID radiation
detector
Dog handlers use the Kromek ID app to
monitor radiation levels which warns them
instantly if there is any radiation found
Annual Report & Accounts 2024
Page 27
The detector dogs
protecting our borders
Since Russia’s invasion of in February 2021, Ukraine’s nuclear facilities have been left
hugely exposed and permanently compromised. To counter the alarming prospect of non-
state actors, including proxy groups acting for hostile states, terrorists and criminal gangs,
acquiring small quantities of radioactive substances and trafficking them to be used to
construct radiological dirty bombs, presenting a significant risk to major cities across the UK
and Europe, detector dogs have become a major security asset.
Quietly efficient and paired with a handler, dogs can search large geographical areas around
a battlefield or through hundreds of items of luggage or packages at an airport much quicker
than humans. Detector dogs carry a high-performance D3S ID detector, the size of a mobile
phone, in their harness.
Detector dogs were introduced to the battlefield carrying radiation detectors to provide
troops with early warning of a nuclear disaster. In the field, they also wear protective
equipment for their eyes and paws.
At airports throught Europe, detector dogs are routinely deployed at security checkpoints to
check hand luggage and passengers, but they are also used inside aircraft (including cargo
hatches) where suspicious packages have been reported.
In both fields of operation, dog handlers use the Kromek ID smartphone app to monitor
radiation levels sent from the D3S ID detector. This provides an instant warning when any
radiation is found.
Image by fabrikasimf on Freepik
Quietly efficient, dogs can search hundreds of items much quicker
than humans. They are most often deployed at security checkpoints
to check hand luggage and passengers, but they can also be used
inside aircraft (including cargo hatches) where suspicious packages
have been reported.
KROMEK GROUP PLC
Page 28
The bio-sentinel is a revolutionary concept and a first-
in-its-class biodefence instrument, fully automated, with
no need for human intervention for long periods.
Bio-sentinels can be placed in high traffic or
strategically important areas to provide ultra-rapid
information in the event a bioterrorism attack.
They can also be used near research facilities to detect
and quickly mitigate any accidental/unintentional leak
into the environment.
Annual Report & Accounts 2024
Page 29
Bio-sentinels – the first line of defence
against biological weapons
Biological weapons are a major growing threat due to the revolution in life sciences and the
increase in the knowhow in making and acquiring those weapons. Early identification of the
pathogen involved in a biological threat is crucial for minimising the impact of a malicious
pathogen release. Various technologies are available for identifying pathogens, but these are
typically lab-based and rely on targeted detection approaches, i.e. one test looking for one
threat agent.
Although these methods can detect a pathogen quite quickly, they all have major
disadvantages: they are not truly agnostic, cannot always distinguish between strains, or
closely related species, and cannot identify artificial or engineered bioagents. They need to
be trained with the agent, or agents they must detect, before they can be employed. These
tests are usually performed in a centralised laboratory.
Work being undertaken by Kromek as an extension of the DARPA Sigma+ program, has led
to the design and manufacture of autonomous air biosensors with the ability to continuously
monitor the air in the field and provide a rapid report upon identifying any pathogen. This
bio-sentinel is a revolutionary concept and a first-in-its-class biodefence instrument, fully
automated, with no need for human intervention for long periods.
Bio-sentinels can be placed in high traffic or strategically important areas to provide ultra-
rapid information in the event a bioterrorism attack. They can also be used near research
facilities to detect and quickly mitigate any accidental/unintentional leak into the environment.
Sequencing at the point of need makes it possible to react quickly to emerging threats, such
as those posed by emerging novel disease-causing agents, which typically occur in remote
places. Having sequencing capabilities in challenging environments allows scientists to study
environmental DNA (eDNA) to assess how environments are changing, in the air, in the water
and in the soil. It is typically used to monitor changes to the environment due to climate
change or to assess for invasive species into a natural environment.
A second instrument has been developed that allows researchers to bring laboratory
instruments into the field. The small, self-powered, portable system enables
researchers to test samples, in remote or hostile locations. Using an automated
sequencer remotely removes the need for complex sample transport and
logistics, giving information in near real time.
Small enough to fit in a
rucksack, the self-powered,
portable system enables
researchers to test samples,
in remote or hostile locations.
KROMEK GROUP PLC
Page 30
Review of Principal Risks
Strategic Report (Continued)
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 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; or
•
adversely impact the Group’s
reputation or stakeholder expectations.
Risks are reviewed on a regular basis by
the Board and Audit Committee to identify
any changes in risk profiles and to consider
the optimal range of mitigation strategies
Risks associated
with competition
Risks associated
with product and
technology adoption
rates
The Group faces competition from two
types of competitor:
i)
Specialised companies targeting
discrete markets
ii)
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 its opportunities to succeed
in the competitive markets it serves.
Improved supplier strategies and planned
systems improvements should increase the
Group’s agility, enabling faster reaction to
market conditions and customer demand.
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.
Annual Report & Accounts 2024
Page 31
Risks associated
with management of
the Group’s growth
strategy
The Group’s strategy includes co-
development with large OEM partners for
additional development, manufacturing
or subsequent marketing. Consequently,
the Group will be increasingly reliant on
securing and retaining such partners, and
delays in the progress of the development,
manufacturing or marketing of the end
product, as a result of a partner’s action or
inaction, may delay the receipt of product-
related revenues.
Mitigation
The Group has a diversified customer
base and operates in a carefully selected
portfolio of markets with different adoption
risks and cycles. As part of its business
model, it also more directly controls a
certain proportion of its revenues via the
sale of complete end-user products in
three different markets.
As a consequence of the international
nature of its business, the Group is
exposed to risks associated with changes
in foreign currency exchange rates on
both sales and operations. The Group is
headquartered in the UK and presents its
financial statements in pounds sterling.
However, its subsidiaries – eV Products,
Inc. and NOVA R&D, Inc. – operate in the
US and earn revenues and incur costs in
US dollars. A growing proportion of the
Group’s future revenues are expected to
be denominated in currencies other than
pounds sterling. Exchange rate variations
between currencies in which the Group
operates could have a significant impact
on the Group’s reported financial results.
Mitigation
The Group is predominantly exposed to
currency risk on sales and purchases
made from customers and suppliers.
Sales and purchases from customers and
suppliers are made on a central basis and
the risk is also 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.
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
in which the Group operates 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. There
is spare capacity in the US operation that
can be flexed with moderate capex and
adjusted shift patterns. The UK operation
can also flex to increase the output through
efficiency initiatives and measures.
In addition, the UK operation is looking
to implement an MRP system and S&OP
process in the near term to enhance
production control and streamline
communication, forecasting, supply chain
and production functions.
Risks associated with
timing of customer or
third-party projects
Risks associated
with exchange rate
fluctuations
KROMEK GROUP PLC
Page 32
Pandemic
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 focussed 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 would
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 staff is of paramount importance,
and the Group continues to operate with
additional hygiene measures in Kromek
facilities and encourages 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.
Review of Principal Risks (Continued)
Strategic Report (Continued)
Economic conditions
This risk relates to the Group’s exposure to
short-term macroeconomic conditions and
market cycles in the sectors in which the
Group operates, predominately driven by
recent high inflation, high 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, although
it has started to stabilise. Nevertheless,
the Group has experienced significant cost
inflation in recent years driven by increased
fuel costs related in part to the Russia-
Ukraine conflict. 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 its 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 ransomware
attack on the NHS in June 2024 is
an important reminder that criminal
organisations are ruthless in their actions.
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/
ransomware, viruses, spamming, phishing
attacks have become more prevalent
and may result in a breach of systems.
A breach of Kromek’s facilities and/or
networks could disrupt its operations
and impair its ability to protect data, and/
or compromise confidential business
information. A failure to prevent, mitigate
or detect security breaches and/or
improper access to its business and/
or customer information and/or comply
with consumer privacy regulations could
result in disruption to Kromek’s operations,
significant penalties and have an adverse
impact on confidence in the Group.
Mitigation
To protect its data and comply with all
data privacy regulations, IT infrastructure
controls have been implemented across
the Group. 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 Kromek’s operations.
Data security and
privacy, including
cyber-security
Annual Report & Accounts 2024
Page 33
Employee costs represent the largest
component of the Group’s operating costs.
These costs include expenses related to
recruitment, retention, talent development
and salaries. 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 the Group’s recruitment and
retention costs and may impact operations
in future periods. Kromek’s employee
turnover has also been impacted by 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,
Kromek continues to focus on improving
communication with employees, with a
people strategy, investing in employee
development and diversity and inclusion,
and providing market competitive salaries
and benefits, including a company-wide
Share Option Scheme.
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 had 240 patents granted as at
30 April 2024 (2023: 246), the year-on-
year reduction being due to patents being
allowed to lapse in certain countries where
it was perceived that there was no benefit in
maintaining the patent.
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.
Human resources
Protection of
Intellectual Property
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 products
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.
In addition, recent higher interest rates and
the resultant higher cost to service Group
debt may impact available funds to service
operational costs and grow the business.
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
forecasts, which ensures liquidity is closely
monitored. The Directors are confident that
the current term loan facilities will be repaid
when they fall due or alternatively will be
replaced by alternative borrowing facilities
and that further additional financing will
be available to the Group as required. For
further information see note 2 on Going
Concern.
KROMEK GROUP PLC
Page 34
Review of Principal Risks (Continued)
Strategic Report (Continued)
Unfavourable
geopolitical conditions
and Global Trade
risks
The Group operates internationally,
meaning that it is exposed to certain risks
relating to international trade, regulation,
import/export regimes, sanctions,
retaliatory tariffs 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.
The ongoing Russia-Ukraine conflict,
increasing tensions between China and
Taiwan, and conditions in the Middle East
may have an adverse financial impact
on the Company as the Russia / Ukraine
conflict, in particular, has accelerated the
inflationary pressures already in place due
to the pandemic.
Interest rates are starting to stabilise in
most regions, however the conflicts in the
Middle East could lead to some disruption
in our business and could increase lead
times and costs due to longer shipping
routes.
There could be further trade restrictions
in Europe, such as due to a requirement
for additional customs documentation
for certain products. With a new UK
Government in place from July 2024,
there may be future changes to the UK’s
relationship with the EU, the results of
which may not be known for some time.
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 import and
export controls are also key factors to
mitigate the associated geopolitical risks.
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.
In addition, to appropriately reflect any
potential downturns in revenue, pipeline
and forecast revenue is based on a risk
weighted average. Supply chain strategies
have been developed to mitigate the
impact of material issues.
Annual Report & Accounts 2024
Page 35
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KROMEK GROUP PLC
Page 36
Section 172 Statement
Strategic Report (Continued)
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 70% of the Group’s shares at 30 April 2024. 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 162 staff during 2024.
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 2024, the Board recognised and discussed the
increasing importance of Environmental, Social and Governance
(ESG) matters for a number of the Group’s 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 its priority has always been to protect its people,
support its 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
Annual Report & Accounts 2024
Page 37
These aims are reflected in each of the following key areas:
The environment. Kromek 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. Kromek will work with its employees to continue
to provide an open and inclusive workplace, with a focus on well-
being to ensure it is a great place to work.
Our customers. Kromek will continue to innovate to provide
customers with products and services that use fewer resources.
Key Performance Indicators (KPIs)
The Group utilises a range of financial and non-financial
performance indicators to measure performance of continuing
operations against strategy. Of those performance indicators,
the Group’s principal KPIs are revenue, adjusted EBITDA and
total cash balances, and management closely monitors current
year actuals for these metrics against both budget and prior
year figures. The Board believes that these metrics are valuable
indicators of the Group’s progressing business model.
Further comments regarding these metrics are set out in the
Chairman’s Statement and the Chief Executive Officer’s and Chief
Financial Officer’s Reviews.
Dr Arnab Basu MBE
Chief Executive Officer
25 October 2024
KROMEK GROUP PLC
Page 38
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Annual Report & Accounts 2024
Page 39
3
Governance
40 Directors’ Biographies
42 Directors’ Report
44 Corporate Governance Report
48 Audit Committee Report
51 Remuneration Committee Report
KROMEK GROUP PLC
Page 40
Dr Arnab Basu MBE, DL, Chief Executive Officer
Mr Paul Farquhar, Chief Financial Officer
Mr Albertus (“Berry”) Beumer, Chief Commercial Officer, President Advanced Imaging
Division
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 Mony 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,
and has been appointed as a Director of the Sidney Stringer Multi Academy Trust. 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 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 Health Innovation 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 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 Beumer is a technology business executive with extensive experience of delivering revenue
growth in analytical instruments, 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.
Directors’ Biographies
Annual Report & Accounts 2024
Page 41
Mr Lawrence Kinet, Non-Executive Director
Mr Jerel Whittingham, Non-Executive Director, Remuneration Committee Chair
Mr Christopher Wilks, Non-Executive Director, Audit Committee Chair
Mr Kinet has over 45 years’ experience in leadership positions in the medical device and bio-
pharmaceutical industry. Amongst those positions, he was President of Smiths Medical (now part
of ICU Medical) and CEO of LMA International (now part of Teleflex).
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 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 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 and biological products for global animal health
markets. He qualified with Ernst & Young and has over 30 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
Page 42
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 2024.
Principal activities
Kromek Group plc is a leading developer of radiation detection
and bio-detection technology solutions for advanced imaging
and CBRN detection, based on cadmium zinc telluride (“CZT”)
and associated technologies. Headquartered in County Durham,
UK, Kromek has manufacturing operations in the UK and US,
delivering on the vision of enhancing the quality of life through
innovative detection technology solutions.
