Kromek Group (LSE:KMK) — Final results Q&A Session

0:01 Good afternoon, ladies and gentlemen, and welcome to the KROMEK GROUP PLC final results investor q and a session. Throughout this recorded meeting, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish those responses where it's appropriate to do so on the Investor Meet company platform. Before we begin, we would just like to submit the following poll. And if you give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from KROMEK GROUP PLC. Arnab, good afternoon, sir. Very good afternoon. Thank you for that. I'm I'm Arnab Basu, just for a quick introduction, CEO of KROMEK, and I've got Claire Burgess. I'm the CFO.

0:52 Thank you very much. I hope you have seen the presentation that was put on last week following our results announcement last Tuesday. So I'll straight go into the q and a, and I will read out the questions. And then either I'll answer it or I'll hand it over to Claire as appropriate. So so the first question, have you sold your IP too cheaply to Siemens? Can you elaborate on the Siemens deal? I'll handle that question. Look. Siemens was a transformational deal for us. That enablement deal and and I'll go back go into the little detail on the structure of of the individual components within the overall deal that we did with Siemens. But Siemens enabled us to transform the business from where we were to where we are today.

1:46 We we our revenues grew. We became profitable, and ultimately, we were able to transform the balance sheet, made it into a very you know, we cleared off all our debts. So it was a it was a it was a pivotal moment for the business itself. Now in terms of the value, we address two markets in in in the medical imaging space where this deal was actually done for. One is CT, and the other is SPECT. SPECT is a nuclear medicine modality, and CT is, of course, a very common modality for for diagnostic imaging. Now SPECT is a smaller of the market than CT. As as we quantify our addressable market in this, CT is about 15 times larger than SPECT. So so that Siemens deal was constructed for licensing our IP for Siemens to use to manufacture CZT for use in the SPECT market, which is the smaller of the two markets. And and when you look at the actual value of the deal, the $37,500,000, that that was the sort of deal value for the enablement and the IP licensing.

3:01 At that time, that was pretty much the market cap of the of the company itself. So so in terms of the value, I think I think we we we got a very good value for for what we did in that particular enablement deal. And, of course, we when you look at the overall structure of the deal, there is a third component to it on top of the IP licensing and the enablement is is the supply contract. So there is a supply contract which where we will be supplying CZT detectors to Siemens for their use for at least four year period for which we are contracted to at the moment. My expectation would be that may extend beyond that four year period. So three clear elements to the deal. The enablement and the IP licensing were $37,500,000 Over a four year period, we have received $25,000,000 in cash payment at the point of signature.

4:00 Then we received a second payment for the second milestone of $5,000,000, and then there is another $7,500,000 to get over the next, two years. And the revenue recognition, of course, doesn't follow the cash, but, that was elaborated in our presentation. So on on in terms of the overall structure of the deal, what we will get, not only from the enablement piece, but also from the supply contract, we believe this was a very, very good good deal for the business and and and the and the shareholders. So but also, it demonstrated a very key important piece. What we have built over the last twenty years or so in terms of IP, in terms of capability, in terms of our our our products, we showed an ability to monetize that IP through the Siemens deal. And that's an important milestone, I think, for the business itself on top of the financial milestones that this deal helped us to deliver as well.

5:02 I'll move on to the next question. Is there another deal to be had that's similar to the Siemens deal? I'll take that as well. The Siemens deal doesn't preclude us because it is a nonexclusive IP and enablement deal. So it doesn't preclude us in in doing similar deal in the market. We will, you know, we we will we will we will be evaluating where what the market you know, where where the market is going. And as we have articulated within our strategy, the the bigger of the two markets, the CT market, is where we are going to put a lot of effort in capturing that market. We already have the tier one contract in that market in place. We are working with number of companies in in the CT market while we are supplying into the spec market into Spectrum Dynamics. So it remains open, and we will evaluate as we go through.

5:59 But but the Siemens deal, of course, doesn't preclude us from doing a similar deal to to that. The third question, the biological threat detection system has been in development for quite some time now. What can we see when can we see the commercialization of these systems, and is there a real market for them? Thank you for for this question. Rightly, we haven't really talked about the biological, security part of the business a lot over the last, few years. Now just taking a step back where it all started, we we finished a very successful program with DARPA in 2018, The US part of the US Department of Defense, which is the innovation agency of US Department of Defense, where we supply 10,000 detectors to which today are active in New York City, which is which is the main security system or or information system against against nuclear threats.

