Good afternoon, ladies and gentlemen. Welcome to the Kromek Group Capital Markets Day Q&A session. Throughout today's presentation, investors will be in listen-only mode, and questions are encouraged. You can submit them at any time just using the Q&A tab situated on the right-hand corner of your screen. Just simply type in your questions at any time and press send. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation. I'd now like to hand over to CEO Arnab Basu. Good afternoon to you.
Thank you, Mark. Good afternoon, everybody. Thanks for joining. We had a Capital Markets Day last week, and many of you may have seen the recording on the platform or on our website. Today, we have me and my colleagues. I'm Arnab Basu, the CEO, and my colleagues are here. Claire Burgess, our CFO, you'll hear from Claire. Berry Beumer , our President of the advanced imaging segment, will join us from our Pittsburgh facility. And Michael Stevenson, our Commercial and Strategy Director, will be joining us from Poland, where he's on a customer visit at the moment. We will have a quick sort of recap of what we talked about in the Capital Markets Day. Many of you know the company for a while, and some of you may be new and just getting acquainted with the company. Let me give you a very quick introduction to the company.
We are a global detection business operating in the global medical imaging, security, defense, and civil nuclear markets. We operate out of four facilities in the U.K. and the U.S., manufacturing both in the U.K. and the U.S. in Durham and Pittsburgh, employing just over 150 people and serving two very large growing market segments through two business units. Just a very quick recap of what we would like you to take away ultimately from what you heard and will be hearing are three things. Kromek, over the last 20 years or so, we have built quite a strong platform, quite a strong foundation based on which we are building the business. That foundation gives us the platform to grow.
We are going to grow through our two business units or the two growth pillars, which are advanced imaging and the CBRN detection, which we are going to hear a little bit about. Based on those growth pillars is going to be the way we are going to grow and ultimately build shareholder value. Just to have a quick recap in terms of where we are and what we do in terms of technological advantage, this is something that is key in the markets we operate in. Over the last 20 years or so, we have built a very robust set of IP-rich technology, which gives us a sustainable advantage in the markets we operate in.
The heart which really beats and binds the two businesses together, the two growth pillars together, is an innovation engine which allows us to develop high-value IP and products and technologies, which ultimately led us to grow and develop some very deep strategic customer relationships based on which we build a business from. That is possible through a team that delivers, a high-skilled team working within very close and well-structured systems and delivering the results in a very agile sort of culture. In any of our business segments, the barriers to entry are high. If anybody wants to do what we are doing, particularly if you look at the advanced imaging business where our CZT technology, we are the globally single independent manufacturer of CZT. We have a very high barrier to entry.
If somebody wants to do that, it's going to take a long time, and it's going to cost probably more than what we have spent in the last years. Similarly, in the CBRN business, we have a very unique position in that business through the value proposition we bring. Again, barriers such as incumbency, customer relationship, validation, and all of that makes it quite difficult for new entrants to really break in in a very rapid way. The end markets are growing, and that is important because we don't sort of operate in a vacuum. We operate within markets, global markets, and those are growing. We are very well aligned.
What we do is very well aligned to the mega trends in the market, whether it's early detection of cancer and diseases, which ultimately allows earlier detection and reduces healthcare costs and has a better patient outcome, or having the ability to have good quality data in our frontline, civil defense and military personnel to make the best decision in case of protecting the people, infrastructure, and themselves against the attack of dirty bombs. Those markets are actually growing, and what we are doing is very well aligned to those drivers. We are going to grow our top line, and we are going to evidence it by customer wins and ultimately grow our profits and generate cash. That is going to be along the way we are going to provide proof points over the next years.
That is basically how we are going to build a company and ultimately build shareholder value. In the CMD, one of the things we did, and this is the first time kind of as a company, we are guiding the market a little bit into beyond the first 12-18 months, what we are saying in the medium term where what we want to get to and what we are setting our eyes on is a GBP 60 million revenue with a 35% EBITDA, 30% EBITDA with an average sort of CAGR of about 20% over that period. That sets some midterm targets, and what we mean by midterm targets is in and around five years. I'll now hand over to Claire, our CFO, who has joined us in the last six weeks.
Yep, six weeks. Thanks, Arnab. We'll just quickly go over this slide, which was presented at the Capital Markets Day, because I think it's really, really important. We're in our fourth year of revenue growth. In May, we announced our flash 2025 numbers, and the division was impacted last year, financial year 2025, on both sides of the business. Fundamentally, we've secured the business moving forward. We won a GBP 37.5 million enablement contract with Siemens Healthineers. And that's allowed us to significantly reduce debt and strengthen the balance sheet. More importantly, we're PBT positive for the first time, which built on the EBITDA positive from the prior year. If we continue going forward, as I'm sure many of you saw when you watched the full presentation, we've got very strong fundamentals for the continued growth of revenue in financial year 2026 and beyond.
