Kromek : Final Results

14 July 2021

Kromek Group plc

("Kromek" or the "Group")

Final Results

Kromek (AIM: KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, announces its final results for the year ended 30 April 2021.

Financial Summary

• Revenue of £10.4m (2020: £13.1m)
• Gross margin was 48.4% (2020: 47.3%)
• Adjusted EBITDA* loss of £1.7m (2020: £0.4m loss)
• Loss before tax was £6.3m (2020: £18.3m loss)
• Cash and cash equivalents at 30 April 2021 were £15.6m (30 April 2020: £9.4m)

*Adjusted EBITDA is defined as earnings before interest, taxation, depreciation, amortisation, exceptional items, early settlement discounts and share-based payments. For further details, see the Financial Review below.

Operational Summary

• Resumption of orders and shipments across all segments in final two months of the first half, following the impact of COVID-19, with increased commercial activity in the second half, resulting in revenue for H2 2021 being 26% higher than H1 2021
• Medical imaging segment returned to growth trajectory in the second half of the year

1. Ramp up in delivery under medical imaging contract expected to be worth $58.1m as the customer began installing its scanner in multiple countries

1. Received a $600,000 order from an OEM customer for detectors to be used in niche SPECT applications

• 1. Progressed development programme for ultra-low dose MBI technology and entered the new area of improving outcomes from cancer surgery
• Continuing commercial traction and development of nuclear security products, with sales in Europe, the US and Asia
• 1. Expansion of global footprint with sales commencing in 9 new countries and engagement of 9 new distributors

1. Continued to supply products to government agencies in the US and UK; the Irish Civil Defence;

and the European Commission

1. Completion of development project with the Defense Threat Reduction Agency ("DTRA"), an

agency of the US Department of Defense, for a ruggedised small form factor nuclear radiation detector for military applications

• 1. Launch of next-generation D3 PRD and D5 RIID high-performance radiation detectors
• 24 new customers won in the civil nuclear segment and widening interest for drone-based radiation mapping system, including sales to the civil emergency services sector
• Significant progress in fast-growingbio-security market

o	Awarded $5.2m contract extension in the year and a further $6m post period by
	the Defense Advanced Research Projects Agency ("DARPA"), an agency of the US Department
	of Defense, to advance the development of a mobile wide-areabio-security system capable of
	detecting and identifying airborne pathogens

• Commenced field trials in an airport and, post period, in schools, airports and other locations of an airborne COVID-19 detection system under a £1.25m project with funding from Innovate UK
• Received first commercial order from security screening OEM customer that achieved highest level of European liquid explosive detection certification for cabin baggage for its scanner
• Continued improvement in CZT manufacturing processes in the UK and US facilities, including introduction of further process automation
• 3 new patents were filed and 10 were granted during the year

Dr Arnab Basu, CEO of Kromek, said: "Against a backdrop of significant global uncertainty, Kromek has emerged from the 2021 financial year in a stronger position than when we entered. While the disruption across our markets in the early part of the year impacted our sales, our revenue for the second half was 26% above the first half, with the strong momentum continuing post year end. In particular, we are seeing continued traction in the medical imaging segment as our customers increasingly roll out their products incorporating our technology. We are extremely encouraged by the results that we are receiving from the piloting of our biological-

threat detection solution. We also believe that we are well-positioned to benefit from the increase in government defence and security spending globally, including in the UK, as evidenced by our announcement today of the receipt of our first major order for our D5 RIID.

As a result, and with excellent visibility over full year forecasts, we are on track to deliver our highest ever annual revenue for the full year to 30 April 2022, representing significant growth over 2021. Consequently, and combined with the successful fundraising completed in the year under review, we are well-placed to capitalise on the substantial opportunities across our business and the Board continues to look to the future with increased confidence."

This announcement contains inside information.