7:06 At that point, DARPA moved that program on to add a biological and a chemical detection capability on network basis to have information or to prevent nuclear, chemical, and biological terrorism. So the nuclear part of completed in 2018, and the biological and the chemical part of the program started. We won the biological program in in those days simply because of our track record of what we did in the radiological program with DARPA. So it started on on a $1,000,000 contract over the following three years. That contract enabled us to get to certain milestones, and about $10,000,000 total contract was awarded under the DARPA program. And now today, we have two programs that are running in in the business. One is with The UK government agency, which is a £5,000,000 program, and the other was a follow on program from US Department of Homeland Security, DHS, which was a $6,000,000 program.

8:11 Now the both those programs are developing specific products for the user group that are funding us to develop those. The UK government program is a development, but also a product delivery program. So what we are going to develop and what we have developed, we are going to supply certain units into the US government agency, not for evaluation or trials, but for real field use, real deployment. And and that program is coming to an end, around middle of calendar twenty twenty six or early fiscal twenty twenty seven, and that's where the commercialization journey begins. Because when you look at the revenue model of of of this particular business, it is a little bit like printed cartridge model. So we supply a base unit, and and then each time a a sample is analyzed for presence to understand the presence of viruses or bacteria, you you know, there is a disposable cartridge almost, which is which is where the testing is done. And each time they you know, you have to buy a new one or or one it's a one time test for each of the cartridge.

9:31 Now how we are different, the technology that we are developing under this program is is very simple. You know, today, if we if you are looking for something, a specific item, be it a particular virus or bacteria, you can do PCR test. Like, if you're doing for COVID, you can buy a home home kit or do a PCR test. But or even if you're looking for two or three things in in in in in conjunction, you can you can look at multiplex PCRs. But the but the use case that these product you know, what we are developing is where you don't have any knowledge of what is there in the air or the water sample. So you're you don't have any prior knowledge. It can be a novel virus. It can be a novel bacteria. It can be an unknown virus or a mutated virus. So we are using the DNA and RNA sequencing technology, which means you don't have to be doing a targeted analysis, but it's a full broad spectrum. So if you encounter a sample in the field where you have got no prior knowledge of what you're looking for, it enables you to do that. And in the in The US program context, where, you you know, this is being done to monitor cities and and and the environment both for bioterrorism, but also of emergence of of newer novel bacteria or viruses.

10:48 This is again with no prime knowledge, so you need to know everything that is there. And so we are developing a globally unique capability that is going into commercialization middle of next year with a very, very attractive business model. So so, yes, we haven't talked about biology very much, but all this IP, all these products, all these technology has been developed in a completely self funded manner where we have not invested any shareholder funds to develop this, but has been paid for by our end customers. And those end customers are the start of the commercialization program because they are quite large customers in the sector we are operating in. Hopefully, that answers your question on that one. I think it's it's also quite important to say that although the shareholders haven't funded the development, the benefit of the revenue coming out of the development will come back to shareholders.

11:44 Absolutely. Absolutely. The next question is, are your sales teams seeing more CVR and inquiries from NATO countries country members as defense budgets rise? Let me let me answer that as well. Look. The defense budgets are rising, and and and we talk about the megatrends. So if you look at the megatrends within the CVRN, I don't have to tell you that that the world's you know, the number of conflicts around the world are increasing. And and and, you know, increasing in areas where there are nuclear capable countries, And and and nuclear material is freely available, like in The Middle East or in the India Pakistan region or in the in in in in Taiwan, China region or the Korean Peninsula or or anywhere else.

12:42 And that actually puts a real the threat level, from nuclear incidents or accidents or even dirty bomb, terrorism accident, incidents. The threat level is is definitely higher, much higher than any time before, and we are seeing that. So and that is really what is driving the spend, not only just in the nuclear detection capability or biodetection capability, but the overall defense spending, of course, is going up. Even our UK's strategic defense review talks about the threat from nuclear as one of the major threats, which which is which which you have I'm I'm sure you have picked up. So, yes, we are seeing more traction. Our core markets of UK and The US are are paying dividends as we have won the key contracts in The U UK last year, which was the framework contract with the UK home office, the UK MOD placing the, you know, the contract for the mainstream use of d five into into into our UK armed forces, which is now the chosen radiation detector, the blue light framework contract, which we won last year as well. So in on top of the IDIQ contracts we have got with the US DOE and and the and and various other agencies in The UK in The US. So the core UK and US markets, we have got structural contracts in place, which will enable us to grow in that market.