I'll pass over now to Barry, who will just expand a little bit more on the AI division.
Thank you, Claire. Let me perhaps set the stage a little bit that we are in the middle of a key transition in detection platforms in the medical imaging space. Medical imaging is our primary focus for the advanced imaging business. This transition is taking place because the legacy, the conventional detection platform, has been, let's say, fully exhausted in its capabilities. Patients, hospitals demand improved detection capability. In order to deliver that, a new detection platform technology is needed. This detection platform has important benefits. The key benefit leads to better patient outcome, the ability to have clear, sharp, highly resolved images that allow very small features to be resolved in the human body, results in earlier detection of cancers, allows you to see calcification around stents for cardiac-related issues, and many other applications would benefit from this.
As a result, the patient benefits from it by earlier detection, better treatment options, but also the industry as a whole, the hospital and the insurance base benefit from this as the cost of treatment goes down. We find ourselves in the middle of that transition. The transition particularly takes place in this modality of computed tomography. The CT modality is transitioning to a photon counting, a PCCT detection platform, allowing for color images that are razor-sharp that can resolve very small features. The industry is in a race. It is in a race to get there. The tier ones, the tier one OEMs on your left side of the screen are leading the charge, if you will, and you will recognize the names that are active in that space. They occupy about 70% of the market or so.
The tier two suppliers, similarly, are very focused on this technology transition. If we look ahead to 2030, we would look at the market and see a $15 billion systems market. This is the actual full scanners, the value of the market in CT at that point. This represent This is an annual number, so it is $15 billion per year. This represents a total addressable market for Kromek of $320 million by 2030. That addressable market includes both captive and non-captive or commercially available CCT detector opportunities for Kromek. By 2030, if we look at the graphic on the left, about 16% of the CT space will have transitioned over to photon counting CT. It is still in the early stages of transition. These transitions in the medical space take some time. They do not take place overnight.
Very difficult to look at the granularity of those transitions in the three- six-month time frame. We need to more broadly look at that and open up the aperture a little bit on the timeline for that. However, we are on track for that type of adoption of the technology. What does that mean for Kromek? The available space within photon counting CT is $320 million worth of detection platforms by 2030. A significant compound average growth rate increase year over year. This is clearly unusual because of this technology transition. It is, of course, affected by how quickly the hospitals, the main body of end users, draws through this new technology option. The adoption rate will be determined ultimately by them. However, once this adoption process has started, a platform, new detection platform of this nature will have a life cycle measured in decades, really.
The expected life cycle for semiconductor-based, CZT-based detector platforms is of that order of magnitude. We find ourselves in the middle of this conversion. It is by far the key driver for the advanced imaging business moving forward. Besides that, there are other segments, including in the nuclear medicine field, specifically the SPECT modality that will continue to play an important role for us. We are certainly positioned to take advantage of the scale and impact of the largest medical imaging modality, which is what the CT segment represents. I just wanted to say a few words about that, and I yield back over to Michael.
Thanks, Barry. Good afternoon, everyone, and greetings from Poznań in Poland. As Arnab's introduced, my name is Michael Stevenson. I've joined the company at a similar time to Claire, an exciting time for the evolution of Kromek. I bring with me my experience and expertise in leading and managing sales and marketing teams, growing and developing those teams. Certainly, that's my remit and my hope for what to achieve within Kromek. I'm going to give you a little bit of an overview of the CBRN business, some of the headwinds, some of the tailwinds that we are currently experiencing, and our strategy for growth in the short term and the mid to long term. As I can testify from my meetings today in Poland, the threat within the CBRN community is certainly real.
I think, as you see in the news today, threat levels are increasing across the world. With that, CBRN detection is a crucial part of how governments respond, how governments are able to collect good information to help them make better decisions. Within that increased threat space, we're also experiencing an increase in defense spending from many countries around the world. I think that'll be played out in events with NATO meetings ongoing this week. Thirdly to that, the position that Kromek finds itself in currently is a really strong position. We've got established links to U.K. and U.S. frameworks and tenders with products already established on those frameworks. I think in the short term, the next 12-36 months, we're really going to see a lot of our organic growth come from the work that we've put into those frameworks.
