Good afternoon, and welcome to the Kromek Group plc interim results Q&A session. Throughout this recorded meeting, investors will be in listen-only mode. Questions are encouraged, and they can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press Send. The company may not be in a position to answer every question received during the meeting itself; however, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll, and I would now like to hand you over to CEO, Arnab Basu. Good afternoon to you, sir.
Good afternoon, and good afternoon to everybody that is joined us. Hopefully, you've all had a chance to see the recorded webinar, and which we used to sort of convey the results and the opportunities that is in front of us. So, I've got Claire Burgess , our CFO, with us, and together, we will try to answer all your questions that you have.
Fantastic, Arnab. Claire, if I may move on to the question, and the first one here reads as follows: You have stated that circa GBP 4.8 million in CBRN orders have been received year to date, with half still to be delivered in H2. Given the H1 CBRN revenue was GBP 4.3 million, can you clarify if the GBP 2 million post-period debt draw was specifically to purchase the long lead components for this GBP 2.4 million remaining backlog? If so, does the cash from these deliveries settle the revolver by April year-end? Apologies.
Thank you. I'll take that one. So I, at the year-end, negotiated a GBP 6 million revolving credit facility with HSBC Bank, and that is to support the working capital of the business. The working capital of the business, we've got the advanced imaging, and we've got CBRN. CBRN side is a relatively short working capital period, and although some of that drawdown will have been to support the CBRN side of the business, predominantly, most of it will be to support the advanced imaging side, which has a much longer working capital period. The revolving credit by nature is revolving, so during the year, the facility will get paid down.
I don't expect that to be at the end of the year because as the year goes through, we are ramping up our production on advanced imaging, so I do expect some usage of that facility to continue.
Perfect. Thank you. Next question: Firstly, congratulations on the acceleration of Kromek over the last 18 months. I have great confidence in Kromek over the next 5 years. I support the underpromise, overdeliver approach. That said, with large deals taking years to mature, investors need some sense of pipeline health to gauge progress. How can you give us a clearer picture of pipeline without compromising your disciplined approach?
I think that's a great question, and we do acknowledge that, you know, often it is the type of customers we have and the relationship we have and the strategic nature of product introductions and so forth, makes it difficult for us to convey everything that we want to convey in an ideal world. But hopefully, the conversations we are having like this is going to help in conveying some of the tape, some of the messages, and hopefully, that'll help you understand where we are going from where we are today. So let me just characterize the broader market a little bit, and hopefully, that'll give some context and some understanding.
So the adoption of CZT in the advanced imaging segment, which is primarily the medical imaging segment, which is CT, dominated by two modalities, CT and SPECT, are accelerating. And that is pretty evident by new product introductions that are happening in the market over the last five or six years. And certainly, we are seeing the acceleration of new product introduction utilizing CZT, that has happened even in last year. So let me talk a little bit about the SPECT market. So 2018 was the first product that GE introduced in the SPECT market with their 670 NM, and that was really the first, very first full-body imaging system or the mainstream imaging system with CZT that was introduced.
And since then, both GE and Spectrum Dynamics, with whom we have a stated contract of $57 million, have continued to introduce new products throughout the last periods. And of course, last year, the enablement contract with Siemens is, of course, for SPECT. So pretty much majority of the market has now stated their interest and demonstrated through product introduction that CZT is becoming more of a mainstream sort of detector, replacing the conventional detectors that exist in legacy systems today. So we have seen real tangible take-up of CZT through GE, through Spectrum Dynamics, and latterly through Siemens's enablement program in that market.
When I look at the, CT market, it is going through exactly the same kind of transition at the moment, although a couple of years behind the adoption, sort of, cycle of SPECT. So, Siemens Healthineers introduced NAEOTOM Alpha, the first photon-counting system with two, you know, CZT-based detectors. That was back in 2023, and then expanded their portfolio, over the following year. And now last year, just, just in 2025, three other companies, including Canon, has, come out with, either soft product launch or really new product introduction in the market with CZT in the CT, in their CT systems, photon counting CT systems. So we are seeing not only one company really introducing product, but a number of companies starting to introduce products.
