Kromek : 07/12/16 Kromek Interim Results

("Kromek" or the "Group")

Kromek (AIM: KMK), a radiation detection technology company focusing on the medical, security and nuclear markets, announces its interim results for the six months ended 31 October 2016.

 Revenue up 19% to £3.8m (H1 2015/16: £3.2m)

 Gross margin was 53% (H1 2015/16: 53%)

• Loss before tax reduced by 41% to £1.8m (H1 2015/16: £3.0m)

• EBITDA was £0.7m loss (H1 2015/16: £2.3m loss)

• Cash and cash equivalents at 31 October 2016 were £3.8m* (30 April 2016: £3.9m; 31 October 2015: £7.5m*)

  *Including £1.5m working capital draw down under the RCF (£1.0m at 31 October 2015)

  Operational Highlights

• Product sales accounted for 74% of total revenue (H1 2015/16: 57%) as some of the R&D programmes moved to full commercialisation phase

• Medical Imaging

  • Commenced delivering on $12.6m five-year OEM contract to develop and supply detectors for Bone Mineral Densitometry ("BMD") diagnostics systems, which was won in H2 2015/16

  • Entered into two-year agreement, worth $560k, to supply CZT-based gamma radiation detectors with an existing medical customer

  • Post period, awarded repeat contracts worth $1.2m by three current OEM customers, all worldwide producers and exporters of BMD diagnostics systems, that were double the size of their previous orders

• Nuclear Detection

  • Completed delivery of initial 10,000 portable nuclear radiation detector D3S units ("D3S") to the Defense Advanced Research Projects Agency ("DARPA"), an agency of the U.S. Department of Defense ("US DoD")

  • Received $1.6m award from Defense Threat Reduction Agency ("DTRA"), another agency of the US DoD, to develop a ruggedised high performance isotope radiation detector capable of use in military and other harsh environments

  • Other significant contracts awarded include; one with the UK Ministry of Defence for the supply of nuclear radiation detection products and another to extend the development and delivery of nuclear radiation detection devices for a major civil nuclear partner

  • Good progress made under three-year, collaborative R&D programme with Canberra, an established provider and market leader in nuclear instrumentation

• Security Screening

  • Contract won from an Asian airport group, a new customer, for delivery and installation of the Group's bottle scanners

  • Contract won for components for screening systems from an existing customer

  • OEM customer that achieved US Transportation Security Agency ("TSA") certification for their screening system last year is gearing up to move into full commercial deployment of its next generation baggage screening product

• Research and Development

  • 9 new patents granted and 5 new patent applications filed during the period

Dr Arnab Basu, CEO of Kromek, said: "We are pleased to report another period of strong operational progress, continuing the momentum from the previous year as we executed on the significant contracts won in all of our three markets of medical imaging, nuclear detection and security screening. We saw high growth in the number of products sold compared with the same period last year and, equally important, a number of R&D programmes have moved into full commercialisation phase.

"Looking ahead, we have entered the second half with significant visibility over revenue in excess of 85% of full year market expectations. Overall, our products continue to gain commercial traction in all of our business segments with new customers as well as deepening our relationships with existing customers. This underpins the management team's belief in the sustained growth of the business and commercial traction resulting from the increasing adoption of CZT-based technology and other products. Consequently, the Board looks to the future with confidence."

This announcement contains inside information

Arnab Basu, CEO, and Derek Bulmer, CFO, will be hosting a presentation for analysts at 12.30pm GMT at the offices of Luther Pendragon, Second Floor, 48 Gracechurch Street, London, EC3V 0EJ.

Kromek Group plc is a UK technology Group (global HQ in County Durham) and a leading developer of high performance radiation detection products based on cadmium zinc telluride ("CZT") and related technologies. Using its core CZT technology, Kromek designs develops and produces x-ray and gamma ray imaging and radiation detection products for the medical, security screening and nuclear markets.

The Group's products provide high resolution information on material composition and structure and are used in multiple applications, ranging from the identification of cancerous tissues to hazardous materials, such as explosives, and the analysis of radioactive materials.

The Group's business model provides a vertically integrated technology offering to customers, from the growth of CZT crystals to finished products or detectors, including software, electronics and application specific integrated circuits ("ASICs").

The Group has operations in the UK and US (California and Pennsylvania), and is selling internationally through a combination of distributors and direct OEM sales.

Currently, the Group has over one hundred full time employees across its global operations. Further information on Kromek Group is available at www.kromek.com.

Kromek had another half of strong operational progress continuing the momentum of the previous year as it executed on the significant contracts won in each of its three markets of Medical Imaging, Nuclear Detection and Security Screening. In addition, it continued to win multi-year contracts as the Group's customers moved from their R&D phase to launching commercial products into the market.