14:09 But, of course, we are seeing increasing activity in this whole area from from NATO countries, but also from other parts of the world. And to capture that, we appointed our our strategy and commercial director, which is Michael Stevenson, who joined us from from Johnson and Johnson earlier this year heading sales and marketing activity within the CBRN segment of KROMEK, and and he has got an extent he's ex you know, he's reviewing, expanding his sales team, and we are starting to see the pipeline developing. And and we already have a pipeline which is about £300,000,000, as we indicated in the presentation, mainly from UK and The US through through programs that are visible. But we have also made early sales in a lot of countries where the increased sales force is going to enable us to expand the sales opportunities within those countries and and drive growth within this sector.

15:20 The next question is profit guidance issued last Friday seemed very positive. Crucial to KROMEK's future results will be its gross margin on other revenue, excluding Siemens Healthineers. Assuming that those other revenues rise, does the KROMEK does the company believe that it can also increase its gross margin? Claire, I'll let you answer this one. Thank you. So absolutely, the the underlying business, it's critical to the growth of of KROMEK as we move forward. The Siemens revenue will be recognized over a number of years. So this year, we have £16,500,000.

16:05 Next year, as in financial year '26, I expect that to be around £9,000,000. And then in the third and fourth year, that amount will reduce. But the revenue of the underlying business in that time, revenue from the Siemens supply contracts, but lots of other contracts that we've got ongoing at the moment will then start to rise. So we don't ever expect to see a dip in revenue as we move forward. We expect to grow, and our midterm forecast that we shared at Capital Market Day will continue. In terms of gross profit margin, that's a really, really important question because this year, our gross profit margin was 81%. Last year, it was 55%. 55 across the two businesses with the product mix we've got is about right. I don't share the absolute gross profit for each of the divisions, and that's for a very strong reason. We want to make sure that we're protecting our customers, suppliers, and shareholders by not divulging that specific information.

17:07 But the underlying gross margins of each of the businesses are staying consistent, and I expect those to stay consistent or grow as we move into the future. CBRN is a little bit more of a mature market in terms of we've got that settled on the advanced imaging as we grow and we grow the volumes. I expect that gross margin to start to increase over time. Thank you. I think the next question is for you as well, Claire. It's why have you arranged a RCF if you are now profitable? Okay. So, RCF, for those of you that don't know, I'm sure most of you do, is a revolving credit facility. So we've negotiated a £6,000,000 revolving credit facility committed for a three year period with HSBC on on particularly favorable terms.

17:58 The company is forecasting to be grow to be profitable as we move forward, and absolutely, we will do that. That will be cash generative, but we have a lot of large contracts. And particularly on the advanced imaging side of the business, there's quite a lot of working capital involved. So as we grow and we go through those cycles, the working capital flows, even though it's going up in a in a trajectory, that revolving credit facility will allow us to manage the cash flows on a short term basis within the business. It's a revolving credit facility because it will go up and then it will come down, and we will manage that over the the next three years. We've set out now to make sure that the business is firmly underpinned for the next foreseeable future and that we are not going to be coming back to shareholders to ask for additional funds.

18:47 Thank you, Claire. The next question is, what experience have you had in doing M and A? When are you likely to do your first m and a? Let me take that. I think this question stems from, you know, we we clearly stated our strategy during our Capital Markets Day where we we stated that our clear focus will be on organic growth, capturing the, you know, the very large CT market, where CZT is is being adopted and that structural change from black and white CT into photon counting CT is happening, and we are right right right in the middle of that change that is going on. So that is going to be a key focus within the organic growth. And the second is expanding our footprint within the CBRN business where we are investing in sales and marketing, building that pipeline, and everything that we talked about.

19:42 Now on top, we we we have articulated that where we see opportunities, in CBRN business, we are going to do bolt on M and As, but in a very disciplined manner. And though that discipline applies to both the criteria of the companies that we would be looking at for M and A, but also the fiscal rules that we have established for debt ceilings and and so on and so forth, which we articulated in the in the in the presentation again. Now we actually have done two very successful m and a's in the past of of the two of our US businesses we acquired in 2010 and 2013. We identified, particularly the one that we did in 2013 of EV products.