Advanced imaging comprises the medical (including CT and
SPECT), security and industrial markets. Kromek provides its
OEM customers with detector components, based on its CZT
platform, to enable better detection of diseases such as cancer
and Alzheimer’s, contamination in industrial manufacture and
explosives in aviation settings.
In CBRN detection, the Group provides nuclear radiation
detection solutions to the global homeland defence and security
market. Kromek’s compact, handheld, high-performance
radiation detectors, based on advanced scintillation technology,
are primarily used to protect critical infrastructure and urban
environments from the threat of ‘dirty bombs’. The Group is also
developing bio-security solutions in the CBRN detection division;
these consist of fully automated and autonomous systems to
detect a wide range of airborne pathogens.
The Group realises revenue primarily on the sale of radiation
equipment, development of radiation technology, and leading
research into different potential applications of its detection
technology.
Business and strategic review
The information that fulfils the requirements of the strategic report
and business review, including details of the results for the year
ended 30 April 2024, principal risks and uncertainties, research
and development, financial KPIs and the outlook for future years,
are set out in the Chairman’s Statement and the Chief Executive
Officer’s and Chief Financial Officer’s Reviews on pages 8 - 17.
Future developments
The Group’s development objectives for the year to 30 April 2025
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 2024.
Results and dividends
The consolidated income statement is set out on page 64.
The Group’s loss after taxation amounted to £3.3m (2023: £6.1m
loss after tax and exceptional items).
The Directors do not recommend the payment of a dividend for
the year ended 30 April 2024 (2023: £nil).
During the year ended 30 April 2024, the Group made political
donations of £nil (2023: £nil) and charitable donations of £1k
(2023 £6k).
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 51 to 53.
Details of significant events since the balance sheet date are
contained in note 37 to the consolidated financial statements and
note 17 to the parent Company financial statements.
Directors’ indemnities
The Group has made qualifying third-party indemnity provisions for
the benefit of its Directors, which were made during the year and
remain in force at the date of this report.
Statement of Directors’ responsibilities in respect
of the annual report and the financial statements
The Directors are responsible for preparing the annual report
and the Group and parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under the
AIM Rules of the London Stock Exchange, they are required
to prepare the Group financial statements in accordance with
International Financial Reporting Standards as adopted by the EU
(IFRSs as adopted by the EU), and applicable law and they have
elected to prepare the parent Company financial statements on
the same basis.
Under Company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent Company
and of their profit or loss for that period. In preparing each of the
Group and parent Company financial statements, the Directors are
required to:
•
select suitable accounting policies and then apply them
consistently;
Annual Report & Accounts 2024
Page 43
• make judgements and estimates that are
reasonable, relevant and reliable;
• state whether they have been prepared in
accordance with IFRSs as adopted by the EU;
• assess the Group and parent Company’s ability
to continue as a going concern, disclosing, as
applicable, matters related to going concern; and
• use the going concern basis of accounting unless
they either intend to liquidate the Group or the
parent Company or to cease operations, or have
no realistic alternative but to do so.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the parent Company’s transactions and
disclose with reasonable accuracy at any time the
financial position of the parent Company and enable
them to ensure that its financial statements comply
with the Companies Act 2006. They are responsible for
such internal control as they determine is necessary to
enable the preparation of financial statements that are
free from material misstatement, whether due to fraud
or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the
assets of the Group and to prevent and detect fraud
and other irregularities.
Under applicable law and regulations, the Directors are
also responsible for preparing a Strategic Report and a
Directors’ Report that complies with that law and those
regulations.
The Directors are responsible for the maintenance
and integrity of the corporate and financial information
included on the Company’s website. Legislation in the
UK governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
Employees
Kromek develops and manufactures products and
systems that are designed to make the world a safer
place. The Board and senior management value
technological development in the Group’s sector and
actively support developments that lead to better
scanning and detection systems. To this end, Kromek
participates in technology transfer projects, and works
with many universities and other places of learning
worldwide. The Board, executive team and staff are
active across a wide range of industry steering groups,
organisations and other stakeholder organisations.
All staff are encouraged to meet and participate in
events and conferences that operate in their area of
expertise. The Group’s learning and development
policy encourages employees to further their
professional development. Operating a business that is
fair and equitable for all is vital to the Group’s success.
Kromek’s ethical values are outlined in its:
•
Equal opportunity policy;
•
Personal harassment policy;
•
Family-friendly policy;
•
Equality, inclusion and diversity policy; and
•
Anti-bribery and corruption policy.
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 average number of staff during the year was 162 and the
percentage of this number that is female is 32%.
Auditor
Each of the persons who is a Director at the date of approval of this Annual
Report confirms that:
• so far as the Director is aware, there is no relevant audit information of
which the Group’s auditor is unaware; and
• the Director has taken all the steps that they ought to have taken as a
Director in order to make themself 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 2024 and 16 September 2024 (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:
At 30 April 2024
At 16 September 2024
Name of shareholder
Number
of shares
% of
voting
rights
Number
of shares
% of
voting
rights
Polymer Holdings
86,686,849
13.52
86,686,849
13.51
Hargreaves Lansdown Asset
Management
75,358,284
11.76
76,353,749
11.90
abrdn plc
64,398,010
10.05
63,696,636
9.93
Canaccord Genuity Wealth
Management
63,856,644
9.96
58,520,054
9.12
Herald investment Mgt
44,229,648
6.90
44,229648
6.89
Lloyds Banking group
27,724,057
4.32
29,558,017
4.61
AJ Bell Securities
26,224,864
4.09
26,172,096
4.08
Mr David & Mrs Monique Newlands
22,980,000
3.58
22,980,000
3.58
Barclays Bank
20,353,381
3.18
120,910,822
3.26
By order of the Board
Dr Arnab Basu MBE
Chief Executive Officer
25 October 2024
KROMEK GROUP PLC
Page 44
Corporate Governance Report
The Directors recognise the importance of sound corporate governance and have chosen to apply the Quoted Companies Alliance
Corporate Governance Code 2023 (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 the Group’s nominated advisor and all shareholder feedback is
discussed at Board meetings.
•
For further information, see Section 172 statement on pages 36 to 37 of this Annual Report.
3.
Consider wider stakeholder
and social responsibilities and
their implications for long-term
success
•
In terms of employees, regular meetings are held with management tiers to discuss strategy, keep
employees updated, seek feedback and promote employee engagement.
•
The Group engages in continuous communication and engagement with customers in order to understand
their needs and requirements.
•
The procurement team maintains strong relationships with existing suppliers whilst promoting new
partnerships with new suppliers.
•
For further information, see Section 172 statement on pages 36 to 37 of this Annual Report.
4.
Embedded effective risk
management, considering
both opportunities and threats
throughout the organisation
•
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 30 to 34 of the Strategic Report within this Annual Report.
5.
Maintain the Board as a well-
functioning, balanced team led
by the Chairman
•
The Board is led by the Non-Executive Chairman, Mr Rakesh Sharma.
•
The members of the Board maintain the appropriate balance of experience, independence and knowledge
of the Group.
•
For further information, please see pages 45 to 46 of this Annual Report.
6.
Ensure that between them the
Directors have the necessary
up-to-date experience, skills
and capabilities
•
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 40 to 41 of this Annual Report.
7.
Evaluate Board performance
based on clear and relevant
objectives, seeking continuous
improvements
•
The Chairman conducts half yearly reviews of the effectiveness of the Board’s performance as a unit and of
the individual members.
•
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 by a meeting to review the results of the audit.
•
The Board reviews the preparation of the Group budget; reviews period results against budget, together
with commentary on significant variances and updates of both result and cash flow expectations for the
period.
8.
Promote a corporate culture
that is based on ethical values
and behaviours
•
The Group’s ethical values are outlined on page 43 of this Annual Report.
•
All staff are encouraged to meet and participate in events and conferences that operate in their area of
expertise. The Group’s learning and development policy encourages employees to further their professional
development.
9.
Maintain governance structures
and processes and support
good decision making by the
Board
•
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 at least 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.
10. Communicate how the Group
is governed and is performing
by maintaining a dialogue with
shareholders and other relevant
stakeholders
•
Communication with shareholders is explained in principle 2 above.
•
The Group’s website details RNS announcements and copies of the Annual and Interim reports.
This information is available on the Group’s website. Please visit www.kromek.com.
Annual Report & Accounts 2024
Page 45
The Board
The Board normally meets formally at least four times per year in-
person or virtually, and up to 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 2024.
The following details the Board meetings during FY 2024, and the
attendees:
Date
Attendees
21/06/2023
Rakesh Sharma
Berry Beumer
Arnab Basu
Paul Farquhar
Lawrence Kinet
Jerel Whittingham (virtual)
Chris Wilks (virtual)
28/09/2023
Rakesh Sharma
Berry Beumer (virtual)
Arnab Basu
Paul Farquhar
Lawrence Kinet
Jerel Whittingham
Chris Wilks
08/12/2023
Rakesh Sharma
Berry Beumer (virtual)
Arnab Basu
Paul Farquhar
Lawrence Kinet
Jerel Whittingham
Chris Wilks
15/03/2024
Rakesh Sharma
Berry Beumer
Arnab Basu
Paul Farquhar
Lawrence Kinet
Jerel Whittingham
Chris Wilks
Board effectiveness
The Board has set out, in the contract for Non-Executive Directors,
the time commitment required and asked for confirmation that the
Director can devote enough time to meet the expectations of the
Board.
The Board currently anticipates a minimum time commitment of
one day per month and further days if required for the satisfactory
fulfilment of Directors’ duties. This includes attendance at four
in-person or virtual Board meetings per annum and at least one
telephonically, 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.
KROMEK GROUP PLC
Page 46
The Audit Committee is responsible for reviewing the half-
year and annual financial statements, interim management
statements, preliminary results announcements and any other
formal announcement or presentation relating to the Group’s
financial performance. There is also meeting time provided outside
the committee schedule to ensure there is full opportunity for
discussion.
The Audit Committee reviews significant financial returns to
regulators and any financial information covered in certain other
documents such as announcements of a price sensitive nature.
The Audit Committee also reviews the effectiveness of the Group’s
internal control over financial reporting and considers key financial
judgements made in the financial statements.
The Audit Committee advises the Board on the appointment of
external auditors and on their remuneration (both for audit and
non-audit work) and discusses the nature, scope and results
of the audit with the auditors. The Audit Committee reviews
the extent of the non-audit services provided by the auditors
and reviews with them their independence and objectivity. The
Chairman of the Audit Committee reports the outcome of Audit
Committee meetings to the Board and the Board receives minutes
of the meetings.
The following details the Audit Committee meetings and attendees
during the year ended 30 April 2024:
Date
Attendees
12/07/2023
Christopher Wilks
Rakesh Sharma
Lawrence Kinet
Jerel Whittingham
Paul Farquhar*
Arnab Basu*
20/07/2023
Christopher Wilks
Rakesh Sharma
Lawrence Kinet
Jerel Whittingham
Paul Farquhar*
Arnab Basu*
24/01/2024
Christopher Wilks
Rakesh Sharma
Lawrence Kinet
Jerel Whittingham
Paul Farquhar*
Arnab Basu*
25/03/2024
Christopher Wilks
Rakesh Sharma
Lawrence Kinet
Jerel Whittingham
Paul Farquhar*
* Attended by invitation
Remuneration Committee
The Remuneration Committee is chaired by Jerel Whittingham,
an Independent Non-Executive Director. The other members
are Christopher Wilks and Lawrence Kinet, Independent Non-
Executive Directors. The committee is responsible for making
recommendations to the Board, within agreed terms of reference,
on the Group’s framework of executive remuneration and its cost.
The committee determines the contract terms, remuneration
and other benefits for each of the Executive Directors, including
performance-related bonus schemes and pension rights. In
addition, in all matters of significant remuneration change, the
Remuneration Committee consults with the wider Board. Further
details of the Group’s policies on remuneration and service
contracts are given in the Remuneration Committee Report on
pages 51 to 53.
Internal control
The Board is responsible for establishing and maintaining
the Group’s system of internal control and for reviewing its
effectiveness. The system is designed to manage rather than
eliminate the risk of failure to achieve the Group’s strategic
objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss. The Directors
have set out below some of the key aspects of the Group’s
internal control procedures.
A process has been established for identifying, evaluating and
managing the significant risks faced by the Group. The process
has been in place for the full year under review and up to the date
of approval of the Annual Report and financial statements. The
Board regularly reviews this process as part of its review of such
risks within its meetings. Where any weaknesses are identified,
an action plan is prepared to address the issues and is then
implemented.
Each year the Board approves the annual budget. Key risk areas
are identified, reviewed and monitored. Performance is monitored
against budget and relevant action is taken throughout the year
and updated forecasts are prepared as appropriate.
Capital and development expenditure is regulated by a budgetary
process and authorisation levels. For expenditure beyond specified
levels, detailed written proposals have to be submitted to the
Board for approval.
Reviews are carried out after the purchase is complete. The
Board requires management to explain any major deviations from
authorised capital proposals and to seek further sanction from the
Board.
The Board has reviewed the need for an internal audit function
and concluded that this is not currently necessary in view of the
small size of the Group and the close supervision by the senior
leadership team of its day-to-day operations. The Board will
continue to keep this under review.
