Kromek Group plc share price, company news, analysis and interviews

Kromek Group plc (LON:KMK) Chief Executive Officer Arnab Basu caught up with DirectorsTalk to discuss their recent £13million fundraise, what the proceeds will be used for, the two new orders worth a total of $750,000 and coping well during the COVID-19 pandemic.

Q1: Now, Kromek Group did a fundraise for £13 million, can you tell us more about it and what it’ll be used for?

A1: We completed a £13 million fundraise yesterday which h we announced, £10 million was done via an institutional placing supported very well by both existing shareholders but also, we were pleased to see new institutions investing in that placing. The £3 million was placed on an open offer which was hugely oversubscribed so we had nearly 350% oversubscription in the open offer so again, very well supported through our first, private investors and retail investor base.

So, yes, wee are very pleased, this is really about really accelerating the commercial journey of the Group, getting us towards that sustainable growth and sustainable profitability figures.

Three main areas where this is going to really help the company:

The first is investing in sales, marketing, and commercial efforts so we have been, over the last two years or so, building up a very strong sales pipeline and we are going to continue to invest in sales and marketing and commercial activity within the business. In our core markets, which is in medical imaging and nuclear security, as we all know the key drivers in these markets remains very strong so early detection of cancer, things like protection of critical infrastructures against the threat of nuclear terrorism, they key drivers in those markets remain strong and we believe by investing further into this area in commercial activities and getting our suite of products into the market with a wide scale adoption is  going to really reap benefits.

The second area, as your viewers will know, we’re working on a bio-pathogen detection system where we are starting to look for the optimum route to market but also find the best commercialisation strategy. Some of the pilots for COVID-19 detection is going to start very soon and we are going to, of course, continue with our journey of building that system and bringing to the market which is able to detect the whole range of viruses and bacteria present in the air which really has a long term sustainable requirement and need in the market. Again, investing in understanding how best we commercialise, how best we leverage what we have developed and take it to the market is something where we’re going to use some of the money.

Thirdly, and it’s quite important, a lot of our customers are very large OEM’s and government customers and having a balance sheet strength helps in conversion of the opportunities that we are seeing in the market, in our core nuclear detection, medical imaging, security screening market.

So, shoring up the balance sheet, having that strength visible, investing in developing and executing on the commercialisation strategy for the bio-pathogen detector and indeed, continuing the investment in our sales and marketing and commercial efforts in our core markets of nuclear detection and medical imaging is where this is going to really be used.

It’s all about commercialisation, as I said, accelerating commercialisation which will help us grow in the coming periods.

Q2: You also announced that you’d received two new orders worth a total of $750,000, can you tell us more about that?

A2: As we spoke before, last year, particularly at the beginning of this fiscal year 2020, right in the middle of COVID, we started off in a very difficult world where our markets, our customers was suffering as a result of the pandemic. Towards the end of the fiscal year, we had a very strong end and we reported good results at the end of the first half, we are seeing that growth and expect that growth to continue, both in the second half of this year where we are now but also into the next year as well.

We do have a very good pipeline of opportunities and those opportunities are driven by the needs of our products and this is just two of those:

One in medical imaging, this is for detection of cancer, the detectors that we supply to an existing customer, it’s great to see the customer again starting to feel that their markets are strengthening and their markets are coming back as well.

The second is in the nuclear security or nuclear detection, again an existing customer and again, this is all that journey and that start of business getting back to its normal rhythm and the journey of returning to normality which will get us back to that growth curve that we had been before COVID.

Q3: It sounds like Kromek Group have coped well since we last spoke, despite COVID?

A3: Indeed, as I said, the key growth drivers within our markets remain strong, we have got a very strong portfolio of products, good reference, and a good set of customers within all of our segments.

What we will see over the coming months is that we will start to, again, get back to that rhythm of our customers coming back, placing more orders, winning new customers and that journey will continue. We are confident of delivering growth and growing shareholder value.

Kromek Group plc (LON:KMK) Chief Executive Officer Arnab Basu caught up with DirectorsTalk for an exclusive interview to discuss new contract extensions for their D3S products, what this means for the company, how the business has been coping since the COVID-19 pandemic and how they are positioned from 2021.

Q1: Now, Kromek Group announced new contract extensions for your D3S products. Firstly, can you just remind everybody what your D3S products are?