20:30 At that time, KROMEK and EV products were of very similar size. So we identified. We, did the acquisitions at a at a very, good in in a in a very good deal, and then integrated, you know, nurtured those businesses and and and ultimately created value. And the Siemens deal is a demonstration of how we have extracted value out of, you know, out of an m and a that we, actually did, which added to what KROMEK already had. So so, yes, we have got some experience in doing it. We have got experience in identifying, executing, you know, integrating, and and ultimately nurturing and creating value. So the current targets will be smaller to start off with because these will be really bolt on. These will be profitable companies either addressing gaps in our product portfolio or in the CBRN segment or really giving us access to market. So, look, we we see deals you know, we we get visibility of of of opportunities coming across our desk quite regularly, and we have seen that for the, you know, for the last so many years.

21:50 But but we are going to look at those much more seriously now, and and there are plenty of opportunities in this segment where we can do really, really good quality m and a's, which can be good for the shareholder shareholders and the value of the business itself. But we can't give you exact timings when the first one will be executed. The next question, why is your share price so low? I have lost so much money after buying your shares. Look. This is quite an important question, and I and I think it's it's absolutely right to say that, you know, we we are doing everything to ensure that the business is on the right path, and and we are executing on the strategy that we have articulated.

22:45 We have seen some positive reaction to the share price, of course, post results, but there is we believe there's a long way to go. As as as a management of the business and and and, of course, the board of directors, we are very keenly focused on creating shareholder value. And and and what we can do and what you can expect from us is to deliver on the strategy that we have articulated, profitable, sustainable growth with a very clear midterm target that we have articulated in our Capital Markets Day. So so we are on the right track. As I say, for from growth point of view, we have demonstrated how that how we are going to deliver that growth, and we'll be continuously executing. And, hopefully, we are gonna come back to the market on a regular basis to update you how we are doing on that journey and keep you updated. So so we believe that the share you know, that effort and and that execution will be recognized by by the market, and and the share price will follow.

23:54 I've got the next question is, sorry, I was late. So if these questions have been asked, in the latest r and s, we suggest that the Siemens deals impacted the sales cycle of other opportunities. Is this the case going forward, or are we now positioned to Provision. Provisioned so pipelines are not mutually exclusive? It's a great question. Thank you. It's what actually happened in the Siemens deal is is is reasonably simple to understand, I think. You know, it's a very small sort of when when we look at the AI market, the advanced imaging market for us, the medical imaging, we the customer base is extremely concentrated.

24:39 So it's a pretty small community of you know, there are four tier one players in Western tier one players in that market and a handful of tier two players. So when we were embarking on that journey towards towards that enablement, IP licensing, the market, the industrial market, our customer segment was all aware that there was something going on. Of course, we couldn't update the the the share you know, the the stock market and our shareholders. But what it meant was there was a lot of nervousness among our customer base of what is gonna happen to their supply chain. Because the type of deal we were constructing constructing was was not very clear, of course, because that that was between us and and and the other party.

25:26 So everybody kind of took a step back and and took a pause for a period of time. But we saw a very strong rebound post post the Siemens deal. We saw a very strong rebound in second half, which will continue in in in in the in the first half of this year. So we are it's it's you know, that that bit is over. So the market has got clarity in what we are doing. It's done. The deal is a nonexclusive deal, which means we are able to supply to everybody. We are able to license even if we wanted to. So so I I I don't think that will affect pipeline or revenues going forward. I think it's it's a second question from from this.

26:15 So the house broker forecast show reversion to small revenues over the next couple of years. Yet I have a belief there are more Siemens style orders out there, and why can we not factor than that into the house broker estimates? You can Great question. And I I I completely agree. There are other opportunities out there. I think what we need to be clear about is from here on out, we will be putting forecast upgrades out once we have things and they're in the bag. I'm not gonna put speculative forecasts out if a deal isn't done. The forecast market expectations as they stand there completely, completely stand behind.

27:05 As the Siemens revenue comes off, the underlying business continues to grow. Are there other opportunities out there that we haven't got baked into the forecast? Absolutely. There are opportunities. And as those opportunities solidify, we will then start to share them with you, and we will then present an upgrade to those numbers. The next question, working capital still seems problematic. Continuing bad debt provisions stop over one year's turnover. So, working capital, I think, in any business is always a challenge. I wouldn't say it's problematic as such. Yes. I've take I've taken the opportunity. I've taken a a one off bad debt provision. That isn't a reflection of the the customers per se. It's my reflection of the markets that they're in and things that are changing and budgets budgets that are changing more than anything else.