The Group has a whistle-blowing policy and procedures to
encourage staff to contact the Audit Committee if they need to
raise matters of concern other than via the Executive Directors and
senior leadership team.
Going concern
As at 30 April 2024, the Group had net current assets of £8.6m
(30 April 2023: £1.8m) and cash and cash equivalents of £0.5m
(30 April 2023: £1.1m) as set out in the consolidated statement of
financial position. The Group made a loss before tax of £3.5m in
the year (2023: £7.3m).
Corporate Governance Report (Continued)
Annual Report & Accounts 2024
Page 47
The Directors have prepared a detailed forecast of the Group’s
financial performance over the next twelve months from the
date of this report (the “base case forecast”). 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 (the “severe but plausible forecast”).
It should be noted that in the base case forecast, the Board has
specifically excluded any significant upsides from this scenario or
mitigating cost reductions. In the severe but plausible forecast, the
Board has also excluded available potential but significant upsides
but has included likely mitigating cost reductions, as management
would act swiftly to reduce the Group’s cash outflows (notably by
reducing payroll costs and discretionary expenditure).
Whilst the Directors were able to successfully conclude a placing,
subscription and open offer which raised £7.4m in H1 2024, as
well as securing a new loan facility in the period, there has been
continued cash burn in the year, and the current expiry date of the
new loan facility is 27 March 2025.
In both the base case forecast and the severe but plausible
forecast, the Directors indicate that they have sought the
assurance of the lender of the term loan facility that the loan is
likely to be extended for a further 12 months from March 2025,
which is at the option of the lender. The Group has a number of
significant opportunities available that the Directors are currently
exploring, which are expected to provide substantial cash inflows
to support the Group’s operations to achieve these forecasts
and significantly improve the liquidity of the Group. The Board
has concluded that it is almost certain that the required outcome
will be secured which will provide sufficient cash inflows to the
Group to cover any expected cash outflows for a period of at least
twelve months from the date of signing of this Annual Report.
Furthermore, the Board has received a confirmation of financial
support from one of the Group’s largest shareholders, in the event
that the available significant opportunities are not taken further
and the facility requires extending and/or increasing, to cover any
expected cash flow shortfall over the period for at least twelve
months from the date of signing. 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
Page 48
Audit Committee Report
On behalf of the Board, I am pleased to present the Audit
Committee report for the year ended 30 April 2024.
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: me (as Chairman), 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;
•
review of the 2024 audit plan and audit engagement letter;
•
assessment of the auditor’s independence and performance;
•
review of the risk management and internal control systems;
•
review and approval of the interim results;
•
assessment of the need for an internal audit function; and
•
meeting with the external auditor without management
present.
Role of the external auditor
The Audit Committee monitors the relationship with the external
auditor, Haysmacintyre LLP, to ensure that auditor independence
and objectivity are maintained. As part of its review, the Audit
Committee monitors the provision of non-audit services by the
external auditor. The breakdown of fees between audit and non-
audit services in the two years ended 30 April 2024 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 2024 and the 2023 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, significant risk areas (key audit matters), the approach to
these matters, audit materiality 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
planning phase. During the audit period areas of significant risk,
audit differences and other matters of audit relevance are regularly
communicated to the Audit Committee. 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 2024 audit was £358k
(2023: £326k). 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 review 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 enables the reader to assess the Group’s position and
performance as well as its strategy and business model.
Annual Report & Accounts 2024
Page 49
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
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.
Recoverability of trade receivables
The Group’s accounting policy for amounts recoverable on trade receivables is included within the accounting
policies in note 2, and the components of trade and other receivables are set out in note 21.
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 reviews the recoverability of
receivables over 120 days every six months and on an individual balance by balance basis. The impairment
review seeks evidence of recoverability, most notably, where specific support is being provided to strategic
partners in the marketing of new products. 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. A determination is then made if the Group should recognise an impairment allowance. When
considering any impairment, strategic and commercial relationships are considered.
The Committee receives regular reports from management to evidence that Group’s accounting policy for
amounts recoverable on trade receivables is complied with across the Group.
Intangible assets capitalised,
development expenditure and
impairment
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 solution
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.
Valuation of investments in
subsidiaries and intercompany
receivables
Included in the parent Company’s Statement of Financial Position are investments in subsidiaries of £6.6m
(2023: £6.1m) and intercompany receivables of £ 82.3m (2023: £77.2m).
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 Group
plc is fairly stated and that no impairment exists.
Going Concern
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 68 - 69. 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 Annual
Report and taking into consideration all known and pending strategic initiatives, the Committee concluded that it
was appropriate for the Group to continue to prepare its financial statements on a going concern basis.
KROMEK GROUP PLC
Page 50
Shareholders’ attention is drawn to the section titled ‘Key Audit
Matters” in the report from the independent auditor on pages 57
to 60, about specific areas as reported by the independent auditor
to provide its opinion on the fnancial statements as a whole.
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 44 of the Corporate Governance Report,
the Group has established a framework of risk management
and internal control systems, policies and procedures. The Audit
Committee is responsible for reviewing the risk management and
internal control framework and ensuring that it operates effectively.
During the year, the Audit Committee reviewed the framework and
is satisfied that the internal control systems in place are currently
operating effectively.
Whistleblowing
The Group has in place a whistleblowing policy that sets out
the formal process by which any employee of the Group may,
in confidence, raise concerns about possible improprieties in
financial reporting, conduct of business, personnel or other
matters. No matters were reported through this mechanism during
the year.
Christopher Wilks
Audit Committee Chairman
25 October 2024
Audit Committee Report (Continued)
Annual Report & Accounts 2024
Page 51
Remuneration Committee Report (Unaudited)
As Kromek Group is AIM listed, the Directors are not required,
under Section 420(1) of the Companies Act 2006, to prepare
a Directors’ remuneration report for each financial year of the
Group and so Kromek makes the following disclosures voluntarily,
which are not intended to comply with the requirements of the
Companies Act 2006.
The Remuneration Committee is responsible for recommending
the remuneration and other terms of employment for the Executive
Directors of Kromek Group plc.
Remuneration policy
The remuneration of Executive Directors is determined by
the Remuneration Committee and the remuneration of Non-
Executive Directors is approved by the full Board of Directors. The
remuneration of the Chairman is determined by the Independent
Non-Executive Directors.
The remuneration packages of Executive Directors comprise the
following elements:
Basic salary and benefits
Basic salaries for Executive Directors are reviewed annually, having
regard to individual performance and market practice. In most
cases, benefits provided to Executive Directors comprise the
provision of a Group car, or appropriate allowance, health and life
insurance and contributions to a Group personal pension scheme.
Annual bonus
A contractual bonus is awarded at the end of each financial
year, the quantum of which is at the discretion of the Board,
having considered the recommendations of the Remuneration
Committee. The maximum bonus currently ranges from between
50%–100% of basic salary to reward executives’ contribution
to the growth in revenue, and specific targeted or strategic
objectives. In addition to the annual bonus arrangement, the
Remuneration Committee may make an exceptional bonus award
in specific circumstances where appropriate.
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 its 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 principally based on
total shareholder return (“TSR”) relative to the FTSE AIM All-Share
Index, which is the peer group for the LTIP scheme; however, the
Remuneration Committee applies other key strategic criteria as
appropriate. 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.
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
30 April 2024
£’000
30 April 2023
£’000
Arnab Basu1
4
4
Paul Farquhar
16
14
Berry Beumer
6
7
1 In 2024 and 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 2024
30 April 2023
Number
%
Number
%
Arnab Basu
3,088,750
0.5
2,988,750
0.7
Rakesh Sharma
1,207,539
0.2
807,539
0.2
Paul Farquhar1
166,500
0.0
66,500
0.0
Berry Beumer
80,000
0.0
80,000
0.0
Lawrence Kinet
750,000
0.1
350,000
0.1
Jerel Whittingham
664,890
0.1
364,890
0.1
Christopher Wilks
277,941
0.0
177,941
0.0
1 Includes shares owned by family
KROMEK GROUP PLC
Page 52
Remuneration Committee Report (Continued)
Directors’ emoluments for the year ended 30 April 2024
The table below forms part of the audited financial statements:
Salary
£’000
Benefits
£’000
Bonus
paid
£’000
Pension
contributions
£’000
Total
emoluments
2024
£’000
Total
emoluments
2023
£’000
Non-executive Chairman
Rakesh Sharma
80
-
-
-
80
80
Executive
Arnab Basu1
286
3
20
4
313
271
Paul Farquhar2
195
1
20
16
232
192
Berry Beumer
252
18
20
6
296
266
Non-executive
Lawrence Kinet
39
-
-
-
39
39
Jerel Whittingham
42
-
-
-
42
42
Christopher Wilks
42
-
-
1
43
43
Total
936
22
60
27
1,045
933
1 The 2024 salary of Arnab Basu includes £15,000 of contractual pension entitlement which Mr Basu opted to take as salary in lieu of contributions to the
Company pension scheme (2023: £13,500). The 2024 annual bonus of £20,000 awarded to Arnab Basu was taken as a contribution to the Company
pension scheme (2023: £nil).
2 The 2024 salary of Paul Farquhar includes £6,000 of compensation taken as cash in lieu of a Group car (2023: £6,000).
None of the Executive or Non-Executive Directors exercised any share options in the year ended 30 April 2024 (2023: nil).
Executive Directors’ share incentive scheme (LTIP)
Share incentive scheme for executive Directors
The Remuneration Committee agreed, in March 2024, an incentive
award scheme for Arnab Basu, Paul Farquhar and Berry Beumer,
to offer them up to 7,500,000, 4,262,500 and 5,696,350 shares
respectively, at a price of 1p per share, to vest based on specified
performance criteria.
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 share incentives noted above are measured by a TSR condi-
tion, calculated as the average total return in comparison to a peer
group.
As at 30 April 2024, the LTIP incentive option shares issued in
fiscal years 2023 and 2024 remained unvested.
Share price during the year
During the year to 30 April 2024, the highest share price was
8.00p (2023: 14.40p) and the lowest share price was 3.25p (2023:
5.02p). The market price of the Group’s shares at 30 April 2024
was 6.80p (30 April 2023: 6.50p).
Directors’ interests in material contracts
No Director was materially interested either at the year-end or
during the year in any contract of significance to the Group other
than their employment or service contract.
Executive Directors’ share options
Whilst the issue of equity incentives for executive Directors is pri-
marily focussed on the LTIP scheme as detailed above, the Group
does make occasional and targeted use of market price options
for Executive Directors outside the LTIP.
Annual Report & Accounts 2024
Page 53
Director
Date of grant
Exercise
price p
At 30 April
2024
number
At 30 April
2023
number
Expiry date
Arnab Basu
20 Nov 2011
20.0
1,000,000
1,000,000
20 Nov 2024
Arnab Basu
14 Dec 2020
12.0
1,250,000
1,250,000
14 Dec 2030
Arnab Basu
29 April 2021
1.0
110,000
110,000
30 April 2025
Arnab Basu
1 May 2021
1.0
400,000
400,000
1 May 2031
Arnab Basu
18 March 2024
5.9
750,000
-
18 March 2034
Paul Farquhar
15 Oct 2020
12.0
1,000,000
1,000,000
15 Oct 2030
Paul Farquhar
1 May 2021
1.0
150,000
150,000
1 May 2031
Paul Farquhar
18 March 2024
5.9
750,000
-
18 March 2034
Berry Beumer1
1 Jan 2016
27.0
180,000
180,000
1 Jan 2026
Berry Beumer1
14 Dec 2020
12.0
1,250,000
1,250,000
14 Dec 2030
Berry Beumer
29 April 2021
1.0
150,000
150,000
30 April 2025
Berry Beumer
1 May 2021
1.0
150,000
150,000
1 May 2031
Berry Beumer
18 March 2024
5.9
750,000
-
18 March 2034
1 Awarded to Mr Beumer prior to him being appointed as a Director
Jerel Whittingham
Remuneration Committee Chairman
25 October 2024
The table below 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:
KROMEK GROUP PLC
Page 54
This page is left intentionally blank
Annual Report & Accounts 2024
Page 55
4
Financial Statements
56 Independent Auditor’s Report
63 Group Statement of
Comprehensive Income
64 Consolidated Statement of
Comprehensive Income
65 Consolidated Statement of
Financial Position
66 Consolidated Statement of
Changes in Equity
67 Consolidated Statement of
Cash Flows
68 Notes to the Consolidated
Financial Statements
102 Company Financial Statements
KROMEK GROUP PLC
Page 56
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 2024 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 2024 and of the
Group’s loss for the year then ended;
•
have been properly prepared in accordance with UK adopted
international accounting standards; and
•
have been prepared in accordance with the requirements of
the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the Group in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Director’s use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our audit procedures to evaluate the Director’s assessment of the
Group’s and the Parent 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;
•
Reviewing forecasts from a short-term, medium-term, and
long-term perspective to assess any liquidity issues in the
group;
•
Obtaining, and reviewing correspondence and other
supporting documentation in relation to significant
opportunities being explored by management;
•
Obtaining, and reviewing correspondence and other
supporting documentation, between the Group and potential
sources of finance, which may be 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 assess cashflow
performance of the Group, including reviewing documentation
in relation to post year-end financing obtained;
•
Where possible, obtaining confirmation directly from potential
sources of finance to support the Director’s going concern
assessment; and
•
Reviewing the appropriateness of disclosures in the financial
statements.