For further information, please contact:

Kromek Group plc

Arnab Basu, CEO[phone] Paul Farquhar, CFO

Cenkos Securities plc (Nominated Adviser and Broker)

Camilla Hume/Giles Balleny (NOMAD)[phone] Julian Morse (Sales)

Luther Pendragon Ltd (Financial PR)

Harry Chathli[phone] Claire Norbury

Analyst Presentation

Arnab Basu, CEO, and Paul Farquhar, CFO, will be hosting a presentation for analysts and investors at 9.30am BST today via webinar. To register to participate, please contact [e-mail] Luther Pendragon.

About Kromek Group plc

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

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

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

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

Currently, the Group has over 150 full-time employees across its global operations. Further information on Kromek Group is available at www.kromek.com and https://twitter.com/kromekgroup.

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Operational Review

During a period of significant global uncertainty, Kromek emerged from the year to 30 April 2021 in a stronger position than when it entered. Whilst disruption across the Group's markets at the beginning of the year, due to COVID-19, had a detrimental impact on full year revenue the Board was pleased to note that from the end of the first half and through the second half, normal trading patterns increasingly resumed with progress being made with all of the Group's business units delivering on previously awarded contracts and winning new orders and customers. As a result, and combined with the contribution from the Group's bio-security development projects, revenue for the second half was 26% above H1 2021, with the strong momentum continuing post year end. In addition, the Group successfully maintained tight cost control, took action to support cash flow and the balance sheet was significantly strengthened with a fundraise of £13m (net funds received after costs of £12.2m). Consequently, the Board believes that Kromek exited the year better positioned to capitalise on the significant opportunities across the business.

Medical Imaging

In recent years, leading OEMs in medical imaging have been increasingly adopting CZT detector platforms as the enabling technology for their product roadmaps. CZT detector platforms enable OEMs to significantly improve the quality of imaging, which leads to earlier and more reliable diagnosis of diseases such as cancer. Kromek's CZT detector solutions are increasingly being adopted for single photon emission computed tomography ("SPECT"), molecular breast imaging ("MBI") and bone mineral densitometry ("BMD") applications. These are key target areas for future growth as they address diseases particularly associated with an ageing population such as cancer, Parkinson's, cardiovascular illnesses and osteoporosis.

While the outbreak of COVID-19 necessitated a temporary redirection of resources in healthcare settings away from routine scans and elective surgeries, shipments of the Group's detector modules for medical imaging began to resume from the final two months of the first half and business patterns started to normalise. This momentum was sustained through the second half as customers increasingly rolled out their high-performance medical imaging products based on Kromek technology. In particular, in the second half of the year the Group received an order, worth $600,000, from an existing OEM customer for the supply of detectors to be used in niche SPECT applications. Kromek commenced delivery during the period and this will be completed by the end of this calendar year.

Kromek continued to work with its significant OEM customer that in H2 2019 awarded the Group a contract expected to be worth a minimum of $58.1m over an approximately seven-year period. The customer began installing its medical imaging scanners in multiple countries towards the end of the first half, with installation ramping up in the second half of the year. Delivery to this customer of the Group's CZT detectors and associated advanced electronics has continued to increase post year end and the Group has full visibility over this contract for the remainder of the current financial year.

The Group progressed the development of an ultra-low dose MBI technology based on CZT-based SPECT detectors under its project with partners in the Newcastle-upon-Tyne Hospitals NHS Foundation Trust in the UK and an OEM partner. This technology can significantly improve the early detection of breast cancer in women with dense breast tissues, which is particularly prevalent among younger women. The project entered the prototype, build and validation stage following a successful proof-of-feasibility for the target reduction of dose and scan time.

This year Kromek also entered a new area of medical application for its CZT-based detectors: improving patient outcomes from cancer surgery. In partnership with Adaptix Ltd and the University of Manchester, the Group is developing a new system that will distinguish between healthy and non-healthy tissue, enabling surgeons to confidently remove the minimum amount of healthy tissue and reducing the risks of multiple surgeries and of the cancer spreading. The system is being developed under a three-year programme with funding from Innovate UK.