And in this market, of course, we are working with, with everybody at the moment who does not have access to an internal supply chain, so like Siemens Healthineers and CT does have. So, so we look at this market as a total market opportunity by 2030 of about roughly $400 million of CZT requirements by 2030. $80 million-$85 million of that is required in the spec, and about $320 million required in the CT market. Now, we have access to about 40% of that $400 million CZT requirement by 2030 in these two markets that we can supply into. And as the only independent commercial supplier of CZT, we have a pretty good strategic position to really capitalize on that, on that demand that is coming through.
So, where we are today to where the market would be in 2030, which is roughly requirements of $300 million-$400 million of CZT, with us having access to about 40% of that market, we are seeing a real opportunity that will enable us to grow pretty aggressively over that period. And that's where we have set that medium-term target of £60 million revenue with a 30% EBITDA during our Capital Markets Day last year. So what we can say here is that we are working with all our customers.
Our customers are either really accelerating their products and getting better market share, like Spectrum Dynamics, with Siemens Healthineers in the SPECT market, and our stated customer that we announced, the tier one customer in 2023 in the CT market, and also the other players that we are working with. We are going to see continuous introduction of new products, continuing that journey of adoption of CZT in this market here on. So it's not a question of if, it's a question of how fast in terms of CZT adoption.
So hopefully we would be able to come back to the market on a regular basis over the next few years to provide a more clearer picture in terms of as and when products are launched, as and when that ramp-up happens, as and when we are expanding in these markets. So I understand the challenge, I understand the information gap that some shareholders are feeling in terms of where we are today to how we are going to achieve that growth. But we will be looking at every possible ways of conveying and addressing that in that information gap that we understand investors feel we have.
These conversations are important, and we'll be continuing to have that so that we can paint a picture, we can articulate, we can frame the opportunities, and we'll be continuing to do so going forward.
Fantastic. Thank you, Arnab. The next question has two parts to it. The first one being: how much spare CZT production capacity does Kromek currently have left to service new tier one OEMs without requiring significant fresh CapEx? Second part: How does the board view Kromek's role in the ongoing consolidation of the medical imaging supply chain? Is the priority to remain independent?
Look, I think the capacity question is a very relevant question. If you recall, back in 2019, when we announced the Spectrum Dynamics contract, we actually invested GBP 10 million in expanding capacity. So today we run 174 CZT production furnaces, that's our total stated capacity. We don't, of course, run at 100%, you know, utilization of that at the moment, but we so we do have some spare capacity to start to service some of the early contracts that you know during the ramp-up, the early phase of the ramp-up of the contracts we already have from new customers, such as the supply contract we have with Siemens Healthineers on top of the enablement contract we have, which was a $37.5 million.
The contract, which is, we announced in April 2023, where, which had a sort of a development phase and then a commercial phase, we are rapidly approaching that commercial phase, so we'll be able to start serving some of that contract with the capacity we have got. But if I go back to my numbers of that 40% of a $400 million market requirement in 2030, we will have to go through a pretty, you know, steep expansion of capacity. But we have made it very clear, and we have demonstrated within the structure of the Siemens contract, that as we need capacity to facilitate and supply into this market, we wouldn't be stressing our balance sheet or asking our shareholders to really fund that.
The CapEx will be structured within supply contracts, such that the funding actually comes through that supply contract, rather than us having to bear the burden of the CapEx that is required. So I say these numbers, and so to get to, you know, that market demand, we would be looking at between 8 and 10 folds increase in furnace numbers over the foreseeable future and over the next medium term. So it is a significant expansion, but we also have a plan of how to fund that growth, both from a working capital needs through debt and the revolving credit facility that Claire has put in place, but also in the CapEx form of within the supply contracts, how we are structured.
