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CEO Q&A with Arnab Basu at Kromek Group (LON:KMK)

Kromek Group (LON:KMK) Chief Executive Officer Arnab Basu caught up with DirectorsTalk for an exclusive interview to discuss their record first-half revenue, highlights from their interim results and what we can expect from the company in the second half.

Q1: You’ve released your interim results with a record first half revenue, can you just give us a recap of where this growth has come from?

A1: As you rightly point out, this has been a record first year revenue for Kromek Group, 43% growth for comparable periods and this has all been driven by the contracts that we won over the last 3 years.

If you look back 3 years from October, we have really won £100 million worth of contracts and announced £100 million worth of contracts during that period. That is what is flowing through as revenue and that is what is driving the growth.

More importantly, that is also driving forward visibility and as we disclosed today, we have over 90% visibility of the full-year numbers which should provide everybody with a great level of comfort for us trading in line with market expectation for this full fiscal year.

This is as a result of increased commercial activity, increase traction of our products, more and more customers adopting CZT and our handheld products around the world and winning new customers so it’s been a good story.

Q2: What are the other highlights that we should note from this period?

A2: Let me point out a couple of things.

Firstly, as everybody would be aware, we did a capital raise earlier in the year for a few specific reasons so first of all, we wanted to increase our manufacturing capacity. So, we have done two things:

In the UK factory, we have increased significantly the CZT, or the cadmium zinc telluride, materials manufacturing capacity, this is not a doubling or tripling or quadrupling, this is a 7-fold increase in capacity that we have installed in our UK factory. By the time of Q1 of next calendar year when this is all up and running and going at full swing, this is going to be the largest CZT factory in the world.

In our US factory, we have been investing in high throughput tools to manufacture CZT detectors and the packaging of detectors. Now, those tools are capable of not only high throughput or high levels of capacity increase but also brings in a reasonably high degree of automation within the processes as well. This drives three things, increase in production volumes, increase in productivity but, ultimately, also increasing reliability and productivity of the manufacturing process itself. So, ultimately, driving overall operating costs.

So, the two sites will be fully up and running in the first quarter of next year, this will provide a fantastic platform for us to grow over the next 2-5 years but also, it’s a statement to the market that we’re serious, we are building up a real capacity base and a real engine to deliver products to our customers.

The second area where we deployed capital, and this was again articulated clearly to the market, is in our sales and marketing area, the commercial part of the business.

We have invested both in building up teams within the sales and marketing area of the business, application knowledge, and also, we’ve invested heavily in digital marketing and increasing our visibility and presence in the digital world. Our markets are global and the best way to get visibility in the global market today is to utilise digital channels and we are starting to see some real good results out of that investment. Our lead generation year-on-year has gone up 1000%, our website visits have gone from something like 5,000 views per month to over 22,000 viewers per month, the cost of leads is very very effective so our investment is making a real cost-effective impact on lead generation and the company itself.

So, it’s an investment that we are continuing to make and we expect that to have a very positive effect on the business going forward.

Q3: It sounds like you’ve had a really good first half and I think you’ve touched on this already but what can we expect from Kromek Group in the second half of this year?

A3: The first thing to really go into is the visibility and we said that we have got over 90% visibility of the full-year number. This time last year, when we announced our half-year results or interim results, we announced in January 2019 and we had a visibility of 88% at that point and now we are saying our visibility is 90%.

Just to talk a little bit about the quantum difference between last year and this year. When we had 88% of the full-year’s visibility last year in January, that represented about £12-£12.5 million of revenue, today when we say we’ve got visibility of 90% of this years’ revenue, this represents £16-£16.5 million visibility of revenue which is a significant jump in quantum. So, there is growth in the second half.

Secondly, we have been announcing contracts in the first half of the year and we are engaged with a very wide customer base and we will continue that process in the second half. We’ll build up that contract base, build up that announcement base so we should have a reasonably good news flow in the second half as well.

Of course, the factory is going to be fully operational in the second half, we expect to win new customers particularly in the nuclear and security segments and continue our solid progress in the medical segment.

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.