Nuclear Detection

In nuclear detection, Kromek's nuclear security platforms - D3S and newly launched D5 - consist of a family of products designed to cater for the varying demands of homeland security and defence markets. In particular, the D3S platform is widely deployed as a networked solution to protect cities, buildings or critical infrastructure against the threat of use of 'nuclear dirty bombs' by terrorists. Defence and security spending is on the rise around the world and Kromek's products meet a demand for technology-led solutions to some of the most pressing global security challenges. In November 2020, for example, the UK Government announced a £329m spend programme on radiation and nuclear detectors over the next four years and an increase of £24.1bn in

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defence spending over the same period as part of the biggest programme of investment in British defence since the end of the Cold War. In the nuclear markets, Kromek's portfolio also includes a range of high-resolution detectors and measurement systems used for civil nuclear applications, primarily in nuclear power plants and research.

Nuclear Security

The Group expanded its commercial footprint with the D3S platform now having been sold in over 26 countries, and during the year 9 new distributors were appointed across 9 countries. In addition, new online platforms were developed for product training and support activities for nuclear detector products, which allowed the Group to support its customers globally at a time when travel was restricted.

During 2021, the Group signed contracts and received orders across the US, Europe and Asia for its nuclear security products, reflecting the global nature of demand. This included gaining a new government agency customer in the US for the Group's D3S-ID product. Kromek also received and delivered a repeat order from an existing US-based customer, worth $150,000, for the supply of specialised CZT detectors for a nuclear security application.

In Europe, the Group was awarded two contract extensions by a UK government-related company to provide network solutions of its D3S-related technologies. The contract extensions, worth a total of £460,000 and delivered during the year, are a further step towards providing a full wide-area system rollout for this customer to protect critical infrastructure and public spaces. The Group also supplied further products to the Irish Civil Defence Agency and received orders from the European Commission's Directorate-General for Migration and Home Affairs for its D3S Drone radiation detectors.

Kromek was awarded a significant contract in Asia, worth a minimum of $960,000 over the approximate four- year term of the project for both nuclear security and civil nuclear applications. The first phase is to customise the Group's CZT detector platform for integration into a new radiation detection product that will be available in Asia. The Group will receive $260,000 for this development work, which is due to be completed by the end of this calendar year. Kromek will then supply the customised platform under a three-year contract, worth a minimum of $700,000.

During the year, Kromek completed the delivery of a project with the US Defense Threat Reduction Agency, an agency of the US Department of Defense, to build out the technicality of the D3S platform to develop a next- generation, ruggedised small form factor device for use in the military field. By using advanced detector materials, the device will generate higher resolution detection and superior localisation and identification of radioactive material for use by the US military in combat environments. This resulted in the development of the D5 product range, which expands the Group's portfolio to encompass devices specifically designed for more challenging use cases and harsh environments.

Kromek launched two new nuclear security products this year: the D3 PRD and the D5 RIID, with orders received from government agencies in the US and UK for these products. The D3 PRD is an all-in-one,high-accuracy personal radiation detector ("PRD") for first responders, armed forces, border security and CBRNE experts. This product meets a growing market demand for a standalone gamma-only device, while offering market-leading dose accuracy, speed to alarm and an ultra-low false positive number. The D5 RIID, the world's smallest high- performance radioisotope identification device ("RIID"), is a ruggedised device, with ultra-low false alarm rate that is designed for military, homeland security and industrial use. The D5 RIID is the first device to be launched in the new D5 product range and the Group was honoured that it was a winner at the R&D 100 Awards, held by R&D Magazine. In addition, post period, as also announced today, we have received our first major order for the D5 RIID, which is from our UK government-related customer.