In addition, there is already some contracted revenue, which forms the baseline of our expectations for that short term. Going forward, I think the strategy, which is my remit to lead, we are actively looking to expand our distributor network. Over the last couple of weeks, we've held a very successful event in Sedgefield, where we saw a record amount of distributors attending our office, great engagement from them, and some really good plans for the year ahead. Second to that, obviously, I'm in Poland now, but next month we'll be in Asia, and we'll be looking to expand our reach and expand into new markets. We have established distributor networks in Asia, but we want to bring those links closer. We want to help our distributors out there, and we want to give them what they need to really accelerate the growth over the next year or two years.
I think the final piece in that jigsaw is expanding our sales and marketing teams as well. We've recently recruited some new headcounts into the team, and we'll be using that to maximize our reach in the CBRN world. I think in the long term, we touched on the capital markets days about plans of bolt-on's or mergers and acquisitions, where we see it's strategically necessary to fill gaps in our portfolio. It is a strong future for CBRN. It is a strong market with good growth. Yeah, I'm looking forward to kind of leading the team forward to some success in the years to come. I'll hand back to Arnab so we can start our question and answers.
Thank you very much, Michael. Thank you very much. We probably will, we've got some pre-submitted questions, and I'm going to straight get into those questions. The way we will do it is I'll read out the questions, and I'll ask either I will answer those or I'll ask my relevant colleagues to answer those questions. Question one. With so many opportunities to grow the business available to you, how do you decide which ones to focus on so that you are not spread too thin? Great question. Let me take that to start off with. Look, I mean, yes, we have a lot of opportunities in front of us, but as we have articulated in our message within the presentation itself, we are very focused. We are very focused to grow within our two growth pillars, which is advanced imaging and CBRN detection.
Within those, as my colleagues just pointed out, within advanced imaging, we have an absolute focus on capitalizing that very large opportunity that lies in the CT market as the market is structurally shifting towards that. Secondly, in the CBRN detection unit, we have a portfolio of products. We have a portfolio of proven products, and we are going to really accelerate and build on the commercial momentum we are having, and we will expand our commercial footprint and also the geographical sort of reach that we have. We are focused on those, and over the next 12-36 months, we are going to see commercial revenue coming in from bio as well, which is now fully funded by the U.S. and the U.K. government.
Yes, we have got opportunities, but we have got absolute focus to drive the organic growth that we have in front of us. Question two. Following the move to reporting divisions' performance, how does Kromek allocate central cost to each division? Does Kromek see value at some stage in operationally or corporately splitting divisions? Are individual divisions separate from a future acquisition perspective? I think it's probably appropriate for Claire to answer that.
Yeah, that's good. Actually, we have restructured operationally the business, so we're there moving forward. People have clear chains of command and accountability. Operationally, there are very minimal overlaps, but both divisions do benefit from central overheads, so finance, legal, IT, which kind of maximizes efficiencies within the business and does not end up duplicating or wasting costs. IP and overheads are allocated on a 50/50 basis, which is kind of reflective of the revenue split overall within the business on an underlying basis. Barry's leading the AI division. Michael's come in to lead the commercial function of the CBRN division.
Thanks, Claire. The next question is, are receivables increasing in proportion to sales? Receivables seem to be growing faster than revenue. Can you clarify whether this is due to a change in customer payment terms, or are there concerns around collections or revenue recognition practices? Claire, it's for you as well.
This question obviously refers to the 2024 accounts. Within 2024, at the end of the year, there was an unusually high proportion of revenue. It was back-ended. Yes, at the end of the year, the receivables as a proportion of the annual sales did look quite high, but it really just reflected the timing of the revenue. I do not expect to see receivables increasing as a proportion of sales.
Thank you. Is the gross margin on sales stable? Gross margins appear relatively stable despite a volatile revenue base. What are the cost controls or contract structures that are supporting this margin consistency? It's you as well.[crosstalk]
The underlying gross margin for the different revenue streams is very, very stable. We manage this very carefully by managing costs, operational efficiency, pricing to customers. That said, as we said in January, the product mix will be impacted by the Siemens enablement contract revenue this year and for the four years that the enablement contract spans. That is quite a high margin. Because of product mix, you will see the gross margin go up. For an underlying business, the gross margin will remain very, very stable across the two divisional pillars.
Thank you. The next question is, is the quality of the asset base stable, especially regarding inventory and intangible assets? Have there been recent write-downs or reevaluations? It's you as well, Claire.
Yeah, we believe the quality of the assets to be very, very stable. We assess the quality of the assets every year alongside our auditors, as you would expect, and we will continue to do so.
Looking at the balance sheet, there's a significant proportion of assets tied up in intangibles and receivables alongside rising debt and ongoing operating losses. Can you clarify how management ensures these asset valuations remain realistic?