The Directors have prepared a detailed cashflow forecast including
a plausible worst-case scenario. The plausible worst-case
scenario indicates a requirement for the Group to obtain additional
finance through the issuance of debt or the potential cash that
would flow from the significant opportunities being explored
in order to increase their working capital and also ensure the
Group can continue operating as a going concern throughout the
forecast period.
Management have noted that they are exploring a number of
significant opportunities which are expected to provide significant
cash inflows to the business, and therefore. we have obtained
the latest correspondence and assessed how probable these
opportunities are. We have also evidenced direct confirmation
from an existing shareholder to support the business in the event
that these opportunities do not materialise and assessed the
shareholder’s ability to provide this support.
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.
Annual Report & Accounts 2024
Page 57
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, in evaluating the effect of misstatements and
in forming an option. For the purpose of determining whether the
financial statements are free from material misstatement, we define
materiality as the magnitude of a misstatement or an omission
from the financial statements, or related disclosures, that would
make it probable that the judgement of a reasonable person,
relying on the information would have been changed or influenced
by the misstatement or omission. We also determine a level of
performance materiality, which we used to determine the extent
of testing need, to reduce to an appropriately low level the risk
that the aggregate of uncorrected and undetected misstatement
exceeds materiality for the financial statements as a whole.
Materiality for the Group financial statements was set at £358,000.
This was determined with reference to 6% of the average
normalised loss before tax 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 70% of
materiality, being £250,000.
The reporting threshold to the Audit and Risk Committee was set
as 5% of materiality, being £18,000. 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 £268,000. 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 75% of Group
materiality to ensure that the Parent Company materiality did not
exceed component materiality.
On the basis of our risk assessment and review of the Parent
Company’s control environment, performance materiality was set
at 70% of materiality, being £187,600.
The reporting threshold to the Audit and Risk Committee was set
as 5% of materiality, being £13,400. If in our opinion in differences
below this level warranted reporting on qualitative grounds, these
would also be reported.
An overview of the scope of our audit
Our audit scope included all components of the Group. For the
three companies that are resident in the UK, we have performed
full scope statutory audits.
For the entities registered in the USA, we have performed audit
procedures on each entity to varying degrees of detail, with the
work performed on the most significant component, eV Products
Inc. being equivalent to that of a full scope statutory audit,
performed to component materiality. For NOVA R&D Inc., which is
considered to be material but not significant, we have performed
analytical procedures for areas considered to be low risk, and
substantive audit testing for those material balances which are
considered to be high risk. For Kromek Inc., which is considered
to be relevant but not material or significant, we have performed
analytical procedures 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 ad hoc
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
Page 58
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 £19.40m (2023: £17.31m).
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;
-
We reviewed contracts where revenue had been recognised
over time and challenged management’s use of the input
method. This was to assess whether contracts were being
recognised in line with the stipulations of IFRS 15.
-
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;
-
We specifically assessed sales around year-end under
ex-works terms. We traced these items to supporting
documentation evidencing that IFRS 15 requirements had
been met; 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 recognised.
Independent Auditors Report (Continued)
Annual Report & Accounts 2024
Page 59
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
Included in the Group Statement of Financial Position are
capitalised development costs of £31.29m (2023: £29.13m).
The estimated recoverable amount of capitalised developments
costs is highly material on a Group level. There is a risk that this
balance is materially overstated and that an impairment should be
recognised in addition to any amortisation charged in the year.
The impairment review of these balances is subjective due to the
inherent uncertainty involved in forecasting and discounting future
cash flows and assumptions made in relation to future market
demand, production capacity and yield, gross margin, and
overhead rates.
The effect of this is that the recoverable amount of capitalised
development costs has a high degree of estimation uncertainty
and a potential range of reasonable outcomes greater than
materiality for the financial statements. Therefore, there is a risk
that they require impairment.
There is a further risk that additions in the year are not correctly
capitalised on the basis that they do not fulfil the development
criteria as they constitute research phase expenditure.
Our audit work focused on assessing the forecasts presented
by management to support the valuation of the capitalised
development costs.
This included but was not limited to:
-
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;
-
Reviewing the sensitivity analysis disclosure in the financial
statements in line with the forecasts provided by management
as part of their impairment review; and
-
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
Page 60
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 £6.58m (2023: £6.10m) and
intercompany receivables of £82.3m (2023: £77.2m).
Given the Group, and each of the subsidiaries to which the
balances relate are loss making, there is a risk that the investment
and intercompany receivable should be impaired.
The impairment review of these balances is subjective due to
the inherent uncertainty involved in forecasting and discounting
future cash flows and the assumptions made in relation to
the forecasted performance of the subsidiaries to which the
investment and receivable balances relate.
The effect of this is that the recoverable amount of investment
in subsidiaries and intercompany receivables has a high degree
of estimation uncertainty and a potential range of reasonable
outcomes greater than materiality for the financial statements.
Therefore, there is a risk that they require impairment.
We obtained and 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.
Key Audit Matter Description
How the matter was addressed in the audit
Recoverability of trade receivables
Included in the Group Statement of Financial Position are
amounts receivable for the sale of goods of £10.15m (2023:
£4.57m).
The estimated recoverable amount of these receivables is highly
material. There is a risk that this balance is materially overstated
and that a provision should be recognised in relation to older
debts held.
The current provision in the financial statements is £2.55m (2023:
£2.50m) which is highly material and is based on management’s
assessment of the recoverability of receivables.
There is a further risk that the receivables are overstated where
the requirements of IFRS 15 with regards to probable collection
of consideration are not met.
We obtained and critically assessed management’s assessment
of these balances, which largely related to correspondence and
documentation to evidence that receipt of the receivables was
considered to be probable:
-
Agreeing existence of receivables to invoice.
-
Agreeing receivables to post year-end receipts.
-
Obtaining management’s assessment of bad debt with
reference to IFRS 9 requirements.
-
Performing sensitivity analysis on the IFRS 9 expected credit
loss model, to consider if there is evidence of a material
misstatement of the provision.
-
Challenging management on the key assumptions made with
regards to the recoverability of receivables over a year old at
the reporting date.
-
Obtaining supporting documentation and direct confirmation
from customers with regards to receivables and expected
payment dates.
Independent Auditors Report (Continued)
Annual Report & Accounts 2024
Page 61
Other information
The Directors are responsible for the other information. The other
information comprises the information included in the annual
report, other than the financial statements and our auditor’s report
thereon. Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements, or our knowledge obtained in
the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report in this regard.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, based on the work undertaken in the course of the
audit:
• the information given in the strategic report and the Directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the Directors’ report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by
exception
In the light of the knowledge and understanding of the group and
the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the
strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
• the parent company financial statements are not in agreement
with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement
set out on page 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.
In preparing the financial statements, the Directors are responsible
for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the group
or the parent company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud
is detailed below:
Explanation as to what extent the audit was
considered capable of detecting irregularities,
including fraud
Based on our understanding of the Group and industry, we
identified 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.
KROMEK GROUP PLC
Page 62
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,
regulation, and fraud;
•
Evaluating management’s controls designed to prevent and
detect irregularities;
•
Discussions with management regarding any breaches of AIM
rules;
•
Identifying and testing journals, in particular journal entries
posted with unusual account combinations, postings by
unusual users or with unusual descriptions;
•
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; and
•
Reviewing correspondence with third parties for major sales
taking place in the year to verify a sale existed at the time it
was recorded.
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
25 October 2025
10 Queen Street Place
London
EC4R 1AG
Independent Auditors Report (Continued)
Annual Report & Accounts 2024
Page 63
Group statement of comprehensive income
For the year ended 30 April 2024
Note
2024
£’000
2023
£’000
Continuing operations
Revenue
4
19,403
17,309
Cost of sales
(8,693)
(8,374)
Gross profit
10,710
8,935
Other operating income
5
-
121
Distribution costs
(456)
(612)
Administrative expenses
(12,146)
(14,570)
Change in fair value of derivative
517
77
Operating loss (before exceptional items)
(1,375)
(6,049)
Exceptional refinancing costs
9
(246)
-
Operating results (post exceptional items)
(1,621)
(6,049)
Finance income
10
40
2
Finance costs
11
(1,874)
(1,245)
Loss before tax
6
(3,455)
(7,292)
Tax credit
12
162
1,192
Loss for the year from continuing operations
(3,293)
(6,100)
Loss per share
14
- basic (p)
(0.6)
(1.4)
The notes on pages 68 to 101 form part of these financial statements.
KROMEK GROUP PLC
Page 64
Consolidated statement of comprehensive income
For the year ended 30 April 2024
2024
£’000
2023
£’000
Loss for the year
(3,293)
(6,100)
Items that are or may be subsequently reclassified to profit or loss:
Exchange gain/(loss) on translation of foreign operations
8
(166)
Total comprehensive loss for the year
(3,285)
(6,266)
The notes on pages 68 to 101 form part of these financial statements.
Annual Report & Accounts 2024
Page 65
Consolidated statement of financial position
As at 30 April 2024
Note
2024
£’000
2023
£’000
Non-current assets
Goodwill
15
1,275
1,275
Other intangible assets
16
32,726
30,554
Property, plant and equipment
17
8,675
9,831
Right-of-use asset
18
3,400
3,758
46,076
45,418
Current assets
Inventories
20
10,295
10,894
Trade and other receivables
21
12,983
5,529
Current tax assets
21
372
940
Cash and bank balances
466
1,097
24,116
18,460
Total assets
70,192
63,878
Current liabilities
Trade and other payables
23
(7,475)
(7,436)
Borrowings
25
(7,573)
(8,318)
Derivative financial instruments
26
-
(517)
Lease obligation
24
(452)
(405)
(15,500)
(16,676)
Net current assets
8,616
1,792
Non-current liabilities
Deferred income
23
(920)
(1,021)
Lease obligation
24
(3,736)
(4,089)
Borrowings
25
(526)
(568)
Deferred tax liability
22
(156)
-
(5,338)
(5,678)
Total liabilities
(20,838)
(22,354)
Net assets
49,354
41,524
Equity
Share capital
27
6,410
4,319
Share premium account
28
81,480
72,943
Merger reserve
21,853
21,853
Translation reserve
29
1,905
1,897
Accumulated losses
30
(62,294)
(59,488)
Total equity
49,354
41,524
The notes on pages 68 to 101 form part of these financial statements.
The financial statements of Kromek Group plc were approved by the Board of Directors and authorised for issue on 25 October 2024.
They were signed on its behalf by:
Dr Arnab Basu MBE
Chief Executive Officer
KROMEK GROUP PLC
Page 66
Consolidated statement of changes in equity
For the year ended 30 April 2024
Share capital
£’000
Share
premium
account
£’000
Merger
reserve
£’000
Translation
reserve
£’000
Retained
losses
£’000
Total
equity
£’000
Balance at 1 May 2022
4,319
72,943
21,853
2,063
(53,742)
47,436
Loss for the year
-
-
-
-
(6,100)
(6,100)
Exchange difference on translation of foreign
operations
-
-
-
(166)
-
(166)
Total comprehensive loss for the year
-
-
-
(166)
(6,100)
(6,266)
Credit to equity for equity-settled share-based
payments
-
-
-
-
354
354
Balance at 30 April 2023
4,319
72,943
21,853
1,897
(59,488)
41,524
Loss for the year
-
-
-
-
(3,293)
(3,293)
Exchange difference on translation of foreign
operations
-
-
-
8
-
8
Total comprehensive gain/(loss) for the
year
-
-
-
8)
(3,293)
(3,285)
Issue of shares less issuance costs1
1,606
5,873
-
-
-
7,479
Conversion of CLN (see note 26)
485
2,664
-
-
(11)
3,138
Credit to equity for equity-settled share-based
payments
-
-
-
-
490
490
Deferred tax movement
-
-
-
-
8
8
Balance at 30 April 2024
6,410
81,480
21,853
1,905
(62,294)
49,354
1 The fees associated with issue of shares were £549k.
The notes on pages 68 to 101 form part of these financial statements.
Annual Report & Accounts 2024
Page 67
Consolidated statement of cash flows
For the year ended 30 April 2024
Note
2024
£’000
2023
£’000
Net cash generated from/(used in) operating activities
31
(2,802)
197
Investing activities
Interest received
10
40
2
Purchases of property, plant and equipment
17
(146)
(269)
Purchases of patents and trademarks
16
(252)
(183)
Capitalisation of development costs
16
(4,644)
(4,821)
Net cash used in investing activities
(5,002)
(5,271)
Financing activities
New borrowings
32
7,000
1,100
Proceeds from the issue of convertible loan notes
26
-
2,840
Payment of borrowings
32
(5,822)
(1,258)
Payment of lease liability
21
(678)
(692)
Interest paid
11
(699)
(703)
Financing costs
(102)
-
Net proceeds on issue of shares
7,479
-
Net cash generated from/(used in) financing activities
7,178
1,287
Net decrease in cash and cash equivalents
(626)
(3,787)
Cash and cash equivalents at beginning of year
1,097
5,081
Effect of foreign exchange rate changes
(5)
(197)
Cash and cash equivalents at end of year
466
1,097
The notes on pages 68 to 101 form part of these financial statements.
KROMEK GROUP PLC
Page 68
Notes to the consolidated financial statements
For the year ended 30 April 2024
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.