Civil Nuclear

In the civil nuclear segment, the pipeline of enquiries and orders remained robust throughout the year. Kromek won 24 new customers and continued to win repeat business from existing customers. As noted above, the Group was awarded a significant contract in Asia, worth a minimum of $960,000, which is for both nuclear security and civil nuclear applications. Following a successful online product demonstration of its drone-based radiation mapping system, the Group has also seen widening interest for this product from a range of new sectors, including sales to a company operating in the civil emergency services sector.

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Security Screening

In security screening, Kromek provides OEM and government customers with components and systems for cabin and hold luggage scanning as well as industrial applications. In travel settings, Kromek's technologies enable customers to meet the high-performance standards they require, and as demanded by regulatory bodies, to ensure passenger safety while increasing the convenience and efficiency of the security process.

There was a slowdown in security screening activity during the year as a result of the impact of the COVID-19 pandemic on the travel industry. However, the Group continued to make some progress in this segment. In particular, the Group received its first commercial order, and subsequent follow up orders, from an OEM customer whose next-generation scanner, based on Kromek technologies, achieved the highest level of European liquid explosive detection certification for cabin baggage. The Group also expanded its customer base, receiving orders for CZT modules to be designed into an advanced baggage screening system of a new US-based customer.

In its development work, Kromek completed, post period, a two-year $1.6m development project funded by the US Department of Homeland Security for a CZT detector platform for threat resolution for hold baggage, hand baggage and cargo screening systems. The Group expects commercial adoption and integration of this platform in multiple commercial advanced baggage screening products.

In security screening for industrial applications, the Group secured a development agreement, worth up to $660,000, with a US-based,sector-leading OEM with a global customer base. This contract was for the customisation of one of its CZT detector platforms for incorporation into the customer's systems for identifying contaminations during production processes. Delivery of this programme was completed post period, and the Group expects it to transition to a multi-year supply contract in due course. In addition, post period, as also announced today, the Group was awarded a $250,000 repeat order from a US-based customer that is a global leader in aerospace and defence technologies and which has incorporated Kromek detectors into its system that is used for ammunition scanning.

Biological-Threat Detection

The outbreak of COVID-19 has exposed the world to the severity of biological threats and their potential impact on public health and the global economy, demonstrating the need to rapidly evolve bio-security systems and associated technologies. Kromek had already commenced development work on a biological-threat detection solution prior to the outbreak of the pandemic and significantly progressed its activities in this market during the year. This development has continued post period.

Since H2 2019, Kromek has been working with the Defense Advanced Research Projects Agency ("DARPA"), an agency of the US Department of Defense, to develop a biological threat detection system that senses, analyses and identifies airborne pathogens under a programme that was established to combat bioterrorism. This activity was accelerated during the year and Kromek was awarded a contract extension worth up to $5.2m.

Over the past two years, milestones achieved under this DARPA programme have included the development of a vehicle-mountedbiological-threat identifier that can be deployed as a mobile wide-areabio-surveillance system. Post period, the Group received a $6m contract from DAPRA for the next phase of the programme that will seek to deliver a completely automated wide spectrum airborne pathogen detection system that is fully mobile and runs autonomously. This system is being designed to be networkable and provide wide-area monitoring capability in near real time.

With the onset of the pandemic, Kromek also focused on the development of its technology for applications specifically related to COVID-19 detection. This included working under a programme funded by Innovate UK to customise the Group's biological threat-detection solution to support end-use cases for COVID-19 detection and mitigation, and to then undergo piloting with those user groups. The Group engaged with potential customers for the system to develop deployment models and identify how it can best fit their needs ahead of customisation. In the second half of the year, the Group commenced piloting the system for the detection of airborne COVID-19 at an airport. Post period, the piloting has been expanded to include schools, a second airport, being Teesside International Airport, and other locations. The Group has also engaged in validation of the technology in third party laboratories and the results are very positive on both the detection levels, sensitivity and false alarm rates, making the technology performance comparable to existing RT PCR test protocols.

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