Again, this question relates to the financial year 2024 annual report. In May this year, we reported that our debt's reduced to GBP 500,000. We've also shared the move to PBT profitability in financial year 2025. Taking the other side of that question, yeah, we still believe in the stability of our assets. A large proportion of the intangibles are capitalized R&D, and we've evidenced with the Siemens enablement contract that that capitalized R&D has significant value to the business.
The next question, are intangibles being amortized appropriately and reviewed for impairment regularly?
Yeah, I think this is a bit of an overlap with one of the previous questions, but yes, absolutely. As I said earlier, we do a full impairment review every year alongside the auditors. I believe that that is appropriate, and we are doing it every year. It is regular as well.
The next one, I think, is you as well, Claire. Are accruals low as a proportion of total assets? Has there been any change in how you estimate key accruals like warranty provisions, bonuses, or long-term contracts?
Yeah, there's been no change in how we estimate accruals. We're very consistent on that basis. I believe accruals are very appropriate to the business as we stand. It's worth noting that long-term contracts are all product-based, so revenues recognized as the product shipped. We're not into contract accounting and estimates. I don't think there's any issue there.
The next question is, is sales growth not excessive given the long-term average growth of about 6% and a projected surge to GBP 27.1 million by 2026? Can you explain what's driving this expected acceleration and how recurring it is?
Through the presentations, and hopefully you've had a chance to watch the full capital markets day presentation, I think the team has explained the growth plans for both divisions in the short and medium and into the long term. We announced to the market in May that our financial year 2025 revenue will be in excess of GBP 26 million. From GBP 26 million to GBP 27 million next year, as in, it's not a huge leap. In the medium term, the GBP 60 million target, which will average a 20% annual compound growth rate, I don't think is excessive when you take into account the potential growth rate of the AI division and the strength coming through from CBRN.
Moving on to the next one. Is the rate of depreciation stable or increasing? Depreciation seems consistent relative to net fixed assets. Can you confirm if there's been any change in asset lives or depreciation policies recently?
No, there's been no change. Our depreciation rates are stable. There's no change in asset lives or depreciation policy. That's quite an easy one.
The next question, tech and AI seem to have skills shortages. Has Kromek experienced this in recruiting talent? Let me take that. We recruit on both sides of the Atlantic, and over the last three or four years, we have not seen really a massive problem in recruiting. At the moment, that is not really an issue for us. Our core teams are very stable where intellectual properties are developed. The operational team and the sales team that are growing, we have been able to attract talent and recruit appropriately. The next question is, Kromek previously announced their desire to link up with a partner for COVID and other pathogen detection IP product commercialization. What discussions and progress have been made, and what is ongoing? I'll probably take this one, given the historical context to this.
In the biosecurity part of the business, there are two programs running, one with the US CWMD, which is developing a platform for air-based pathogens for monitoring and as an advanced and early warning system for any accidental release of pathogens or an occurring pandemic that is coming in. The other is a U.K. government agency program, which I can't talk a lot about. Both these programs are actually leading on to products, and we expect the U.K. government program to actually get into a product phase in the first half, mid next year. We are absolutely focused on delivering the contracts at the moment.
As we start to commercialize through that early adoption with key customer groups, that will be the time when we will be starting to have those strategic discussions in terms of partnerships, commercialization, and how we actually commercialize the biopathogen detection platform and products itself. The next question, Kromek previously mentioned application of its pathogen detection IP for within agriculture. What steps and progress have been taken to commercialize this opportunity? Maybe Michael can take that. Michael.
Yeah, absolutely. As you just mentioned, Arnab, in the bio sector, there are two programs running, one in the U.S., one for the U.K. Like you said, commercialization will be expected 12 months plus. For the agricultural side, we see that as an opportunity. We know that there is government interest in this area. We know that there is investment in this area, and we're really plugged into conversations that are going on in that space at the moment. As you said, the current programs are the two that you've mentioned, and there is nothing for clarity in this space at the moment. As you say, we're plugged into it.
Thank you, Michael. The next one, can Kromek steer as to the pace of end product rollout and announcements it expects in the next six months from clients in the medical product space? Has the speed been slower than Kromek expected? Barry, I think you're in the best place to answer that.
Yeah, thanks, Arnab. The direct answer to that is no. We think we're in the right place, and we're moving forward within the near future with sort of the timeline as we expected. As I mentioned earlier, within the advanced imaging business, the life cycles are really not to be looked at within sort of a few months type of granularity. The OEMs principally drive the launch and the speed at which the product development takes place. Ultimately, the end users determine the speed at which a new technology is introduced and adopted across the full segment. Our ability to steer this is by supporting our OEM customers the way we are doing it. We are exactly on track there. We have very close relationships with our OEMs.