New and amended IFRS Accounting Standards that are effective for the current year
There are a number of standards and amendments to standards which have been issued by the IASB that are effective in future accounting
periods that have not been adopted early. The following standard is effective for annual reporting periods beginning on or after 1 January
2024:
-
IFRS 17 Insurance Contracts
-
Classification of liabilities as current or non-current (Amendments to IAS 1)
-
Deferred tax related to assets and liabilities arising from a single transaction (Amendments to IAS 12)
-
Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)
-
Classification of Financial Instruments (Amendments to IFRS 9)
-
Non-current liabilities with covenants (Amendments to IAS 1)
-
Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7)
No new standards or amendments that became effective in the financial year had a material impact in preparing these financial statements.
New and revised IFRS Accounting Standards in issue but not yet effective
The following amendments are effective for annual reporting periods beginning on or after 1 January 2025:
-
Guidance on the exchange rate to use when a currency is not exchangeable (Amendments to IAS 21)
-
Accounting treatment for the sale or contribution of assets (Amendments to IFRS 10 and IAS 28)
The following standards are effective for annual reporting periods beginning on or after 1 January 2027:
-
IFRS 18 Presentation and Disclosure in Financial Statements
-
IFRS 19 Subsidiaries without Public Accountability: Disclosures
Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review
has been completed.
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 2024, the Group had net current assets of £8.6m (30 April 2023: £1.8m) and cash and cash equivalents of £0.5m (30 April
2023: £1.1m) as set out in the consolidated statement of financial position. The Group made a loss before tax of £3.5m in the year (2023:
£7.3m).
The Directors have prepared a detailed forecast of the Group’s financial performance over the next twelve months from the date of this
report (the “base case forecast”). 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 (the
“severe but plausible forecast”). It should be noted that in the base case forecast, the Board has specifically excluded any significant
upsides from this scenario or mitigating cost reductions. In the severe but plausible forecast, the Board has also excluded available
potential but significant upsides but has included likely mitigating cost reductions, as management would act swiftly to reduce the Group’s
cash outflows (notably by reducing payroll costs and discretionary expenditure).
Whilst the Directors were able to successfully conclude a placing, subscription and open offer which raised £7.4m in H1 2024, as well
as securing a new loan facility in the period, there has been continued cash burn in the year, and the current expiry date of the new loan
facility is 27 March 2025.
In both the base case forecast and the severe but plausible forecast, the Directors indicate that they have sought the assurance of the
lender of the term loan facility that the loan is likely to be extended for a further 12 months from March 2025, which is at the option of
Annual Report & Accounts 2024
Page 69
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going concern (continued)
the lender. The Group has a number of significant opportunities available that the Directors are currently exploring, which are expected
to provide substantial cash inflows to support the Group’s operations to achieve these forecasts and significantly improve the liquidity of
the Group. The Board has concluded that it is almost certain that the required outcome will be secured, which will provide sufficient cash
inflows to the Group to cover any expected cash outflows for a period of at least twelve months from the date of signing of this Annual
Report. Furthermore, the Board has received a confirmation of financial support from one of the Group’s largest shareholders, in the event
that the available significant opportunities are not taken further and the facility requires extending and/or increasing, to cover any expected
cash flow shortfall over the period for at least twelve months from the date of signing. 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.
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 represent 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.
KROMEK GROUP PLC
Page 70
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Transaction price (continued)
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 are 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.
– 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.
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:
(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.
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2024
Page 71
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Contract liabilities
Contract liabilities represent the obligation to transfer goods or services to a customer for which consideration has been received, or
consideration is due, from the customer.
Leases
The Group 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.
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
intra-Group 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 intra-Group 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 rate at the date of
transaction is 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.
KROMEK GROUP PLC
Page 72
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, associated with refinancing costs, 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 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
6% to 25%
Fixtures, fittings and equipment
15%
Computer equipment
25%
Lab equipment
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-gnerated intangible assets – research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from the Group’s product development is recognised only if all of the following conditions
are met:
• The technical feasibility of completing the intangible asset so that it will be available for use or sale.
• Its intention to complete the intangible asset and use or sell it.
• Its ability to use or sell the intangible asset.
• How the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2024
Page 73
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.
• 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.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate of 9.13% for Advanced Imaging and 11.85% for CBRN and Biological
Threat Detection (2023: AI 8.85%, CBRN/Bio 10.92%) 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 continues 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
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Internally-gnerated intangible assets – research and development expenditure (continued)
KROMEK GROUP PLC
Page 74
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 Group 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.
• 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 Other Comprehensive Income. This election is made on an investment-by-investment
basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL.
Investments in subsidiaries are carried at cost less impairment.
Cash and cash equivalents comprise cash balances and call deposits.
(b)
Subsequent measurement and gains and losses
Financial assets at FVTPL – these assets (other than derivatives designated as hedging instruments) are subsequently measured at
fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.
Financial assets at amortised cost – these assets are subsequently measured at amortised cost using the effective interest method.
The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are
recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Financial liabilities and equity
Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:
(a) They include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets
or financial liabilities with another party under conditions that are potentially unfavourable to the Group.
(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 these conditions are not met, the proceeds of the 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 were 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.
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments (continued)
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2024
Page 75
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments (continued)
The debt host liability will be accounted for using the amortised cost basis with an effective interest rate of 5.67%. 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 Group’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.
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 the 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.
KROMEK GROUP PLC
Page 76
3.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
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 is recognised either over time or at a point in time depending on the characteristics of the
specific contract when applying IFRS 15.
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 CGU 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.
i)
Development costs
The key source of estimation uncertainty relates to the estimation of the asset’s recoverable amount, which involves assumptions
in relation to future uncertainties including discount rates and growth rates. For further details, see note 15.
As disclosed in note 16, development costs are capitalised in accordance with the accounting policy noted above. These capitalised
assets are amortised over the period during which the Group is expected to benefit.
ii)
Contract revenue
This policy requires forecasts to be made of the outcomes of long-term contracts, which include assessments and judgements on
changes in expected costs. A change in the estimate of total forecast contract costs would
impact the stage of completion of those contracts and the level of revenue recognised thereon, which could have a material impact
on the results of the Group.
iii)
R&D tax credit
The R&D tax credit is calculated using the current rules as prescribed by HMRC. The estimation is based on the actual UK R&D
projects that qualify for the scheme that have been carried out in the period. Management estimates the tax credit on a prudent
basis and then obtain additional professional input from the Group’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 £19k to £353k.
Annual Report & Accounts 2024
Page 77
iv)
Recoverability of receivables and amounts recoverable on contract (“AROC”)
Management judges the recoverability at the balance sheet date and makes a provision for impairment where appropriate. The
resultant provision for impairment represents management’s best estimate of losses incurred in the portfolio at the balance sheet
date, assessed on the customer risk scoring and commercial discussions. Further, management estimates 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 bases 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.
v)
Impairment reviews
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 £46,076k 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.
vi)
Calculation of share-based payment charges
The charge related to equity-settled transactions with employees is measured by reference to the fair value of the equity instruments
at the date they are granted, using an appropriate valuation model selected according to
the terms and conditions of the grant. 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 has engaged a third-party
expert in FY 2024 to value the LTIPs granted in year using the Monte Carlo Model.
vii)
Convertible loan notes
The Group issued £2.8m of convertible loan notes during the prior 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).
During the period, all but one noteholder converted their convertible loan holdings, as well as the interest accrued on that holding
into equity. This resulted in the issue of 48,003,042 new ordinary shares during the period. A further 100,000 ordinary shares were
issued in lieu of professional fees due in respect of the conversion of the convertible loan notes.
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 that 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 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 segments 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 detection, advanced 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 detection 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.
3.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)
Key sources of estimation uncertainty (continued)
KROMEK GROUP PLC
Page 78
4.
OPERATING SEGMENTS (CONTINUED)
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
Analysis by geographical area
A geographical analysis of the revenue from the Group’s customers, by destination, is as follows:
2024
£’000
2023
£’000
United Kingdom
3,023
3,944
North America
5,937
6,110
Asia
1,374
2,071
Europe
8,950
5,031
Other
119
153
Total revenue
19,403
17,309
The Group has aggregated its CGUs, being CBRN detection, 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.
As the CGUs of advanced imaging, CBRN detection, and biological threat detection continue to grow and mature, we are working towards
reporting on the basis of two business segments being advanced imaging and CBRN/biological threat detection, rather than the current
geographic segments.
Annual Report & Accounts 2024
Page 79
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 2024
UK Operations
£’000
US Operations
£’000
Total for Group
£’000
Revenue from sales
-Sale of goods and services
12,600
15,164
27,764
-Revenue from grants
582
-
582
-Revenue from contract customers
2,478
-
2,478
Total sales by segment
15,660
15,164
30,824
Removal of inter-segment sales
(7,770)
(3,651)
(11,421)
Total external sales
7,890
11,513
19,403
Segment result – operating loss before exceptional items
(153)
(1,222)
(1,375)
Interest received
40
-
40
Interest expense
(1,636)
(238)
(1,874)
Exceptional items
(246)
-
(246)
Loss before tax
(1,995)
(1,460)
(3,455)
Tax credit
172
(10)
162
Loss for the year
(1,823)
(1,470)
(3,293)
Reconciliation to adjusted EBITDA:
Net interest
1,596
238
1,834
Tax
(172)
10
(162)
Depreciation of PPE and right-of-use assets
977
774
1,751
Amortisation of intangible assets
1,466
1,292
2,758
Change in fair value of derivative
(517)
-
(517)
Share-based payment charge
490
-
490
Exceptional items
246
-
246
Adjusted EBITDA
2,263
844
3,107
Other segment information
Property, plant and equipment additions
42
104
146
Right-of-use assets
2,250
3,765
6,015
Release of capital grant
(44)
-
(44)
Intangible asset additions
2,471
2,425
4,896
Statement of financial position
Total assets
36,188
34,004
70,192
Total liabilities
(14,931)
(5,907)
(20,838)
KROMEK GROUP PLC
Page 80
4.
OPERATING SEGMENTS (CONTINUED)
Analysis by geographical area (continued)
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
Year ended 30 April 2023
UK Operations
£’000
US Operations
£’000
Total for Group
£’000
Revenue from sales
-Sale of goods and services
11,530
14,844
26,374
-Revenue from grants
226
-
226
-Revenue from contract customers
2,164
51
2,215
Total sales by segment
13,920
14,895
28,815
Removal of inter-segment sales
(8,529)
(2,977)
(11,506)
Total external sales
5,391
11,918
17,309
Segment result – operating loss before exceptional items
(1,881)
(4,168)
(6,049)
Interest received
2
-
2
Interest expense
(975)
(270)
(1,245)
Loss before tax
(2,854)
(4,438)
(7,292)
Tax credit
1,192
-
1,192
Loss for the year
(1,662)
(4,438)
(6,100)
Reconciliation to adjusted EBITDA:
Net interest
973
270
1,243
Tax
(1,192)
-
(1,192)
Depreciation of PPE and right-of-use assets
1,004
899
1,903
Amortisation of intangible assets
1,558
1,333
2,891
Share-based payment charge
(77)
-
(77)
Exceptional items
354
-
354
Adjusted EBITDA
958
(1,936)
(978)
Other segment information
Property, plant and equipment additions
42
227
269
Right-of-use assets
2,133
3,752
5,885
Release of capital grant
(44)
-
(44)
Intangible asset additions
2,761
2,243
5,004
Statement of financial position
Total assets
35,687
28,191
63,878
Total liabilities
(16,433)
(5,921)
(22,354)
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.
Annual Report & Accounts 2024
Page 81
4.
OPERATING SEGMENTS (CONTINUED)
Revenues from major products and services
The Group’s revenues from its major products and services were as follows:
2024
£’000
2023
£’000
Product revenue
16,351
14,768
Research and development revenue
3,052
2,541
Consolidated revenue
19,403
17,309
Information about major customers
Included in revenues arising from US operations are revenues of approximately £4,878k (2023: £4,688k) that arose from the Group’s
largest commercial customer. Included in revenues arising from UK operations are revenues of approximately £2,121k (2023: £1,243k) that
arose from a major commercial customer of the Group and the largest commercial customer of the UK operations.
5.
OTHER OPERATING INCOME
2024
£’000
2023
£’000
Miscellaneous
-
121
Total other operating income
-
121
Miscellaneous income in the prior year related to work undertaken on a duty saving project. An Advance Tariff Ruling application was
granted, which resulted in a retrospective duty claim dating back three years.
6.
LOSS BEFORE TAX FOR THE YEAR
Loss before tax for the year has been arrived at after charging/(crediting):
2024
£’000
2023
£’000
Net foreign exchange gains
(26)
(98)
Research and development costs recognised as an expense
793
882
Depreciation of property, plant and equipment
1,751
1,910
Release of capital grant
(44)
(44)
Amortisation of internally-generated intangible assets
2,758
2,891
Cost of inventories recognised as expense
5,590
4,858
Exceptional item (see note 9)
246
-
Staff costs (see note 8)
10,051
11,166
7.
AUDITOR’S REMUNERATION
The analysis of the auditor’s remuneration is as follows:
2024
£’000
2023
£’000
Fees payable to the Company’s auditor and their associates for other services to the Group
– The audit of the Company and its subsidiaries
215
150
Total audit fees
215
150
KROMEK GROUP PLC
Page 82
8.