To answer the second part of the question in the consolidation in the medical imaging, I mean, we have seen that this market has acquired. If you go back to 2008, GE acquired Orbotech, which currently is their internal source of supply for their SPECT detectors of CZT. Acrorad was the Japanese company, was acquired by Siemens in 2010, 2011. That really is a primary source for CT detectors, photon counting CT detectors for Siemens Healthineers, but at the same time, Siemens licensed technology from us for their SPECT detectors, which are two subtly different flavors of CZT. And then Canon acquired Redlen in 2021. So this has been a market which has been acquisitive, and we have remained independent in that.
We have remained a player where we are able to serve 40% of the market and go through a tremendous growth phase. And our focus is very much to serve that market as an independent listed business in the U.K., and grow and capitalize on that significant market need that is articulated and visible to us in the current year, in the future years. And that growth ramp will be actually reasonably, you know, going on for the next 10 years as the market reaches maturity in terms of adoption of CZT. So we have got a long way to grow. We have got... You know, we can build a really, really interesting and long-term growth business in Kromek here in this particular market segment alone.
Fantastic. Thank you. Next question is: administration costs at circa 50% seems high. What is the breakdown of these costs? The company has done well to achieve the Siemens contract and other potential areas going forward.
Okay, well, first and foremost, admin costs, I believe, are about right for the future growth of the business. As we grow and as the revenues grow, the administration costs will not grow in line with that growth. We're at a stage now where we are fully focusing on value from our overheads, making sure we've got the right overheads in place to sustain the growth. Within that, we've got a lot of valuable people. We've got, well, the majority is people, I think, as we go forward. The business is well placed to grow. What I'm not going to do at this stage is cut those admin costs any further. I think they're at an appropriate level. But as we grow the revenue, those admin costs as a percentage of revenue will start coming down.
Thank you, Claire. Next question we've got here is: It is great to consistently hear about progress, but over the five-year period, the share price is down. Why is that?
Thanks for the question. Of course, five years back, we had the whole world went through COVID, and that affected large number of businesses, overwhelmingly large number of businesses in U.K. and around the globe, and we were no exception. So we had a pretty difficult time around COVID. But what we have continued to do through that period is really focus on the areas that matters, focus on development of CZT, winning those customer contracts, getting embedded within their customer supply chain, within the CT and the SPECT market, and that's what is coming through in 2023, the tier one contract, the 2025, the enablement contract with Siemens. So we have continuously developed that business.
On the other side, we have developed significantly under the CBRN side as well, as we have won very important framework contracts within the UK Home Office frameworks, within our relationship with Department of Defense , our relationship and the contracts with Department of Energy, and our presence in Ukraine is a testament of how we have continuously built building, you know, building blocks as we have gone through that last four years. As a business and as a management team, we are focused on building the business. We achieved profitability. We delivered profitability. We said we are going to grow sustainably in a profitable way over the next years, and we are focused on delivering that.
It is also pleasing to say that, see that the share price has moved in the right direction, and over the last six months or so, it certainly has moved up. But as we say, there's a tremendous growth opportunity on a profitable basis for this company in the coming periods and years, and we will continue to execute, and hopefully, the market will provide, you know, recognize that value and deliver value to our shareholders.
Thank you very much. The next question is on dividend. When will the board look to a dividend?
Look, we are a technology company, and as our stated strategy, we... Part of our stated strategy on top of the mainstream strategy of really focusing on organic growth and delivering organic growth on both our AI side and on the CBRN side. We also have stated that we would look at bolt-on M&As, but all those bolt-on M&As will have to be done based on, you know, on a self-funded basis. And so as and when we have got spare cash and capacity on the balance sheet, I think we will invest in building the business and building the value within the business, and that's where our money is going to be focused in the foreseeable future.
Thank you. The next question, they note, "I'm a non-scientist. Does CZT ever lose its potency?
Interesting question. I don't know what exactly the potency bit mean, but I'm guessing the question is about what's the expected lifespan of a CZT detector. A CZT detector is a room temperature semiconductor, which doesn't degrade with time, particularly. It's a very stable detector, and that is one of the advantages of Siemens' CZT detector. A robust, solid detection system, works at room temperature, unlike what is there now. But the general life expectancy of a medical scanner, where our detectors go into, is roughly between 7 and 10 years. So the replacement cycle is roughly 7-10 years.