This is clearly one of the unique selling points for our business is our long-running deep connections, both technically and otherwise, with our OEM customers. We put the full weight of Kromek and our resources in supporting our OEM customers. Largely, they are on track with their roadmaps and their timelines, and we feel good about what our position is on that. We are a supporting player, perhaps not the lead actor when it comes to technology roadmaps for new systems, but we're doing what we need to do.
Thank you. Does Kromek see any material commercial activity in the short or medium terms with its Chinese clients? How active are discussions with potential clients in India and the Far East? As you know, our customer base is quite different in the two divisions. In AI, we have a very different customer base and a target base than our CBRN detection. I will probably ask Barry to perhaps say a few words about Asia and the importance of Asia and China and where we are in the AI division. I will invite Michael to address for the CBRN detection the same.
Let me say this: within advanced imaging, we have four years focused on Asia, particularly in the markets that drive the applications for advanced imaging. Of course, we've been active in South Korea with some of the early adoption of our technology and our detectors for bone mineral density systems there. However, of course, the prize is China. It's by far the largest market in the region. We have been quite active in the Chinese market in the past. We will continue to do so.
However, we take a reasonably conservative view of our role in the China market in this sense that while we are fully invested to support the OEMs and partners and collaborations that we have in China, at the same time, we take somewhat of a cautious approach as perhaps macro factors may affect ultimately our ability to fully take advantage of some of the developments over there. We are cautious on the one hand. In our predictions, on the other hand, we are full in to make sure that as a detector supplier of CZT detectors, we are front and center, particularly in the China market where so much organic growth is taking place.
Michael, do you want to talk a little bit about what's going on in Asia for CBRN?
Yeah, absolutely. China is difficult, obviously, with the applications of a lot of the CBRN equipment, the military applications, police, fire, that type of thing. Export licenses and restrictions make it difficult to do business in China. It is certainly not a focus at the moment. That said, the other part of the question, India and the Far East, take them separately. India, we do not see much potential in the short to medium term. We do have representation. We do have distributors there, and they are keeping an active look at the market. We do not anticipate that to be a huge area of growth going forward in the short term. Asia most certainly is. We are actively engaged in visits to there. We had some really good success with working with the Department of Business and Trade, giving us help.
They've got a particular focus on defense exports. We have been working closely with them to help our cause over there. We have trips planned to the Philippines, Vietnam, Indonesia. We have good discussions going on in Korea and Japan. Before the year is out, we will have multiple visits, and we will be pushing hard for business over there because there are some good opportunities for growth that will fit into our plans from that area of the globe.
Thank you, Michael. The next question is obviously for me. Why is the CEO positive about the company when the share price over a five-year period has fallen? Surely he understands shareholders are important too and want a positive ROI over a five-plus year period. Look, I mean, let me make the case in terms of what in the CMD, what we have done is outline what the opportunities are, outline what our growth paths are, outline what our focus is, really. We believe as a management team, we can do the right thing in delivering the business results, ultimately the financial results, ultimately the customer wins, and building top line, building sort of earnings, and ultimately generating cash. That is what we are absolutely focused on.
We also strongly believe that the inherent value of the business when we look at peers is perhaps not fully reflected in the share price as it stands. CMD is what we see is, but maybe there is a gap in what we are doing and how we are communicating and the understanding within the market is. CMD is a first step towards, while we are building the business, also to improve our communication and our way of articulating how we are going to build value in a better way. What we are doing now, what we did last week, are all steps towards that. Ultimately, our responsibility is to build a successful, growing, profitable cash-generative business. That is where we are absolutely focused on in the short term.
Next question, when will Kromek be able to get listed on the London Main Stock Exchange or the US Stock Exchange, for example, NASDAQ, to attract more analyst reviews to increase visibility as well as liquidity for the stock? Let me take that question as well. At the moment, we see AIM as our home. This is where we want to build value. This is where we want to demonstrate and prove growth on a profitable basis and a sustained profitable basis. If in the future there are reasons and the right reasons to list in another exchange or move to another exchange or do a list, that's for the future. At the moment, our firm plans are to deliver growth and build shareholder value in AIM as we are. Next question, acknowledging Kromek will always be alert to any value-additive acquisitions or merger opportunities.