STAFF COSTS
The average monthly number of employees (excluding Non-Executive Directors) was:
2024
Number
2023
Number
Directors (executive)
3
3
Research and development, production
136
149
Sales and marketing
8
8
Administration
15
13
162
173
Their aggregate remuneration comprised:
2024
£’000
2023
£’000
Wages and salaries
8,176
9,418
Social security costs
747
824
Pension scheme contributions
638
570
Share-based payments
490
354
10,051
11,166
Staff costs are shown net of a credit of £1,010k relating to a US Employee Retention Credit included in other debtors at 30 April 2024.
The total Directors’ emoluments (including Non-Executive Directors) was £1,044k (2023: £933k). The aggregate value of contributions
paid to money purchase pension schemes was £27k (2023: £26k) in respect of four Directors (2023: four Directors). For a breakdown
of remuneration by Director, refer to the Directors’ emoluments table on page 38. There has been no exercise of share options by the
Directors in the period and therefore no gain recognised in the year (2023: £nil).
The highest paid Director received emoluments of £313k (2023: £270k), including an amount paid to a money purchase pension scheme
of £4k (2023: £4k).
Key management compensation:
2024
£’000
2023
£’000
Wages and salaries and other short-term benefits
1,184
1,096
Social security costs
117
117
Pension scheme contributions
36
33
Share-based payment expense
456
273
1,793
1,519
Key management comprise the Executive Directors, Non-Executive Directors and senior operational staff. There were three Executive
Directors in 2024 (2023: three); four Non-Executive Directors in 2024 (2023: four) and two senior operational staff in 2024 (2023: two).
9.
EXCEPTIONAL ITEMS
Exceptional items, booked to operating costs, comprised the following:
2024
£’000
2023
£’000
Refinancing costs
246
-
Total exceptional items
246
-
The Group recognised an exceptional expense of £246k in relation to refinancing costs in the year to 30 April 2024. This related to the
refinancing of the HSBC RCF, which was replaced by a new term loan from Polymer N2 Ltd, which is a current shareholder of the Group.
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2024
Page 83
10.
FINANCE INCOME
2024
£’000
2023
£’000
Bank deposits
40
2
Total finance income
40
2
11.
FINANCE COSTS
2024
£’000
2023
£’000
Interest on bank overdrafts, loans and borrowings
1,277
703
Interest expense for lease arrangements
244
262
Interest on convertible loan notes
353
280
Total interest expense
1,874
1,245
12.
TAX
Recognised in the income statement
2024
£’000
2023
£’000
Current tax credit:
UK corporation tax on losses in the year
278
940
Adjustment in respect of previous periods
58
252
Foreign taxes paid
(10)
-
Total current tax
326
1,192
Deferred tax:
Origination and reversal of timing differences
(164)
-
Total deferred tax
(164)
-
Total tax credit in income statement
162
1,192
The main rate of UK corporation tax for the financial year was 25% (2023: 19.49%) whilst the US federal corporate tax rate is 21%. The
deferred tax asset at 30 April 2024, which has been recognised, has been calculated at 25% (2023: 19.49%).
KROMEK GROUP PLC
Page 84
Reconciliation of tax credit
The charge for the year can be reconciled to the profit in the income statement as follows:
2024
£’000
2023
£’000
Loss before tax
(3,455)
(7,292)
Tax at the UK corporation tax rate of 25% (2023: 19.49%)
864
1,422
Non-taxable income/expenses not deductible
(148)
36
Effect of R&D
737
396
Effect of other tax rates/credits
(58)
63
Unrecognised movement on deferred tax
(1,379)
(1,251)
Adjustment in respect of previous periods
58
252
Effects of overseas tax rates
96
274
Deferred tax (charged)/credited directly to equity
(8)
-
Total tax credit for the year
162
1,192
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 25% (2023: 19.49%). The other tax jurisdiction that the Group currently operates in is the US. Any
deferred tax arising from the US operations is calculated at 30.99%, which represents the federal plus state tax rate.
13.
DIVIDENDS
The Directors do not recommend the payment of a dividend (2023: £nil).
14.
LOSSES PER SHARE
As the Group is loss making, dilution has the effect of reducing the loss per share. The calculation of the basic earnings per share is
based on the following data:
Losses
2024
£’000
2023
£’000
Losses for the purposes of basic and diluted losses per share being net losses attributable to owners
of the Group
(3,293)
(6,100)
Number of shares
2024
Number
2023
Number
Weighted average number of ordinary shares for the purposes of basic losses per share
595,404,643
431,851,820
Effect of dilutive potential ordinary shares:
Share options
1,018,796
312,909
Weighted average number of ordinary shares for the purposes of diluted losses per share
596,423,439
432,164,729
2024
2023
Basic loss per share (p)
(0.6)
(1.4)
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.
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
12.
TAX (CONTINUED)
Annual Report & Accounts 2024
Page 85
15.
INTANGIBLE ASSETS INCLUDING GOODWILL
£’000
Cost
At 1 May 2023 and 30 April 2024
1,275
Accumulated impairment losses
At 1 May 2023 and 30 April 2024
-
Carrying amount
At 1 May 2023 and 30 April 2024
1,275
Goodwill acquired in a business combination is allocated, at acquisition, to the 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
Goodwill
£’000
Intangibles
£’000
Advanced Imaging
1,275
14,835
CBRN
-
6,903
Biological Threat Detection
-
10,988
Total
1,275
32,726
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.
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 have prepared cash flow forecasts for 10 years (CBRN detection/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 2024 model includes a prudent revenue growth rate in years 1 and 2. This growth rate comprises of increases
in raw material to finished product efficiencies, factoring in existing contracts and those in the pipeline and is reflective of
historical growth rates as well as and the Group’s share of the overall markets the advanced imaging CGU operates in.
-
Discount rates. Management have derived a pre-tax discount rate of 9.13% (2023: 8.85%) using the latest market assumptions
for the risk-free rate, the equity premium and the net cost of debt, which are all based on publicly available sources, as well as
adjustments for forecasting risk for which management considered the historical growth of the entity as well as the visibility of
cash flows from a contracted perspective, which are all based on publicly available sources. The discount rate is higher than
that used in 2023. 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 cash flows 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.
KROMEK GROUP PLC
Page 86
CBRN Detection
-
Growth rate. The 2024 model includes a 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 Group’s share of the overall markets the CBRN detection CGU operates in. No growth is
assumed after 10 years.
-
Discount rates. Management have derived a pre-tax discount rate of 11.85% (2023: 10.92%) 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 2023. 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 detection forecast:
•
Revised year 1, 2 and 3 cash flows 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 2024 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 11.85% (2023: 10.92%) 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.
Sensitivities
The headroom in the base case model for each CGU are noted below:
Advanced Imaging
headroom
CBRN
headroom
Biological Threat Detection
headroom
Base model
£20,977k
£60,317k
£66,206k
Combination of Discount Rate +2% and Challenge model
£17,613k
£51,296k
£56,998k
Combination of Discount Rate -2% and Challenge model
£24,798k
£70,953k
£76,981k
The table below sets out the headroom in the challenge base model for each CGU:
Advanced Imaging
headroom
CBRN
headroom
Biological Threat Detection
headroom
Challenge base model
£15,489k
£13,200k
£30,780k
Combination of Discount Rate +2% and Challenge model
£11,751k
£9,980k
£26,101k
Combination of Discount Rate -2% and Challenge model
£19,958k
£16,998k
£36,212k
The Directors have reviewed the recoverable amount of each CGU and do not consider there to be any impairment in 2024 or 2023.
15.
INTANGIBLE ASSETS INCLUDING GOODWILL (CONTINUED)
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2024
Page 87
16.
OTHER INTANGIBLE ASSETS
Development
costs
£’000
Patents,
trademarks &
other intangibles
£’000
Total
£’000
Cost
At 1 May 2023
40,705
8,097
48,802
Additions
4,644
252
4,896
Exchange differences
45
14
59
At 30 April 2024
45,394
8,363
53,757
Amortisation
At 1 May 2023
11,575
6,673
18,248
Charge for the year
2,519
239
2,758
Exchange differences
12
13
25
At 30 April 2024
14,106
6,925
21,031
Carrying amount
At 30 April 2024
31,288
1,438
32,726
At 30 April 2023
29,130
1,424
30,554
The Group amortises capitalised development costs on a straight-line basis over a period of 2-15 years rather than against product sales
directly relating to the development expenditure. Any impairment of development costs are recognised immediately through the profit and
loss.
Patents and trademarks are amortised over their estimated useful lives, which is on average 10 years.
The carrying amount of acquired intangible assets arising on the acquisitions of Nova R&D, Inc. and eV Products, Inc. as at 30 April 2024
was £180k (2023: £182k), 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
Page 88
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
17.
PROPERTY, PLANT AND EQUIPMENT
Lab
Equipment
£’000
Computer
Equipment
£’000
Plant and
Machinery
£’000
Fixtures and
Fittings
£’000
Total
£’000
Cost or valuation
At 1 May 2023
210
1,497
18,849
628
21,184
Additions
-
31
108
7
146
Disposals
-
(35)
-
-
(35)
Exchange differences
-
2
26
1
29
At 30 April 2024
210
1,495
18,983
636
21,324
Accumulated depreciation and impairment
At 1 May 2023
117
1,304
9,532
400
11,353
Charge for the year
42
77
1,095
50
1,264
Exchange differences
-
2
29
1
32
At 30 April 2024
159
1,383
10,656
451
12,649
Carrying amount
At 30 April 2024
51
112
8,327
185
8,675
At 30 April 2023
93
193
9,317
228
9,831
18.
RIGHT-OF-USE ASSETS
Details of the Group’s right-of-use assets and their carrying amount are as follows:
£’000
Cost
Cost at 1 May 2023
5,885
Additions
118
Effect of movements in exchange rates
14
Cost at 30 April 2024
6,017
Depreciation
Depreciation at 1 May 2023
2,127
Charge for the year
487
Exchange differences
3
Depreciation at 30 April 2024
2,617
Carrying amount
At 30 April 2024
3,400
At 30 April 2023
3,758
Annual Report & Accounts 2024
Page 89
19.
SUBSIDIARIES
A list of the subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note 3 to the Com-
pany’s separate financial statements.
20.
INVENTORIES
2024
£’000
2023
£’000
Raw materials
2,167
2,204
Work-in-progress
7,914
8,321
Finished goods
214
369
10,295
10,894
The cost of inventories recognised as an expense during the year in respect of continuing operations was £5,590k (2023: £4,858k).
The write-down of inventories to net realisable value amounted to £1,292k (2023: £1,226k). The reversal of write-downs amounted to
£123k (2023: £271k).
21.
AMOUNTS RECOVERABLE ON CONTRACTS AND TRADE AND OTHER RECEIVABLES
Trade and Other Receivables
2024
£’000
2023
£’000
Amount receivable for the sale of goods
10,152
4,568
Other receivables
416
244
Prepayments and accrued income
2,415
717
Current tax assets
372
940
13,355
6,469
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 50 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. The Group’s commercial and finance functions
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 re-
covered 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 com-
bination 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 is 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
Page 90
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
At 30 April 2024, trade receivables are shown net of an impairment allowance of £2,548k (2023: £2,496k) arising from the ordinary
course of business, as follows:
2024
£’000
2023
£’000
Balance at 1 May
2,496
1,460
Provided during the year
106
1,145
Release during the year
(61)
(109)
Impact of foreign exchange
7
-
Balance at 30 April
2,548
2,496
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 2024, the lifetime expected loss provision for trade receivables is:
Current
£’000
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
Total
£’000
Expected loss rate
4%
13%
51%
0%
54%
-
Gross carrying amount
7,894
807
3
-
3,996
12,700
Loss provision
302
105
2
-
2,139
2,548
As at 30 April 2022, the lifetime expected loss provision for trade receivables is:
Current
£’000
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
Total
£’000
Expected loss rate
14%
18%
64%
0%
65%
-
Gross carrying amount
3,747
358
83
-
2,876
7,064
Loss provision
508
63
53
-
1,872
2,496
22.
DEFERRED TAX
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and
prior reporting period:
Fair value
revaluation of
acquired
intangibles
£’000
Accelerated
capital
allowances
£’000
Short-term
timing
differences
£’000
Tax
losses
£’000
Share-based
payments
£’000
Total
£’000
At 1 May 2023
389
7,206
(656)
(6,939)
-
-
(Credit)/charge to profit or loss
-
271
(166)
175
(116)
164
(Credit)/charge to equity
-
-
-
-
(8)
(8)
At 30 April 2024
389
7,477
(822)
(6,764)
(124)
156
21.
AMOUNTS RECOVERABLE ON CONTRACTS AND TRADE AND OTHER RECEIVABLES (CONTINUED)
Amount receivable for the sale of goods (continued)
Annual Report & Accounts 2024
Page 91
22.
DEFERRED TAX (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:
2024
£’000
2023
£’000
Deferred tax liabilities
6,917
6,939
Deferred tax assets
(6,761)
(6,939)
156
-
At the statement of financial position date, the Group has unused tax losses of £58,465k (2023: £56,129k) available for offset against
future profits. A deferred tax asset has been recognised in respect of £6,764k (2023: £6,939k) 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 £31,409k (2023: £28,373k) 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:
2024
£’000
2023
£’000
Trade payables and accruals
7,345
7,326
Deferred income
130
110
7,475
7,436
Payable in more than one year:
2024
£’000
2023
£’000
Deferred income
920
1,021
920
1,021
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 77 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 that 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
Page 92
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
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:
2024
£’000
2023
£’000
Opening lease liability at 1 May
4,494
4,536
New leases entered into during the year
118
392
Finance costs
244
262
Payments made during the year
(678)
(692)
Impact of foreign exchange
10
(4)
At 30 April
4,188
4,494
Presented as:
Lease liability payable within 1 year
452
405
Lease liability payable in more than 1 year
3,736
4,089
At 30 April
4,188
4,494
Rental charges associated with other low value leased assets that fall within the expedient threshold have been expensed to the profit
and loss accounts, amounting to £38k (2023: £40k).