So we serve that market, and so effectively you can say the, you know, expected useful life of our detectors is roughly in that order of magnitude.
Thank you very much. Next question we've got here is, "We have recently seen significant investment from high-profile city veterans on the open market. While the management recently exercised options, we haven't seen an open market purchase from the executive board in some time. Once the current closed period ends following these results, should shareholders expect to see the board's personal skin in the game increase to reflect the inflection point you have described?
Well, I'll start with this one, as it does involve Dr. Basu kind of directly here. I think first and foremost, as most of you know, I joined the company in May this year. The executive directors on the board have never taken any money. They've never sold any shares in this business. They have been diluted over time, but they've never sold any shares. In terms of share investment, Dr. Basu exercised some options, I think as the question refers to last year, but also the exec team at the time were both entitled to cash bonuses, and the execs remaining in the business both invested those in options over shares. That's beneficial to the business because it retains cash in the business.
They could have taken cash and gone out into the open market, but this twofold, it keeping the money in the business, kind of is beneficial. And then the other announcement that we did, around the time of the AGM, that both the executives and the non-executive directors who took wage increases, took those in options as well. So they didn't actually take the cash benefit. So I think as an outsider coming in and new, the executive board and non-executive board are putting the skin in the game and investing in the business alongside other shareholders. I don't know if you've got anything else to add there.
Just to add again, I mean, you know, this is primarily about executives rather than non-execs, but if you go back, there's been investments from the non-execs and shares buying by the non-execs and on a reasonably regular basis. Execs have also bought shares in pretty much every fundraising that has happened. So I and whoever, you know, the other execs at that time has purchased shares. So yeah, I mean, there is an ongoing commitment. You know, I've been in this business for 23 years and as Claire rightly points out, I have never sold a share, but we have continuously put money where our mouths are, so.
Perfect. Thank you. Moving on to another question we've got here. "Kromek has transitioned from a cash-burning, R&D-led business to a profitable, licensing-heavy model in H1. How should investors think about the long-term balance between high-margin licensing, scalable product sales, and internally funded R&D as the business matures?
That's a great question. And it's kind of very reflective of allows me to explain how the business is moving forward. We completed the Siemens enablement contract, which was a $37.5 million licensing contract. That revenue is going to get recognized over the four years of the contract. The majority of that recognition happened in the first year, financial year 2025, which was $20.5 million, about GBP 16.5 million. We've recognized about $11 million, GBP 8.3 million in the first half. From here on out, I expect that licensing revenue to be spread relatively equally up to the end of those four years for the balance.
As that tails off, the underlying business will grow in line, market expectations are set very carefully as we work out, and as that licensing revenue tails off, the underlying business grows. I think the growth prospects of the advanced imaging business is very, very strong. I think there's still growth prospects of the CBRN business to go through as well. The business overall, we don't disclose margins at the individual division levels, but on a balance, historically, our gross margin is about 55%. So I think we've got a healthy business to go forward as both segments of the business going forward. I don't know if you've got anything to add to that.
No, not really. I mean, it is going to be a product-led business. The licensing revenue has given us a bridge from where we were in 2024 to where we are today.
Yeah.
But ultimately, that underlying business is growing, and that will continue its growth journey. As I said, in the medium term, when you look at the, just the advanced imaging segment opportunities, that alone is sufficient to really drive that growth on a profitable basis going forward, so.
Thank you. Changing topics here, airports across the world are installing luggage scanners, including Heathrow recently. Are you supplying any of these, as you have mentioned, the scanner product before?
Look, we are working with baggage screening companies, multiple baggage screening companies. We cannot confirm or we don't disclose where our technology goes into. But we, you know, that although that's a very rapidly changing market, our overwhelming focus at the moment is capitalizing on the medical imaging market, where we have got a very good, firm strategic position on the supply chain in the SPECT and CT. So our growth, sort of, strategy is not based on the luggage screening or the baggage screening market. Our growth strategy is firmly footed in the medical imaging markets, which is sustainable, predictable, month-on-month growth over the next 10 years.