How active are Kromek currently with this, also acknowledging commercial sensitivity? Look, I mean, we outlined that bolt-on M&A will be a part of our growth strategy. Our absolute focus is to deliver organic growth. That is where the priority is. The growth that we have outlined is not dependent or based on bolt-on acquisition. It will be part of it. Where our focus is, is that building and capitalizing on that CT opportunity, as Barry pointed out, a significant large opportunity in CT where we are very well positioned strategically and ultimately growing, selling more, winning more customers, and delivering more revenue within the CBRN business by increasing the footprint within the global market. We are absolutely focused on that organic growth. Where opportunities will come across, based on our balance sheet strength, we will make those acquisitions.
We have outlined very clear rules that these will be done in a responsible and very methodical fashion. The next question, please describe your relationship with Spectrum Dynamics currently and how do you see this developing in future years. Barry, that's for you.
Thanks, Arnab. We have a particularly close relationship with Spectrum Dynamics. We've worked with them for years. We believe that our technology, our detector platforms, has provided a differentiation for Spectrum Dynamics. This is a close relationship. This is one relationship like a number of others in this space where the collaboration is very close. We continue to expect to see that relationship grow and expand. I think Spectrum Dynamics is generally quite successful in the spec market. Our expectations for the future, near term, mid term, long term, is that we continue to build on the relationship with Spectrum Dynamics. We wish them good luck. From time to time, we make announcements together. You can look for that. The relationship is close and very productive.
Thank you. The next question is, who are your main competitors? Let me again frame this up a little bit. I think, Barry, you can talk a little bit about our position on CZT and the competitive space within that, perhaps. And then Michael, if you could give a little color on the competition we see in the various markets. I can perhaps join in on the CBRN side as well if needed.
Let me say something if that's okay. Okay. So we can think of competition perhaps through two lenses. One is who competes with us directly as a CZT detector manufacturer. The answer there is we really don't see anybody on the horizon commercially that is capable of responding either from a detector performance point of view or from a scale point of view or any of the metrics that matter within the medical imaging space. In that sense, we somewhat stand alone, if you will, and are certainly leading the charge there. It is, by the way, very important that our OEM customers can rely on us for this very long life cycle that these medical imaging systems have. Scale, stability, and the ability to continue to expand the operation if needed is very key.
In that sense, we certainly are seen as the only supplier in the CZT detector space commercially offering these detectors. I'll say the other cut, if you will, at looking at competition is other alternative technologies around that would threaten CZT perhaps as a detection platform. Are there other solutions on the horizon? I will say two things. One is for niche areas of application, there will always be some other detection platform that may, in a limited way, be able to offer some of the characteristics that an OEM may be looking for. By far, by and large, the medical imaging space is focused on CZT as the detection platform, leading both SPECT and CT into the future.
We do not see any meaningful incursions of alternative technologies that will be able to address the full breadth of the medical imaging space from not just the premium hospitals, the academic institutions, perhaps, all the way down to the bread and butter hospitals that are very much focused on price and the commercial economic value propositions. To address that full segment, CZT is by far the leading technology and the only technology that can cover that segment in its entirety.
Thank you. Thank you, Barry. The next question, given the importance of innovation, how much are you allocating to R&D annually? Are you planning to ramp up capital expenditure to support manufacturing scale on new product lines? Claire, do you want to answer that?
Yep. Yeah. So we've got kind of two sides of the CapEx expenditure. As you highlight there, we've got the R&D side, and we've got the CapEx that supports manufacturing scale-up. As a business, CapEx targets will have minimal maintenance CapEx going forward. As we win large contracts for future, particularly on the AI side, the contracts will be structured so that the customers are paying for that CapEx infrastructure that supports their orders. You may see the CapEx going there, but it will be fully funded through the customer contracts. From an R&D side, yep, we will continue to invest in R&D. As a proportion of sales, this will come down over time. We will continue to track the types of contracts that we have in bio where that R&D expenditure is substantially fully funded whilst Kromek as a business retains that IP.
Thank you. Which regions are you prioritizing for growth and why? Are there logistical, political, or trade hurdles that might slow sales in key markets? This probably is more relevant for the CBRN segment. I think, Michael, you probably have answered a little bit about some of the markets, but perhaps add a little bit where our primary focus is.
Absolutely. Yes. I mean, we have established channels for sales in Asia. There do not seem to be any kind of export concerns or political issues there. As we have said, the target markets are the U.K. and the U.S., and Europe will always be very important. Areas where we are looking to gain traction and develop are the Asian markets. That will be, as I have already explained, a focus for the rest of the year.