A1: D3S, as we have spoken before, is a family of products that we developed under a DARPA program, DARPA is an agency of Department of Defence in the United States.

The D3S is used to identify signatures of nuclear material, it’s a high accuracy, radiation detector identifying exact nature of the nuclear material that is emitting the radiation itself. Primarily used for detection of radiation which may be used by terrorists as part of a dirty bomb so the DARPA program was aimed at having number of these detectors networked together, providing a real time information about radiation signature of a wide area. It could be as big as a city or it could be critical infrastructure or inside the building as well.

So, it’s a high performance radiation detector which provide very accurate information about nuclear presence or absence of nuclear materials.

Q2: So, what did these extensions mean for the company?

A2: We have announced a couple of contracts with this particular customer in the last 18 to 24 months so this is a great signal those contracts, which were aimed at pilot scale implementation of the D3S technologies to protect critical infrastructure and urban areas is still on track.

So, although, the nature of these programs take a long time, and a lot of trials and pilots need to be done, they’re all on track. This extension gives a very clear signal that the customer is fully engaged and the potential for wide-scale implementation of this technology by this customer is significantly enhanced by this extension, which we announced yesterday.

Q3: Now, it’s been a crazy year with the COVID pandemic, how have you been coping since the last update?

A3: In the last update, we articulated the affect of COVID-19 and the pandemic, the global pandemic, has had on our business, particularly on our customers in certain sectors in aviation and medical sectors.

So, the first few months of our fiscal year had been rather challenging but as we indicated in October, we’re during our results announcement that the business is starting to get back to normality. We have made two announcements, one in new contract from a new customer and of course, yesterday we announced the extension of an existing contract from an existing customer.

So, these are all indicators that business is starting to return, business is starting to become normal again. Our factories are now operational, we are getting back to the pace and scale of operations in most of our sectors, medical, nuclear, and indeed, the work that we are doing on bio-security is indeed going ahead and getting back to normality again.

Q4: 2021 is fast approaching, how do you think Kromek Group is positioned for next year?

A4: The long term positioning of our technology and why we win customers and why our customers buys our products, that proposition remains very, very strong and underpinned by fundamental needs in the market.

Although COVID has had a disruptive effect for a short period of time, ultimately the underlying reasons why our products technologies are important in markets such as medical diagnostics, cancer detection will remain an important modality. So, what we bring into that market is absolutely necessary and absolutely needed and that need had short term disruption earlier this year but those fundamental needs in the diagnostic market remains exactly the same as it was pre-COVID.

So, the medical diagnostic imaging market remains a very robust proposition for us and our position in that, particularly inspect and CT in osteoporosis detection remains as strong as we had. The business is returning to normal in that segment, our customer interactions are getting back to the rate that we had in earlier this year of 2020.

More importantly, we are shipping products in that market and the rate of shipment is increasing, secondly in the nuclear security market, we have seen round the world there is an increased amount of effort and procurement processes that are starting up. The defence and security spending is supposed to go up going forwards.

So again, the prospects in those markets for our products, which are unique and which brings a unique value proposition to our customer, are remaining very strong so we are looking, in our core markets of nuclear detection, medical imaging, and also to a certain extent aviation security, we are looking at it very, very positively.

Of course, the biosecurity markets where we are doing this program with DARPA for detection of bio pathogen is a very exciting new opportunity for us and the prospects in this market, as we have said before, remains very exciting, very robust, and particularly relevant for the world we are living in today.

So, 2021 and beyond, we are looking with increased amount of confidence with great degree of optimism.

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.

Kromek Group (LON:KMK) Chief Executive Officer Arnab Basu caught up with DirectorsTalk for an exclusive interview to discuss their two new contract extensions and further growth.

Q1: Two
extension contracts from European and US customers, what can you tell us about them?

A1: These are two contracts from two very
important customers in the field of radiation detection, particularly nuclear
security markets and both these contracts are a demonstration of our continued traction
in this market.

One is from the
US, from CWMD which is an agency department of Homeland Security in the US, and
this is very much to supply products from our D3S family of products which are
used for detecting radiation which could be harmful and be used by nuclear
terrorists. We have a long history of working with the Department of Homeland
Security and the Department of Defense in America and this is just a
manifestation of our very strong relationship with these very important
agencies in the US.

The second contract is really from a European government agency and this is a good demonstration of the global traction we are getting for this product range so it was, of course, developed for the US government with the US government but we are seeing demand coming through from around the globe. This £1 million is a very good example where this product is going into other areas of the world, looked at seriously by other governments for large scale deployment.