25.
BORROWINGS
2024
£’000
2023
£’000
Secured borrowing at amortised cost
Revolving credit facility and capex facility
-
5,000
Term loan facility
5,767
-
Other borrowings
2,298
1,357
Convertible loan notes (see note 26)
34
2,529
8,099
8,886
Total borrowings
Amount due for settlement within 12 months
7,573
8,318
Amount due for settlement after 12 months
526
568
During the period, the Group completed a refinancing of its £5.0m revolving credit facility with HSBC with the signing of a new £5.5m
secured term loan. The new term loan facility was provided by Polymer N2 Ltd, an existing and significant shareholder in the Company.
The facility has a repayment date for the principal sum of 27 March 2025, with an option to extend for a further 12 months. It carries a
fixed interest rate of 9.5%, which is payable quarterly, and Kromek has the option to pay the interest through the issue of new ordinary
shares of 1p each in the Company at the trailing 10-day volume weighted average price of the Company’s ordinary shares on the date
that payment falls due.
Other borrowings comprise:
•
A fit-out 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 2024, the total loan due to the landlord was £34k (30 April
2023: £0.2m) and was fully repaid post year-end.
•
In 2020 and 2021, the Group’s US operations were eligible to apply for Covid-related Economic Injury Disaster Loans. A loan of £0.1m
was approved and secured in June 2020 and a further loan of £0.4m was approved and secured in August 2021. These loans attract
interest at a rate of 3.75% per annum and the maturity date is 30 years from the date of the loan.
•
A short-term £0.4m loan in September 2023 and a short-term £1.1m loan in March 2024 to aid with working capital requirements.
Convertible loan notes of £2.8m were secured in the prior year. This is discussed further in note 26.
Annual Report & Accounts 2024
Page 93
Finance lease liabilities are secured by the assets leased. The borrowings are at a fixed interest rate with repayment periods not exceeding
five years.
The weighted average interest rates paid during the year were as follows:
2024
%
2023
%
Term loan facility
6.38
6.90
Other borrowing facilities
2.73
3.40
26.
CONVERTIBLE LOAN NOTES
During the prior 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
were 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.
During the period, all but one noteholder converted their convertible loan holdings, as well as the interest accrued on that holding, into
equity. This resulted in the issue of 48,003,042 new ordinary shares during the period. A further 100,000 ordinary shares were issued in
lieu of professional fees due in respect of the conversion of the convertible loan notes.
The debt host liability was accounted for using the amortised cost basis with an effective interest rate of 5.67%. 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.
Embedded
derivative
£’000
Convertible
loan note
£’000
Total
£’000
Balance at 1 May 2023
517
2,526
3,043
Unwinding of discount
-
298
298
Change in fair value
(517)
-
(517)
Extinguished on conversion
-
(2,790)
(2,790)
Balance at 30 April 2024
-
34
34
In September 2023, three noteholders converted 15% of their convertible loan note holding, as well as the interest accrued on that holding
during the first 12 months, into equity. This resulted in the issue of 7,830,630 new ordinary shares.
In January 2024, two noteholders converted 100% of the residual holding, as well as the accrued interest, into equity. This resulted in the
issue of 23,639,520 new ordinary shares.
In February 2024, two noteholders converted 100% of their holding, as well as the accrued interest, into equity. This resulted in the issue
of 16,532,893 new ordinary shares.
The balance of the loan note liability of £34k at 30 April 2024, as well as the accrued interest, was converted into equity on 22 May 2024.
27.
SHARE CAPITAL
£’000
Allotted, called up and fully paid:
Balance at 1 May 2023: 431,851,820 Ordinary shares of £0.01 each
4,319
Issued in the year: 209,167,414 (2023: nil) Ordinary shares of £0.01 each
2,091
Balance at 30 April 2024: 641,019,234 (2023: 431,851,820) Ordinary shares of £0.01 each
6,410
During the year, no shares (2023: no shares) were allotted under share option schemes.
25.
BORROWINGS (CONTINUED)
KROMEK GROUP PLC
Page 94
28.
SHARE PREMIUM ACCOUNT
£’000
Balance at 1 May 2023
72,943
Issued in the year
8,537
Balance at 30 April 2024
81,480
29.
TRANSLATION RESERVE
£’000
Balance at 1 May 2023
1,897
Exchange differences on translating the net assets of foreign operations
8
Balance at 30 April 2024
1,905
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 Company’s functional currency, being sterling, are recognised directly in the translation reserve.
30.
ACCUMULATED LOSSES
£’000
Balance at 1 May 2023
(59,488)
Net loss for the year
(3,293)
Effect of share-based payment credit
490
Conversion of Convertible Loan Notes
(11)
Deferred tax movement
8
Balance at 30 April 2024
(62,294)
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2024
Page 95
31.
NOTES TO THE CASH FLOW STATEMENT
2024
£’000
2023
£’000
Loss for the year
(3,293)
(6,100)
Adjustments for:
Finance income
(40)
(2)
Finance costs
1,874
1,245
Change in fair value of derivative
(203)
(77)
Income tax credit
(322)
(1,192)
Depreciation of property, plant and equipment and ROU
1,751
1,903
Amortisation of intangible assets
2,758
2,891
Disposal of fixed asset
35
-
Share-based payment expense
490
354
Operating cash flow before movements in working capital
3,050
(978)
Decrease/(increase) in inventories
599
(391)
(Increase)/decrease in receivables
(7,454)
900
Decrease in payables
(62)
(529)
Cash used in operations
(3,867)
(998)
Income taxes received
1,065
1,195
Net cash (used in)/from operating activities
(2,802)
197
Cash and cash equivalents
2024
£’000
2023
£’000
Cash and bank balances
466
1,097
Cash and cash equivalents comprise cash and term bank deposits repayable between one and twelve months from balance sheet date,
net of outstanding bank overdrafts. The carrying amount of these assets is approximately equal to their fair value.
KROMEK GROUP PLC
Page 96
32.
RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
Borrowings
£’000
Lease
liability
£’000
Balance at 1 May 2023
8,886
4,494
Cash flows
- Repayments
(5,822)
(678)
- Additions and modifications
7,000
-
Non-cash
- Additions and modifications
(2,571)
118
- Effect of exchange rates
5
10
- Interest applied
601
244
Balance at 30 April 2024
8,099
4,188
33.
SHARE-BASED PAYMENTS
Equity-settled share option scheme
The Company has a share option scheme for all employees of the Group. 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 or the employee
does not exercise vested options before leaving the Group.
Details of the share options outstanding during the year are as follows:
Number
of share
options
2024
Weighted average
exercise price (£)
Number
of share
options
2023
Weighted average
exercise price (£)
Outstanding at beginning of the year
20,101,108
0.15
20,033,991
0.21
Transfer from LTIP
-
-
-
-
Granted during the year
8,364,198
0.06
1,202,700
0.10
Exercised during the year
-
-
-
-
Forfeited during the year
(1,625,743)
0.15
(1,135,583)
0.16
Outstanding at the end of the year
26,839,563
0.12
20,101,108
0.15
Exercisable at the end of the year
17,260,452
0.15
11,446,740
0.21
The options outstanding at 30 April 2024 had a weighted average exercise price of £0.12 (2023: £0.15) and a weighted average remaining
contractual life of six years (2023: six years). The range of exercise prices for outstanding share options at 30 April 2024 was 1p to 39p
(2023: 1 p to 39p). In 2024, the aggregate of the estimated fair values of the options granted was £55k (2023: £134k). The inputs into the
Black-Scholes model are as follows:
2024
2023
Weighted average share price
7p
10p
Weighted average exercise price
7p
10p
Expected volatility
38.67%
42.87%
Expected life
5 years
5 years
Risk-free rate
3.23
1.53
Expected dividend yields
0%
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 estimates, for the effects of non-transferability, exercise
restrictions and behavioural considerations.
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2024
Page 97
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:
Number
of share
options
2024
Weighted average
exercise price (£)
Number
of share
options
2023
Weighted average
exercise price (£)
Outstanding at beginning of the year
9,634,741
0.01
4,363,665
0.01
Transfer to share option scheme
-
-
-
-
Granted during the year
20,058,850
0.01
7,421,740
0.01
Exercised during the year
-
-
-
-
Forfeited during the year
(2,213,001)
0.01
(2,150,664)
0.01
Outstanding at the end of the year
27,480,590
0.01
9,634,741
0.01
Exercisable at the end of the year
-
-
-
-
During 2024, 20,058,850 (2023: 7,421,740) options were granted under the 2018 LTIP to a number of key employees, including three
(2023: three) Executive Directors of the Group. The fair value of these options granted was £243k (2023: £161k). The amounts recognised
as a share-based payment LTIP expense for the year ended 30 April 2024 was £436k (2023: £220k).
The inputs into a Monte Carlo pricing model are as follows:
2024
2023
Weighted average share price
15p
15p
Weighted average exercise price
1p
1p
Expected volatility
35.00%
35.00%
Expected life
3 years
3 years
Risk-free rate
0.32
0.32
Expected dividend yields
0%
0%
In 2024 an assessment of the LTIPs issued in FY 2024 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.
The key inputs are as follows:
2024
Weighted average share price
6.15p
Weighted average exercise price
1p
Expected volatility
60.00%
Expected life
3 years
Risk-free rate
0.043
Expected dividend yields
0%
The Group recognised a total expense in the year of £490k (2023: £354k) 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.
33.
SHARE-BASED PAYMENTS (CONTINUED)
KROMEK GROUP PLC
Page 98
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 £638k (2023: £570k) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at 30 April 2024, contributions of £117k (2023: £143k) 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 2023 and 2024.
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.
The Group considers that the current capital structure will provide sufficient flexibility to ensure that appropriate investment can be made,
if required, to implement and achieve the longer-term growth strategy of the Group.
Market risk
The Group may be affected by general market trends, which are unrelated to the performance of the Group itself. The Group’s success will
depend on market acceptance of the Group’s products and there can be no guarantee that this acceptance will be forthcoming.
Market opportunities targeted by the Group may change and this could lead to an adverse effect upon its revenue and earnings.
Foreign currency risk
The Group’s operations are split between the UK and the US, and as a result the Group incurs costs in currencies other than its presentational
currency of pounds sterling. The Group also holds cash and cash equivalents in non-sterling denominated bank accounts.
The following table shows the denomination of the year end cash and cash equivalents balance:
2024
£’000
2023
£’000
£ sterling
4,487
2,215
US$ (sterling equivalent)
(5,619)
(1,390)
€ (sterling equivalent)
1,598
272
Had the foreign exchange rate between sterling, US$ and € changed by 4% (2023: 9%), this would affect the loss for the year and net
assets of the Group by £60k (2023: £379k). 4% (2023: 9%) is considered a reasonable assessment of foreign exchange movement as this
has been the movement noted between 2023 and 2024 (2022 and 2023).
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2024
Page 99
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 management 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.
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
maintains 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.
35.
FINANCIAL INSTRUMENTS (CONTINUED)
KROMEK GROUP PLC
Page 100
The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment
periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which
the Group can be required to pay. The table includes both interest and principal cash flows. The contractual maturity is based on the
earliest date on which the Group may be required to pay.
Weighted
average
effective
interest rate
%
Less
than
1 month
£’000
1-3
months
£’000
3 months
to 1 year
£’000
1-5 years
£’000
5+ years
£’000
Total
£’000
Revolving Credit and Capex
Facility at 30 April 2023
6.9
-
-
5,000
-
-
5,000
Other borrowing facilities
at 30 April 2023
3.4
116
531
142
83
485
1,357
Lease obligations
at 30 April 2023
5.0
35
73
298
1,456
2,632
4,494
Convertible loan notes
at 30 April 2023
16.0
-
-
2,529
-
-
2,529
151
604
7,969
1,539
3,117
13,380
Term loan facility
at 30 April 2024
6.38
-
-
5,767
-
-
5,767
Other borrowing facilities
at 30 April 2024
5.68
17
18
1,738
54
471
2,298
Lease obligations
at 30 April 2024
5.0
37
75
340
1,433
2,303
4,188
Convertible loan notes
at 30 April 2024
5.67
34
-
-
-
-
34
88
93
7,845
1,487
2,774
12,287
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
2024
£’000
2023
£’000
Financial assets
Cash and bank balances
466
1,097
Loans and receivables
10,568
4,812
Financial liabilities
Amortised cost
(20,838)
(22,354)
For the year ended 30 April 2024
Notes to the consolidated financial statements (continued)
35.
FINANCIAL INSTRUMENTS (CONTINUED)
Annual Report & Accounts 2024
Page 101
35.
FINANCIAL INSTRUMENTS (CONTINUED)
Fair Values of Financial Assets and Financial Liabilities
The following hierarchy classifies each class of financial asset or liability depending on the valuation technique applied in determining its
fair value:
Level 1: The fair value is calculated based on quoted prices traded in active markets for identical assets of liabilities.
Level 2: The fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.