Thank you. The next question, does the recent announcement of the U.K. Compound Semiconductor Center under the aegis of the Compound Semiconductor Application Catapult have any implications for the company? Let me take that question. In general, the Compound Semiconductor Catapult, as it stood, the application catapult, was not particularly relevant for what we were doing. However, we have over the years attracted U.K. innovation funding through Innovate U.K. and various UKRI-type funding mechanisms and will continue to do so. With an increased emphasis on supply chain resilience and sovereign capability and sovereign sources, we are seeing a number of opportunities to attract funding to improve our process.
Because if you look at the capital allocation slide, which we talked about in our CMD slide deck, one of the key areas where we are going to prioritize sort of spending our money is going to be operational excellence within the AI business. Because that is where significant scale-up is happening and is going to happen. That is where we want to be more efficient. We want to be investing in processes as we have done over the last few years. I mean, we have made some significant improvement in processes in terms of recycling, which has had a major impact on cost, recycling of our raw material itself. Also, we'll continue to do so to improve yield, to improve productivity, to improve getting more out of what we have in our CapEx inventory. We'll continue to do so.
A big portion of our capital allocation is going to be in that operational excellence achievement within the AI part. Yes, to answer that question. The next question, I think it's more M&A focus. Bolton M&A makes me nervous. I have worked on M&A books before, and everyone thinks they can do it well. M&A is fraught with risks. Why is it necessary if we are well positioned with very high revenue growth over the next few years? Is M&A activity modeled into the revenue growth figures? That is, is M&A needed to get us to GBP 60 million of revenue? Let me answer that question as well.
We have led, if you look back on Kromek's history, we have done two very successful M&As in the U.S., so of Nova and EV Products, which forms absolutely the key backbone of the advanced imaging business, which has given us the ability to have that very strong strategic position as the global source, the only independent supplier of this technology today in the market. We executed, we sourced those M&As. We executed them. We integrated them. We have driven value, which the enablement contract of Siemens actually is a demonstration in the smaller of the two markets that we are in, the medical imaging market of SPECT and CT, the value it brought in licensing and enabling Siemens for that particular application. This would not be our first foray into M&A. We have done it before. We have done it well.
We have shown that we can do it. Where our M&A priority is going to lie is in CBRN now, of course. It will be very focused, and it will be very disciplined. Organic growth remains our key priority and will remain the key focus. No, we do not need bolt-on M&A to get to GBP 60 million. What we see is an accelerated growth path by doing bolt-on M&A, which either gives us access to new markets or fills gaps within the product portfolio in our CBRN product portfolio itself. Our approach will be disciplined. We have set out our fiscal rules on the balance sheet, what we will do. We are not going to come back to the market to raise money to do these M&As. These will be self-funded by nature as and when we do it.
It will be done on strength of the balance sheet itself. Next question. Ian, Kromek has had a number of false starts and jammed tomorrow plans since IPO. What will be different moving forward to ensure shareholder value is delivered and increased? Perhaps I should take that question as well. I think the CMD presentation outlines the solid foundation we have got at the moment. We have built over the last 20 years of effort. It is not only the foundation we have built, but also the two clear growth pillars or the two clear growth divisions through which we are going to deliver growth. The technology is ready, proven, applied in the market in both our sectors in advanced imaging through Spectrum Dynamics, through many other OEM customers in BMD, gamma probes. We have proven our technology. We have won customers.
We continue to win contracts with Tier 1 and very recently with Siemens on the enablement contract. We have made significant progress. We have got a clear growth plan very aligned to what our customer's growth plan and customer's technology roadmap is. The plan to grow within AI is very well defined. We have got very, very good visibility. We are on that journey. CBRN, on the other hand, we are also demonstrating by winning contracts, not only by having that very long, secure, strong relationship with key user groups, whether it's U.K. Home Office, whether it's U.K. MoD, whether it's U.S. DoD, DARPA, DETRA, Coast Guards, and so on and so forth. We have built very key, strong relationships.
Our products are being used in critical areas in the world, protecting large cities such as New York City, used in London, used in all major events in Brussels, used in and around every power plant in Ukraine, giving first line of critical information to the emergency services in Ukraine to keep people and infrastructure safe. There, we have got proven platforms in our products with customer relationship. Our commercial growth that we are driving is going to be evident through those customer wins, through those increase in top line, increase in earnings, and ultimately together generating cash and getting to that midterm target we have set ourselves. What type of M&A opportunities would you look at? Are there adjacent technologies in detection? Let me take that as well, perhaps. Michael can add if he wants to on this.
I think we have clearly said the M&A is going to be in the CBRN market. That is absolutely focused. At the moment, our clear focus will be on radiation detection. We clearly have a presence in the market. We are growing that market. We have a portfolio of products. There are gaps in the product portfolio, as again outlined in the CMD presentation. If either we see an opportunity to accelerate growth in certain markets to increase our footprint, sort of building on what Michael and his team is going to do, or whether we see an opportunity to bring in that fill the gaps in our product portfolio, that is what the M&A is going to be focused on rather than looking at a lot of adjacent markets to go into different ways. We want to serve the same customer base in a more comprehensive way.