Fantastic. Thank you, Arnab. Next question here. Over the years, Kromek has required additional capital raises that have diluted existing private shareholders. Is Kromek now at a point where you are cash generative, negating the need for future share raises and dilution?
Yeah. I, I mean, I think we've been very clear about this. Yes, the business has raised money in the markets historically. There is no intention to do further capital raises. We've got debt facilities in place. We are talking with customers around structuring of contracts as we go. The M&A will be structured in a way that allows us to grow over time on a managed basis, but there is no intention to come back to the market and dilute shareholders further.
Thank you. Next question: If the addressable SPECT and CT markets total GBP 400 million, how much is Canon, GE, and Spectrum? How much for Kromek? What is the competition in the remaining market?
So firstly, by 2030, the CZT requirement, it's not the end market, but the CZT detector market, is $400 million. So, and we have, as I said, we have got access to 40% of that market. The remainder would be supplied through internal supply chain, through the acquisitions that Canon made, through the acquisition that Siemens made, and then through the acquisition of GE HealthCare. So we'll have roughly access to about $120 million, and again, that $120 million, Sorry, $120 million-$160 million is actually a market where we're not competing with anybody. It's because we are the only independent player of CZT, who can commercially supply that product in the market.
So, it's a big growth market for us. We have got a, internationally, where globally, we have got a very strong position, and as the market grows, that'll be reflected on the business itself.
Fantastic. Thank you. Next question on production: Do you have plans to move production to the United States?
We already produce in United States and in the UK, so we have got two manufacturing facility, one where we are sitting today in the northeast of England and the other in just outside Pittsburgh in Pennsylvania. So we have got a production footprint on both sides of the Atlantic.
Thank you. Sticking to the U.S., given the higher valuation of tech companies in the U.S., have you considered listing on a U.S. exchange?
Look, I think the very short term, mid, and medium-term plan is to be where we are. We understand the valuation challenges that we have faced in the past. I think we need to build scale. We will be demonstrating the profitable growth paths, and as we scale, we will continue to explore opportunities, you know, which will be aimed at, you know, returning shareholder value and creating shareholder value. So but at the moment, we are firmly an AIM-listed company, and we have absolute, you know, commitment to grow as an AIM-listed company in the UK.
Thank you, Arnab. Next question here. I'm worried that Kromek has given away its intellectual capital to Siemens. Will it continue to trade with them?
Look, if I just take a step back in terms of the structure of that deal with Siemens. So Siemens has got a non-exclusive license to produce CZT for use in SPECT only, and the SPECT of the two markets, SPECT and CT, SPECT is the smaller of the two markets. So, as I said, the total detector requirement in 2030 in SPECT would be about $85 million. In CT, it would be $320 million by then, and CT at an earlier stages of adoption at that point. So yes, we have licensed our technology, and we'll be teaching Siemens to produce CZT as good as we will, you know, we do. But I don't think that means that we have given away our IP.
We got significant value in return, and we also have a supply contract with Siemens, at least for the next four years, and we hope that that supply contract is going to extend beyond that four years, supplying products to Siemens for SPECT.
Thank you. Maybe a couple more questions. How material will be the sales of biodetection consumables be?
Great question. So, we haven't talked about biodetection a lot, but we are developing a unique capability with funding from the US government, initially from DARPA and now from CWMD, Department of Homeland Security, and with the US government agency and several contracts from the UK MOD. So we have attracted a significant amount of funding to develop a pathogen detection system, which doesn't rely on having a targeted, you know, one targeted pathogen or three targeted pathogen that you're looking for. This is a agnostic system where we are able to detect any pathogen present in a sample, and that is very important. That's a unique capability globally. This is a portable system.