Revenue increased by 19% to £3.8m compared with the previous interim period (H1 2015/16: £3.2m). Revenue generated from product sales accounted for 74% of total sales compared with 57% in the equivalent period last year. Gross margins were consistent at 53%. Kromek continued to maintain tight cost control on the fixed cost base of the Group's administrative expenses (including operating expenses).

In the first half of the year, the underlying sales growth was driven by Medical Imaging and Nuclear Detection whilst Security Screening added a new customer for its bottle scanners in Asia. In Nuclear Detection, Kromek successfully delivered the first 10,000 D3S units to DARPA, and in Medical Imaging, the Group secured multiple new contracts and commenced delivery on a large BMD contract won towards the end of H2 2015/16.

Medical Imaging

Kromek made good progress in the Medical Imaging sector as it commenced delivering on the $12.6m, five-year contract, it won in H2 2015/16 with a long-standing OEM customer in the BMD market. Kromek's detector modules, which are incorporated into the customers' systems, produce some of the most accurate imaging to diagnose the strength and health of bones. This allows clinicians to accurately detect, monitor and treat osteoporosis in patients. Post period, the Group was awarded repeat contracts by three of its current OEM customers to supply its CZT-based detector modules. These contracts were double in size compared with the customers' previous orders.

During the period, the Group also entered an agreement for the supply of CZT-based gamma radiation detectors with an existing medical customer with a minimum value of $560k over the two-year agreement.

The Group continued to make progress under its contract signed in 2014 for the development and delivery of CZT-based SPECT modules for an established manufacturer of x-ray diagnostics and analysis equipment in China.

Nuclear Detection

In Nuclear Detection, Kromek successfully completed the delivery of an initial 10,000 D3S units in support of DARPA's SIGMA programme. The SIGMA programme is aimed at preventing attacks involving radiological "dirty bombs" and other nuclear threats in the US and globally.

DARPA conducted a demonstration at one of the Port Authority of New York and New Jersey's major transportation hubs, which saw more than a 100-fold increase in ability to locate and identify sources of radiation compared with currently installed systems. Recently, DARPA also successfully completed a large-scale test deployment of detectors in Washington, D.C. As recently announced by DARPA, it is planning to demonstrate SIGMA's full city and regional-scale, continuous wide-area monitoring capability in 2017 and to transition the operational system to local, state and federal entities in 2018.

In further interaction with the US defence agencies, Kromek was awarded a $1.6m two-year agreement by the DTRA, subject to final contract, to build on, and further enhance, the Group's technology platform to develop a ruggedised high performance isotope radiation detector capable of use in military and other harsh environments.

Other significant contracts won during the period included a $430k contract with the UK Ministry of Defence for the supply of nuclear radiation detection products. Further, there was an extension to an existing contract to develop and deliver nuclear radiation detection devices for a major civil nuclear partner amounting to $278k.

Also in the first half, Kromek made good progress with its three-year, collaborative R&D programme with Canberra, an established provider and market leader in nuclear instrumentation.

Security Screening

Kromek continued to build on the work carried out during the previous years with global security groups for the supply of OEM components for baggage screening products for aviation security. One of Kromek's OEM customers that achieved TSA certification for their screening system last year is gearing up to move into commercial deployment of its next generation baggage screening product.

The Group was also awarded a contract for bottle scanners from an Asian airport group that is a new customer, and a second contract for components for screening systems was won from an existing customer.

Kromek continued to invest in R&D to maintain its position as a market leader in the provision of advanced radiation detection solutions. This investment was with regards to both technology development and enhancements in addition to continuously innovating to achieve attractive product price points for the target markets. This approach ensures the Group can continue to attract and deliver on accelerated customer programmes, such as DARPA's SIGMA programme and, more recently, the DTRA programme. During the period, the Group was granted 9 new patents and filed 5 new patent applications.

During the six-month period to 31 October 2016 revenue increased by 19% to £3.8m (H1 2015/16:

£3.2m) with product sales across Nuclear Detection and Medical Imaging being a key contributor to the growth in the period.

The Group continued to develop its revenue streams derived from product sales over the period as summarised in the table below:

Gross margin was consistent with prior periods at 53%.

The Group's administrative expenses (including operating expenses) decreased by £0.9m (20%) to

£3.7m (H1 2015/16: £4.6m) in the period. This decrease consisted of £0.6m due to cost reduction exercises adopted by the Group (offset by an increase in depreciation and amortisation of £0.4m), and

£0.7m foreign exchange gain due to favourable movements in the strength of the USD as explained by the following table:

The gain noted in the table above is the position at the half year. This net gain could largely unwind in the second half, and thus for the full year, should the value of the US dollar remain strong against the pound.