That really is probably how we see it. Michael, do you want to add anything on that or?
Yeah. I mean, just from a perspective of what I've currently seen today, the CBRN community is a small community. There are good opportunities for partnerships, for collaborations, for working together. It's a very open community for kind of discussing those. I'm sure opportunities will come along. As we touched on in the presentations earlier, we've identified where our gaps are in our product portfolio. We're aware of that. We can actively go and look for opportunities in that area. As you've covered, Arnab, as well, any merger or acquisition in that area will be well thought out and will be strategic for what the business needs and requires to go forward and also present enough of an opportunity to make it worthwhile in the first place.
Thanks, Michael. If the medical technology platform has a lifetime of decades, why did you transfer the technology to Siemens for 40 years of payments and thereby undermine the competitive position of your ongoing customers? Barry, do you want to lead on this? I can perhaps add some things.
Thanks, Arnab. This is an appreciated question. It's a good question. It's a question that was closely examined when we entered into discussions with Siemens Healthineers. The value proposition that this presents to us is clearly it brings in cash into the business. At the same time, allowing Kromek to keep all its options open in terms of serving the markets that we are focused on without any constraints, enabling us to continue to build on collaborations that are in front of us the way we think suits us best. We have a four-year supply agreement with a leading manufacturer in the SPECT phase. I will say what comes after that is less obvious to all of us. We know that we will remain as a capable supplier of CZT detectors for OEMs that may or may not have a captive capability themselves.
We continue to be an option for supply chain moving forward into the future beyond it. For this point, we see the benefits to our company to bring in the cash and the recognition, by the way, of having a tier-one supplier, Siemens Healthineers, underscoring the fact that Kromek CCT solutions are the ones that they want to deploy moving forward themselves for their own in-house capability. We see this as a win-win for the business. It is a transition for profitable growth moving forward. It does not cut off any options for the business that it sees as strategic, either in the nuclear medicine space or in the CT space.
Just to add one point on that, in the capital markets day, again, on the slide deck, and even today at the very beginning, Barry made the case very well why CT is the larger of the two markets. That is where structurally the market is going to transition. The value of that market is very big. That is where we are going to focus over the next decades, really. That is what is going to deliver substantial value in that business, really. We have got a very large market to play with. Medical has previously been reported to be a low-margin business. How much are margins increasing for medical product sales to support 30% EBITDA?
I'll take that one. Obviously, when any business is introducing new technology, they generally start with lower margins because you're operating on a much, much smaller scale. We've successfully developed this technology. As we grow and as we scale, we get the economies of that scale. That's where the increase in margins comes from. The CBRN business, on the other hand, continues to be a higher margin space. That will continue. There will be a significant portion of the 30% EBITDA.
Here's the last question. We have run a little bit over time. Apologies. The last question is, the plans presented are growth plans that normally require significant cash requirements. What cash runway does Kromek have as of today? Are you cash generative to avoid further equity dilutive raises?
I'll take that one as well. Yep. Significant cash requirements are involved in any business like ours. We've got visibility over our cash runway. The business is transforming. I mean, as we keep saying, 2025 is really a transformational year. We're moving not only to be EBITDA positive but to be PBT positive. That has a knock-on effect to cash. The contracts we're winning support the underlying business moving forward. That cash generation will continue to grow. We do not anticipate further equity dilutive raises.
Arnab, Claire, Barry, and Michael, thank you very much indeed for your time and for taking the questions from investors. Of course, we can make all the questions available to you should there be any other comments that you need to provide. Arnab, I do know that feedback is particularly important to you and to the rest of the team. I'll shortly redirect those on the call to give you their thoughts and their expectations. If I may, just come back to you for a couple of closing comments. I'll redirect investors for their feedback.
Thank you very much for everybody for listening. Thanks for your time. If you haven't seen the Capital Markets Day presentation, please take some time to look at it. There is quite a lot of information in there. We are always available.
Ultimately, the takeaway is 2025 has been a transformational year. We have got a solid foundation to grow. We have got two clear growth paths through the two growth pillars. That is how we are going to build value over the next coming periods. We are confident of building shareholder value from here on. Thank you.
Arnab, thank you very much indeed. Can I please ask investors not to close this session as we will now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This only takes a few moments to complete, but I am sure it will be greatly valued by the company. Thank you very much indeed for your time this afternoon.