This is, you know, this is going through the rigors of customer testing, and because the two customers on both sides of the Atlantic are the main customers who are paying for the development for their use, and that use then goes beyond those two customers, and it is... So it's a global opportunity. And the business model, as you have rightly pointed out, is a consumable-driven business model. So we sell equipment, which is the base, and but every time you do a test, that is, you know, we earn, we get revenue out of consumables and usables. So it is a consumable-driven business model.
Thank you very much. Next question: You mentioned last year and repeated GBP 60 million turnover in medium, in medium term. Is medium term now one year shorter?
No, medium term is medium term. Generally, you know, you're looking at medium term between 3 and 5 years. If we look at it, we are kind of aiming towards that 2030. That's, that's how we define that. That's medium term.
Understood. Thank you. And Arnab, Claire, perhaps one more question here. If there is no competition in the remaining 40% medical market, what is the scope for price and margin increases?
It is a great question. Let me have a swing at it to start off with. The medical imaging market has got very. It's a very well-established market for SPECT and CT. So, you know, if you look at the CT market stratification, you're going from the premium CT to midsection CT to a value CT, and similarly, in SPECT, it's digital SPECT and then lower functionality SPECT. It is important to understand that the adoption of technology that is happening is not happening just because, you know, it's vastly superior. It's happening because it's vastly superior in terms of detection capability and the diagnostic capability and the clinical benefit it brings, but also it brings at a commercially viable price point.
So because these are not niche markets, these are absolutely mainstream medical imaging markets. So when we talk about price and margin, there are established price points or price brackets within these medical imaging segments. And it is absolutely crucial that the end user are able to live within that price segment of, say, premier CT or mid-section CT. So that what the detection system or the sensor prices needs to be are well established for a very long time. The adoption rates and the timing of adoption are based on two things. One is the technology being ready, absolutely crucial and fundamental. But secondly, the technology is deliverable at the right price point.
So the margin question comes from operational efficiency, from yield improvement, from all the things that we need to do internally to really get to improve the margin year on year. And that is exactly where the money is being spent at the moment. When you see the R&D money being spent, it is being spent in exactly those things so that the future margins are better, future margins are sustainable because we know what the price needs to be in this market for this market to expand very rapidly and have that complete conversion from current detection system to the photon-counting detection system or the digital SPECT that is happening. And that train is, you know, that trend is already in sight.
That's great. Well, look, you have covered a lot of ground there, guys, and thank you for addressing those questions from investors today. And of course, the company can have your questions submitted today, and we will publish those responses on the InvestorMeet Company platform. But Arnab, before I redirect investors to provide you with their feedback, which is particularly important to the company, could I please just ask you for some closing comments to wrap up?
I just see another question pop up. Is that correct, Alex? I'd rather-
Yeah, go ahead, go ahead.
Could you read out the question?
Yeah. Yeah, of course.
Okay.
I wonder if you could give us,
Okay.
Sorry, so let's just move that. I wonder if you could give us some insight into the shareholder roster. Who is Graeme Speirs, and do you know his intentions?
We know Graeme Speirs very well. He has been one of the most supportive shareholders of this company. So his first investment was made in 2005, and since then, he has invested in every fundraising, private or post-market, and during IPO. So and he Graham, Graeme is an entrepreneur, a businessman himself, and he also, through his company, Polymer Holdings, provided the sort of debt when we needed the debt, pre Siemens Healthineers enablement contract. So he's a very stable, supportive, solid investor and shareholder that we have got, who has been through the entire journey of Kromek, or a very significant part of the journey with Kromek, and we expect him to remain on board as a stable shareholder.
Thank you very much for listening, and I hope our answers, Claire, and my answers gave you a little bit more insight into the business, business, where we are, what the growth potentials are. And we hope to update you as and when there is things to update, and we'll be catching up again on a regular basis in the general Q&A sessions during results. Thank you very much.
Thank you.
Fantastic. Arnab, Claire, thank you very much indeed for updating investors today. Could I please ask investors now to close this session, as you'll now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations. This will only take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team of Kromek Group plc, we would like to thank you for attending today's meeting, and good afternoon to you all.