28:00 It's a one off. I don't anticipate it happening again, and it's done. I think now is the right time to do it. Let me just go back up to the question. Stock. So stock stock is transient. Stock stock, we are growing particularly on the advanced imaging side. We're growing the business. There's WIP as it moves through the CBRN business. There were some kind stocking up for for contracts that were won that were coming down. I think as we move forward, you will start to see those stock numbers start I don't think you will start to see those stock numbers starting to decrease as we move forward. But what let me just caveat that in that the advanced imaging has a very long working capital cycle. So actually, from an advanced imaging standpoint, if as we grow, that that there is a stock increase. So when you're looking at the stock as particularly on the advanced imaging side, you need to review it as a function of revenue as well as that business is growing. So as a percentage, it will come down.

29:13 After stating the Chinese issues, it'd quickly and easily be reversed. Nothing has happened. Is the stock are fully written off? So I might need This is the next predating you. There's there's there's quite a lot of predating me. I joined for those of you that don't know, I I joined the business in May and took over as CFO on the June 1. So the the the Chinese business is ongoing. We continue to have good relationship with our Chinese counterparts. The there is some stock that is continuing to to go out to them. I think And we we yes. I mean, you know, this this write off is for products that actually are very usable, and and it's being used for the same purpose.

30:06 And it is actually getting recovered, but slower than what we expected. So, again, this is not really something that's you know, in the balance sheet, of course, it's written off. You know? But but we we we are recovering as we're going forward, and there are there are products being made out of this. So in the mid to long term, this will this will remain a very good opportunity for from from a business point of view. So The next question, Siemens Healthineers, what is the timeline for the remaining Siemens Healthineers payment, and how will these funds be used profitably?

30:52 You want to answer this? Yeah. So so the the remainder of the $7,500,000 that's due, I've I've said in the r and s, I've tried to leave some crumbs for you. So we've got another 2,500,000 that will be coming next year, and then the following the final 5,000,000 will come the year after. And the other part of that question is It keeps moving. Sorry. It's good. And how will the funds be used? So the funds will be invested back into the business. They may contribute towards the the m and a. They may contribute towards the working capital need to minimize the drawing on the RCF. It will be used to to basically maximize the return on the business and make sure that we can, drive as as higher return to shareholders as possible.

31:45 Profitability. What are the main risks to maintaining profitability after your first annual profit? I think I think we've got a clear path to profitability. I think with having large contracts, timing is always a factor and always will be a factor in any business that has, large contracts. So making sure that those timings are coming from an overhead standpoint. We're keeping a very, very tight handle on our overheads. We're not overspending. I've got a I've got a very clear path to make sure that we maintain a profitable business moving forward. We're not jumping into things. We're not jumping ahead in any way, shape, or form. We've got very strict kind of fiscal rules that we are going to stick to to make sure that that profitability, stays there within the business.

32:53 Government contracts. Can you clarify the expected values and delivery schedule for the new UK government framework contract? I can answer that. Yes. So the government framework contract, I think the one that you're referring to is the eighty four million dollar framework contract that was awarded earlier this last year for under the home office RN RN network contract. So the 84,000,000 is for three different categories of products for which we qualified, and we are selected as vendors, alongside a handful of other vendors. So so we you have to be prequalified. And we we already announced the first win under one of the framework one of the, items, which was a 1,700,000, pound, sort of tender, which we won, and we are in the process of delivering at the moment.

33:52 We expect that contracts will start to come in reasonable sizes in an increasing manner. It's it's a typical of government spending in terms of starting small and then then, you know, as as the contract goes through, they they start to spend more. It's it's of course, that framework contract is over four years, so we expect the revenue whatever revenue to to that we win to actually be over four years. And we we we have all always stated that we don't expect to win 100% of that revenue, but we expect to win a healthy portion of of that $84,000,000 £84,000,000 spend that is planned and and frameworked under that contract. So we have what we have in KROMEK at the moment, and and I think this is what what Claire was mentioning too, that we have got a lot of structural elements of how we are going to grow, like the framework contract under which we expect to win.

34:48 Because in some cases, you know, we have got the best offering. Some of the cases, we, you know, we, you know, we are we are the incumbents on on on some of these expansion programs that are happening. So we have got a we we will win a healthy portion of that contract, but giving time timings is diff difficult. But that is how we have constructed our forecast so that we take some of these timing risks out of the forecasting sort of regime at the moment. So CBRN detection. Are there plans to expand your CBRN detection business internationally? Very much so. We if you if you refer back to the slide in the presentation, one number that we quote is the number of countries we have sold our CBRN products into.