Level 3: The fair value is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs).
In these financial statements, all of the above financial instruments are considered to be Level 2 in the fair value hierarchy. There have
been no transfers between categories in the current or preceding year. The fair value of financial instruments held at fair value have been
determined based on available market information at the balance sheet date of 30 April 2024.
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.
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.
Loan agreements between Polymer N2 Ltd and Kromek Group were set up during the period. Polymer N2 Ltd is a substantial shareholder
of Kromek Group plc as disclosed in the Directors’ Report.
The loan has a repayment date for the principal sum of 27 March 2025, with an option to extend for a further 12 months. It carries a fixed
interest rate of 9.5%, which is payable quarterly, and Kromek has the option to pay the interest through the issue of new ordinary shares
of 1p each in the Company (“Ordinary Shares”) at the trailing 10-day volume weighted average price of the Company’s Ordinary Shares
on the date that payment falls due.
37.
EVENTS AFTER THE BALANCE SHEET DATE
Post year-end, the Group converted a loan note liability of £34k into equity. This resulted in the issue of 527,092 new ordinary shares.
The Group has received further financing of £3.4m from Polymer N2 Ltd since year-end. The further financing was provided on the same
terms as the initial Polymer N2 Ltd loan described above.
KROMEK GROUP PLC
Page 102
Note
2024
£’000
2023
£’000
Non-current assets
Investment in subsidiaries
3
6,580
6,090
Amounts due from subsidiary company
82,325
77,205
88,905
83,295
Current assets
Trade and other receivables
5
99
100
Cash and cash equivalents
4,303
1,919
4,402
2,019
Total assets
93,307
85,314
Current liabilities
Trade and other payables
6
(781)
(698)
Embedded derivative
8
-
(517)
Borrowings
7
(7,530)
(8,129)
Total liabilities
(8,311)
(9,344)
Net current (liabilities)
(3,909)
(7,325)
Net assets
84,996
75,970
Equity
Share capital
12
6,410
4,319
Share premium account
13
81,480
72,943
Merger reserve
3,221
3,221
Accumulated losses
14
(6,115)
(4,513)
Total Equity
84,996
75,970
The loss for the year was £2,081k (2023: £1,638k loss).
The notes on pages 105 to 110 form part of these financial statements.
The financial statements of Kromek Group plc were approved by the Board of Directors and authorised for issue on 25 October 2024.
They were signed on its behalf by:
Dr Arnab Basu MBE
Chief Executive Officer
Company statement of financial position
As at 30 April 2024
Annual Report & Accounts 2024
Page 103
For the year ended 30 April 2024
Company statement of changes in equity
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 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
Total comprehensive loss for the year
-
-
-
(2,081)
(2,081)
Issue of shares less issuance costs2
1,606
5,873
-
-
7,479
Settled share-based payment transactions
-
-
-
490
490
Conversion of convertible loan notes (see note 8)
485
2,664
-
(11)
3,138
Balance at 30 April 2024
6,410
81,480
3,221
(6,115)
84,996
2The fees associated with issue of shares were £549k.
The notes on pages 105 to 110 form part of these financial statements.
KROMEK GROUP PLC
Page 104
Company statement of cash flows
For the year ended 30 April 2024
Note
2024
£’000
2023
£’000
Net cash used in operating activities
11
(1,025)
(573)
Investing activities
Interest received
36
-
Net cash used in investing activities
36
-
Financing activities
Borrowings received
7,000
1,100
Convertible loan notes received
-
2,840
Borrowings repaid
(5,600)
-
Net proceeds on issue of shares
7,503
-
Loans made to Group companies
(5,120)
(5,537)
Financing costs
(102)
-
Net interest paid on bank loans
(308)
(449)
Net cash from/(used in) financing activities
3,373
(2,046)
Net increase/(decrease) in cash and cash equivalents
2,384
(2,619)
Cash and cash equivalents at beginning of year
1,919
4,538
Cash and cash equivalents at end of year
4,303
1,919
The notes on pages 105 to 110 form part of these financial statements.
Annual Report & Accounts 2024
Page 105
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 2024 are as follows:
Name
Place of incorporation
(or registration) and operation
Class of
shares
held
Proportion
of ownership
interest %
Activity
Kromek Limited (Direct)
NETPark, Sedgefield,
TS21 3FD, United Kingdom
Ordinary
100
Scientific research
and development
Kromek Germany Limited
(Indirect through Kromek Limited)
NETPark, Sedgefield,
TS21 3FD, United Kingdom
Ordinary
100
Dormant company
Kromek, Inc.
(Indirect through Kromek Limited)
143 Zehner School Road,
Zelienople, PA 16063,
United States of America
Ordinary
100
Holding company
NOVA R&D, Inc.
(Indirect through Kromek Limited)
2934 East Garvey Avenue
South, Suite 104, West Covina
CA 91791
United States of America
Ordinary
100
Scientific research
and development
eV Products, Inc.
(Indirect through Kromek Limited)
143 Zehner School Road,
Zelienople, PA 16063,
United States of America
Ordinary
100
Scientific research
and development
Durham Scientific Crystals Limited
(Indirect through Kromek Limited)
NETPark, Sedgefield,
TS21 3FD, United Kingdom
Ordinary
100
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.
£,000
At 1 May 2023
6,090
Share option charge
490
At 30 April 2024
6,580
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 2024, the Company was owed £82.3m (2023: £77.2m) 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 2024 or 2023. The loan is unsecured and interest
free.
Notes to the Company financial statements
For the year ended 30 April 2024
KROMEK GROUP PLC
Page 106
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.
4.
STAFF COSTS
The average monthly number of employees (excluding non-executive directors) was:
2024
Number
2023
Number
Research and development, production
2
2
Sales and marketing
1
1
Administration
5
4
8
7
Their aggregate remuneration comprised:
2024
£’000
2023
£’000
Wages and salaries
600
487
Social security costs
64
64
Pension scheme contributions
74
61
738
612
During the year, no Directors were paid through Kromek Group PLC (2023: none).
5.
TRADE AND OTHER RECEIVABLES
2024
£’000
2023
£’000
Prepayments and accrued income
99
100
99
100
6.
TRADE AND OTHER PAYABLES
2024
£’000
2023
£’000
Trade payables and accruals
556
589
Social security and other taxation
225
109
781
698
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 72 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.
3.
SUBSIDIARIES (CONTINUED)
Notes to the Company financial statements (continued)
For the year ended 30 April 2024
Annual Report & Accounts 2024
Page 107
8.
CONVERTIBLE LOAN NOTES
During the prior 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
were 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.
During the period, all but one noteholder converted their convertible loan holdings, as well as the interest accrued on that holding, into
equity. This resulted in the issue of 48,003,042 new ordinary shares during the period. A further 100,000 ordinary shares were issued in
lieu of professional fees due in respect of the conversion of the convertible loan notes.
The debt host liability was accounted for using the amortised cost basis with an effective interest rate of 5.67%. 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.
Embedded
derivative
£’000
Convertible
loan note
£’000
Total
£’000
Balance at 1 May 2023
517
2,526
3,043
Unwinding of discount
-
298
298
Change in fair value
(517)
-
(517)
Extinguish on conversion
-
(2,790)
(2,790)
Balance at 30 April 2024
-
34
34
In September 2023, three noteholders converted 15% of their convertible loan note holding, as well as the interest accrued on that holding
during the first 12 months, into equity. This resulted in the issue of 7,830,630 new ordinary shares.
In January 2024, two noteholders converted 100% of the residual holding, as well as the accrued interest, into equity. This resulted in the
issue of 23,639,520 new ordinary shares.
In February 2024, two noteholders converted 100% of their holding, as well as the accrued interest, into equity. This resulted in the issue
of 16,532,893 new ordinary shares.
The balance of the loan note liability of £34k at 30 April 2024, as well as the accrued interest, was converted into equity on 22 May 2024.
9.
FINANCIAL ASSETS
Intercompany balances
The carrying amount of these assets approximates their fair value. There are no past due or impaired receivable balances.
Cash and cash equivalents
These comprise cash held by the Company and short-term bank deposits with an original maturity of three months or less. The carrying
amount of these assets approximates their fair value.
10.
FINANCIAL LIABILITIES
Trade and other payables
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for
trade purchases is 72 days. The carrying amount of trade payables approximates their fair value.
KROMEK GROUP PLC
Page 108
11.
NOTES TO THE STATEMENT OF CASH FLOWS
2024
£’000
2023
£’000
Loss for the year
(2,081)
(1,638)
Adjustments for:
Change in fair value of derivative
(203)
(77)
Finance income
(36)
-
Finance costs
1,211
732
Operating cash flows before movements in working capital
(1,109)
(983)
Decrease in receivables
1
129
Increase in payables
83
281
Net cash used in operating activities
(1,025)
(573)
12.
SHARE CAPITAL
£’000
Allotted, called up and fully paid:
Balance at 1 May 2023: 431,851,820 shares of £0.01 each
4,319
Issued in the Year: 209,167,414 (2023: nil) Ordinary shares of £0.01 each
2,091
Balance at 30 April 2024: 641,019,234 (2023: 431,851,820) Ordinary shares of £0.01 each
6,410
During the year, no shares (2023: no shares) 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
£’000
Balance at 1 May 2023
72,943
Issued in the Year
8,537
Balance at 30 April 2024
81,480
14. ACCUMULATED LOSSES
£’000
Balance at 1 May 2023
(4,513)
Net loss for the year
(2,081)
Settled share-based payments
490
Conversion of convertible loan notes
(11)
Balance at 30 April 2024
(6,115)
Notes to the Company financial statements (continued)
For the year ended 30 April 2024
Annual Report & Accounts 2024
Page 109
15.
FINANCIAL INSTRUMENTS
The Company’s principal financial instruments are cash and trade receivables.
The Company has exposure to the following risks from its operations:
Capital risk
The Company manages its capital to ensure that each entity in the Company will be able to continue as a going concern while maximising
the return to shareholders through the optimisation of the balance between debt and equity.
The capital structure of the Company consists of equity attributable to equity holders of the Company, comprising issued capital, reserves
and accumulated losses as disclosed in notes 27 to 30 to the consolidated financial statements.
The Company is not subject to any externally imposed capital requirements.
Cash flow is controlled by ongoing justification, monitoring and reporting of capital investment expenditures and regular monitoring and
reporting of operating costs.
The Company considers that the current capital structure will provide sufficient flexibility to ensure that appropriate investment can be
made, if required, to implement and achieve the longer-term growth strategy of the Company.
Market risk
The Company may be affected by general market trends, which are unrelated to the performance of the Company itself. The Company’s
success will depend on market acceptance of the Company’s products and there can be no guarantee that this acceptance will be
forthcoming.
Market opportunities targeted by the Company may change and this could lead to an adverse effect upon its revenue and earnings.
Foreign currency risk
The Company currently does not undertake transactions denominated in foreign currencies.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The
Company has adopted a policy of only dealing with creditworthy counterparties, and obtaining sufficient collateral where appropriate, as
a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent of
investment grade and above. This information is supplied by independent rating agencies where available, and if not available, the Company
uses other publicly available financial information and its own trading records to rate its major customers. The Company’s exposure and
the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst
approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by management annually.
The Company’s management considers that all the above financial assets that are not past due for each of the reporting dates under
review are of good quality.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity
risk management framework for the management of the Company’s short-, medium- and long-term funding and liquidity management
requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by
continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment
periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which
the Group can be required to pay. The table includes both interest and principal cash flows. The contractual maturity is based on the
earliest date on which the Group may be required to pay.
KROMEK GROUP PLC
Page 110
Weighted
average
effective
interest rate
%
Less
than
1 month
£’000
1-3
months
£’000
3 months
to 1 year
£’000
1-5 years
£’000
5+ years
£’000
Total
£’000
Revolving Credit Facility at 30
April 2023
6.9
-
-
5,000
-
-
5,000
Other borrowing facilities at 30
April 2023
2.9
100
500
-
-
-
600
Convertible loan notes
at 30 April 2023
16.0
-
-
2,529
-
-
2,529
100
500
7,529
-
-
8,129
Term loan facility
at 30 April 2024
6.38
-
-
5,767
-
-
5,767
Other borrowings
at 30 April 2024
9.58
-
-
1,729
-
-
1,729
Convertible loan notes
at 30 April 2024
5.67
34
-
-
-
-
34
34
-
7,496
-
-
7,530
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 Group converted a loan note liability of £34k into equity. This resulted in the issue of 527,092 new ordinary shares.
The Group has received further financing of £3.4m from Polymer N2 Ltd since year-end. The further financing was provided on the same
terms as the initial Polymer N2 Ltd loan described above.
15.
FINANCIAL INSTRUMENTS (CONTINUED)
Liquidity risk (continued)
Notes to the Company financial statements (continued)
For the year ended 30 April 2024
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
NETPark
Thomas Wright Way
Sedgefield
TS21 3FD
NOMINATED ADVISER AND
BROKER
Cavendish Capital Markets Ltd
1 Bartholomew Close
London
EC1A 7BL
REGISTRAR
Link Group
10th Floor, Central Square
29 Wellington Street
Leeds
LS1 4DL
BANKERS
HSBC Bank plc
1 Saddler Street
Durham
DH1 3NR
Directors, Secretary and Advisers
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
NETPark, Thomas Wright Way,
Sedgefield, County Durham, TS21 3FD, UK
Kromek Group plc