Q2: Can you just remind us what
the D3S family of products actually do?

A2: D3S is the small pager size handheld radiation detector
which detects gamma rays and neutrons which gamma rays and neutrons are emitted
from radioactive material, or nuclear material. The purpose of this particular
product is to detect, identify and confirm whether there is radiation, what
type of radiation is coming out, if there is radiation, from what material and
how much radiation is coming out.

So, this product was developed
under the US Department of Defense contract from an agency called DARPA, very
much in at developing small compact handheld detectors to be carried around by
first responders or other personnel in large numbers dispersed in urban areas.
It then sends a realtime signature of radiation of that particular area together
with the GPS coordinates so it can build a realtime heat map of radiation of a
very large dispersed area, it’s very much aimed as a realtime monitoring system
for detecting movement of radiation primarily for against nuclear terrorism, an
early warning system against a nuclear dirty bomb.

This is a unique product, in the US
government’s own words, this is a product which is replacing traditional products
which are the size of a shoebox and cost tens of thousands of dollars with
something which is a pager-sized device, very much a wearable radiation detector,
cost only a few thousands dollars.

So, it is a disruptive product that was developed for the US government, with US government funding and deployed in the US, in major urban areas, and now getting traction around the world.

Q3: Nuclear detection isn’t the
only thing that you do, you also do medical and security screening operations.
How are they progressing?

A3: Very much so. We, as a business, we serve three markets
which are medical imaging, nuclear detection and aviation security or security screening.
All three markets are global, all three markets are growing and we have a very
well defined product portfolio, target customer and target applications. Medical
imaging and nuclear detection are the two of our larger markets.

So, in medical imaging, of course
we don’t serve the entire medical imaging we serve four sub-segments within the
diagnostic imaging markets:

• Bone mineral densitometry which
  is used for detection of osteoporosis.
• Gamma probes where probes are
  used during removal of lymph nodes, interoperative probes used by surgeons.
• SPECT, which is nuclear medicine,
  which is used for detection of cancer, cardiac diseases and many other kind of
  conditions and increasingly going into dementia-related application.
• CT, computer tomography, which is
  one of the largest diagnostic modalities using x-ray’s.

In all of those four sub-segments
within the medical market, we are an OEM detector supplier, we don’t make end-user
products. We supply detector assemblies which  contains our unique CZT material, electronic
signal pulses and capability into assemblies which then fits into OEM’s imaging
system.

Bone mineral densitometry and
gamma probes are two market where we have served that market over the last 8-10
years pretty successfully, there are thousands of devices and systems around
the world which as used in clinical environments and hospitals around the
world, scanning patients every day.

SPECT is a really growing market
for us, going through real growth which is evidenced by some of the news flow
you’ve seen in the last 12-18 months including one of our largest contracts we
announced earlier this year.

So, we’re making good progress in
the medical imaging market, we have a unique position with our technology, IP and
the increasing customer base so we remain very confident of growth within that
market.

Security screening, we have got
two parts, one is we sell an end-0user product which is used now in over 60
airports around the world for screening liquids in bottles and containers, this
is a regulatory certified device which is used everyday in real airports now.

The second part of that business is where we supply OEM modules and advanced algorithms to baggage screening manufacturers and that’s the part of the market that’s growing for us, driven by the new regulatory changes that have been implemented both in Europe and around the world. Our customers are using our products to achieve higher standards of performance for their own baggage screening systems and that is what is driving growth. Again, if you look back 6/9/12 months, you will see a number of OEM contracts that we have announced, typically multi-year contracts with OEM’s and things are going well and regulation is driving growth.

Q4: Talking about growth, where
do you see growth coming from in the next 6-12 months for Kromek Group?

A4: If you look at our business at the moment, we are
looking at making pretty good progress in all three segments but we have to
standout big opportunities in front of us.

One is the D3S product range which
we believe, collectively, the total market for us, over the next 10 years, is over
$1 billion and we have a unique offering in there.

The second is medical SPECT, the
nuclear medicine modality, where we have a very strong well differentiated
offering for the SPECT market as the market is transitioning from black and
white to colour high resolution SPECT.

So, over the next 6/12/24/36
months, we’re going to see steady progress in all of our markets but two with
two real growth drivers which can give us substantial and visible growth.