35:43 Now our two key markets where majority of our big revenues at at the moment coming from are UK and The US, and, of course, Ukraine has been a driver within within within our business. But what we have done in these international markets have actually made early sales to, you know, to key customer bases. And and and I mentioned in an earlier answer that we have expanded our you know, we have brought new leadership within our sales and marketing area within CBRN. The team is expanding within that, and and we are going to continue to, you know, work very hard to develop some of these early sales into pipeline tangible pipelines which we can convert and grow. But in the very short term, we are not expecting massive growth in these international markets. Our short term growth is very much will be driven by what we already have in the bag in in The UK, in The US, in IDIQ.

36:42 And these international markets, as and when they mature into serious revenues, we are generating reasonable revenues. But serious revenues, these will be bolt ons, and that's what's going to drive our mid to you know, midterm growth in this in this business. Biosecurity. What are the next steps for commercializing your biosecurity technology beyond government contracts? Look. At the moment, I think I touched on it. We have got two contracts. One of the contracts, The UK government contract, is a delivery development and delivery that goes into delivery, not for early evaluation, but real deployment and and use. And that is going to be start of the commercialization process with a very interesting revenue model, which is a recurring revenue model, and and and we expect that to expand.

37:31 We believe there is substantial opportunities beyond that stage within the government market in security and defense. But, of course, there are other application area in food security and and and and and and probably medical world. But our focus today remains very much in this security and defense, and also sort of monitoring of emerging threats, which in government terms, it still remains within cup in customer terms, it still remains within those government realms of large area monitoring for for monitoring emergence of new viruses or bacteria. So we see a very large opportunity within that. The commercialization process starts next year.

38:20 Advanced imaging, what are the main drivers for growth in your advanced imaging segments, and how do you differentiate from our competitors? Look. Advanced Imaging, we have a strategically very important position within the market. It's we are the only independent CZT supplier. There are three other suppliers which are embedded within large OEMs through which they were acquired as as their internal supply chain. Siemens acquired a company back in 2011 for their CT business. GE acquired a company for their nuclear medicine business in 2008, and Canon acquired Redland in 2021 for their mainly for their CT business. That leaves KROMEK as the only other independent player for for supplying to the rest of the market, including Siemens' spec spec business and and other OEMs.

39:12 So in this market, this is, you know, this is a long sort of process of getting qualified embedded, and we are, you know, we are already supplying commercially into Spectrum Dynamics, one of the tier two, where we have a $59,000,000 contract, and that's going well. We announced a tier one contract in CT back in 2020, two years back, and that goes we expect to get commercial. And we are, of course, going to have a supply contract with Siemens as part of the overall deal we did with Siemens earlier this year. So we are positioned extremely well. We have proven technology, which the enablement program demonstrated the value of that, where Siemens paid $37,500,000, similar to our market cap at that point, for licensing, for use of our technology in the smaller of the two markets we we we address.

40:06 So so we have a good position. We have an absolute laser focused strategy for growth, which is capturing, supplying into the spec market as we are doing and capturing that CT market where, again, we are structurally very well positioned with contracts and and and what we have in in there. So so, yes, we expect to grow in this market very, very well, and that growth is over a very long period of time sustainable because the product life cycle in this market is twenty plus years. So once you get into that supply chain, you are you are generally sole sole sourced or maybe dual sourced in in extreme cases. But you are there with that partner for a very long time to come, and you continuously supply into that into that with with a very good visible visibility of revenue.

40:53 The next part is shareholder value. Are there any plans for dividends, share buybacks, or any other measures to return value to shareholders? So I'll take that one. I think first and foremost, what we need to focus on is is driving shareholder value in whichever way is most appropriate at the time. So I think for the here and now, what we're focusing on is shareholder value, so we increase the share price, and we get that revenue. In terms of the long term, yes, we are we're considering different options as we go through to maximize shareholder value and maximize shareholder return depending on what's happened. Somebody's already mentioned, could there be another Siemens enablement type deal? Absolutely. They could.

41:43 Coming out of that, there may be one solution. If it's a growth on us on contracts, we we may do something else. But what what we want to make sure that we do do is we're working within the shareholder interest as a whole moving forward, and that we make sure the business has the resource to grow and drive that value forward for you. Does the company forecast to continue year on year profits? Short answer, yes. Yeah. Absolutely. The next question is AFAIK. AFAIK, I I don't know what that actually stands for. The result presentation isn't on the IMC website nor on not on KROMEK's website.

42:32 How can we access the slides and recording? As long as far as I am I understand. This is the results presentation along with the slides and we're presenting should be on the IMC website, and it was there since last week. Yeah. Friday, think. From Friday, I think. Maybe at the end, I am seeking Yes. We can we can we can clarify that. Each of the last two financial years, a substantial sum has been set aside for doubtful debts. Explain how that was this is possible given the status of your customers. Well, I I was only here for for this year, and and maybe you can talk to to the prior year.

43:23 This year, it was very much a reflection of geopolitical environment, customers, and budgets changing, and spend profiles moving for individual customers. The actual customers themselves were not putting bad and doubtful debts because somebody's gone into bankruptcy or liquidation from the prior year. I mean, prior year, think it was £100,000 was was the bad debt. This is this is relating to timing issues with some of some contracts which has taken longer from a customer's point of view to deliver. But these are mainly timing issues, and we expect do we expect some of these to unwind?

44:10 Yes. We do. You know, this this year this year, the very much the bad debt was timing issue, which we expect to unwind. So The deal with Siemens was great, but not an as big as some other acquisitions of your competitors in the health sector. Now do you see KROMEK continue to increase revenue in the health sector even though most of the big medical manufacturers already have captive capabilities now? The big difference the Siemens deal, of course, was not an acquisition. It was it was a use of our IP in a nonexclusive basis in SPECT. So one segment use of IP rather than acquisition, which allows us to do either similar deals or grow our revenue. Our core core strategy is is is very much to grow our revenue. We have very strong, you know, customer base in this. We, you know, we'll be supplying to Siemens post for, you know, as part of the overall deal. We have a tier one that we announced two years back, which will go get into supply within the foreseeable future.

45:26 But but also, we have got other customers in this market. So let me address a captive issue. I mean, Siemens, if if you looked at it before previous deal, Siemens Siemens had a CAT TEL manufacturing business that they bought in 2011, but their technology is really suited for their CT business. So they had to you know, they chose to do a deal with KROMEK to get access to materials and this technology for their CZT for their SPECT business. Similarly, apart from Canon, we expect we have got we we, you know, we we expect to have opportunities to supply or do similar deals with every other OEM that is present in the market today.

46:13 Because we have a full breadth of technology both for the CT side, which is X-ray based, and and SPECT side, which is gamma ray based. And and we expect to not only grow our revenues, but also have the option to do similar deals than Siemens. In terms of the quantum, I think we addressed this at the very first question that, you know, the quantum that was paid for this licensing deal was very similar to our market cap at that point. So we believe we this was a good deal for us, our shareholders, which has provided us a very solid foundation to really grow the business profitably. The next question, I attended this recent CMD and have followed the company and broker updates. You gave medium term target of $60,000,000 revenue and 30% EBITDA margin. There have been recent contract wins and appears to be momentum in the business. The revenue forecast in the broker reports seem to be increasing at a relatively slow pace, and EBITDA margin seems to be decreasing rather than increasing. Is this related to the Siemens contract payments? And separately, is it anticipated of a large jump up in revenues and margin in 2028, 2029?

47:29 And otherwise, the target seems unattainably high. I'd appreciate your thoughts and clarifications. Do you wanna take the first half of the Yeah. Margins, and then I'll I'll talk about the growth plans? Yeah. So absolutely. We still stand by £60,000,000 of revenue, 30% EBITDA margin. The the growth and when I say midterm, that's more that's five years. That's twenty, thirty. I'm not talking three years. The the way the business grows, particularly within within the advanced imaging, the the the the contract profile does show a ramp up as as we move forward, and those sales come online. We get more customers.

48:27 Those markets that we're looking at, that's not a speculative 60,000,000. We've got visibility and a flight path to that. Otherwise, we would not have told you those numbers. Sorry. I just got back to the question. So there was a the the first part of that question was the EBITDA coming down next year. So what was Yes. So that is so the Siemens revenue and and contract, obviously, we've been working twenty plus years to amass the IP and know how and knowledge to get the the the ability to license that IP. So the the margins coming down is is just really a a a reference to the product mix and the Siemens revenue, reducing.

49:14 The the the costs the underlying costs of the business at at are very disciplined, consistent moving forward, and the margins, gross margins within the other underlying business within advanced imaging and CBRN are also consistent or growing. So it's within this business, it's it's very important to not just look at the total numbers in isolation. We really need to look at the product mix that feeds into that. Just to add a couple of points on Claire's, you know, points that Claire made on the growth trajectory. The midterm targets, you know, in the very short term, over the next twelve to thirty six months as as our slides demonstrates, you know, we have got majority of the structural elements of of that growth captured within either the revenue that we are gonna generate through the framework, other either the, you know, Siemens as as the enablement contract revenue comes down, the Siemens supply contract is is going to start to start to kick in. We have got the tier one contract, which would be in its early revenue days in from, you know, within that period as well.

50:21 And, of course, the IDIQ and the framework contracts we have got in The US. So there is in the very short term, we don't have to win anything big to really deliver our numbers that are there. If you win big, of course, those could be additives. But in that medium term, there's a number of additional lines that opens up. Firstly, the biocommercialization starts within that period. Secondly, the tier one contract in the advanced imaging that happens, that goes into a reasonable ramp, as Claire rightly pointed out. The Siemens revenues continues. And and and, of course, there are other products that come in, you know, the pipeline that we showed in CBRN, which is the 300,000,000 plus pipeline today we have for known programs with a spend profile within that within that period of time. If we take all of those layers of business, existing what we have, the bolt ons that we are expecting on the bio and the and and the and the tier one ramping and and and the Siemens revenue coming through, we we have a very good flight path, as as Claire rightly points out, towards that medium term target.

51:29 Although the EBITDA, as the current number stands in next year compared to last year, comes down, but I think there is there is plenty of opportunities to actually grow very strongly even in even in the short to medium term and and improve profitability as as is there. Latest regulations require airports to allow change in X-ray imaging requirements where electronics and liquids need not to be taken out of the cabin bags. We haven't heard many wins in that area. Who are the competitors in that field? Look. We we have a stable customer base within that. So we are not you know, you're not hearing a lot of wins, but we are working with companies like Analogic. We are you know, we have a customer in The US, which remains unknown, unnamed, but but we supply into them, and and we have got other customers.

52:25 Aviation remains a small part of the business in the a v in the advanced imaging. Our main real big focus is in the medical imaging, inspect and CT, and majority of our drivers of growth are really in that medical imaging. Although aviation will form part of that overall revenue mix and growth mix, we you know, the biggest growth is going to be driven through what we have established delivering and are going to deliver within within the medical imaging segments. When going for CBRN bolt on m and a, what capabilities are you looking to acquire? Great question. We are not looking to acquire technology.

53:12 So we are looking to either acquire products which will fill our product portfolio gaps. Because if you look at radiation detection, there are multiple product categories. We make three of them. So there are other categories we can add on to. So so that's one. Or secondly, if we have enhanced access to markets and customers. So we are looking for profitable businesses to do to acquire, which gives us either product portfolio or better access to market, which accelerates our growth. The next question is how will Trump's tariffs impact? This is this is I I don't know whether you want to take it, whether it's, you know, tariffs between UK and US and and supply chain tariffs and all.

54:04 So tariffs very, very much in the news. In terms of moving forward, contracts will be plus tariffs. So those tariffs will get passed on to the end user. The next question, how much oops. Just jumping around. How much is KROMEK paying to its PR firms? Well That's that's an operational question. So I don't think it's particularly you know, we get we always evaluate contracts and and the value we get back. So I don't think that's really a answer we can provide in this forum.

55:02 But as what what I should say is with all all all suppliers, we benchmark, and we continue to to review. And we believe that all of our key suppliers give us very, very good value for what we're doing. Given the cash in hand and the revolving credit, why was interest due discharged in dilutive shares? That was agreed at the time the contracts were put in place, and the shares were due to be discharged or the the the interest payment was due to be discharged prior to the, arrangement of the RCF being in place and also part prior to the receipt of the, Siemens next tranche of money. And it we felt at the time it was the best solution for the business to return cash in the business. So these interests were basically for the periods of last year, last one year before repayment.

56:08 So so these were incurred before the Siemens deal was actually executed where when cash was, of course, tight and and the option for the loan holder was either to take the interest in cash or in shares. And the share the if we it were to be paid in shares, the calculation of the the price of the shares were calculated at the point when the interest were due. Due. Yeah. So although it was it was, you know, it was settled slightly after the Siemens deal, but the the period was actually prior to the Siemens deal where I think it was a right thing for us to do to pay in shares rather than paying cash. Recent incident at Heathrow Terminal with regard to a chemical gas leak seems to be an issue that could have been addressed using KROMEK solutions.

57:09 Is that correct? And are you in touch with Heathrow authorities? We don't do chemical detectors. So we are into radiation detection and going to be you know, we have got a emerging capability going commercial in biological detection. So so, no, we it wouldn't be in the relevant detectors to use. And in these type of situations in in which can be act of terrorism or particular incidents, it is the it is a you know, it it's it's led by the government, those investigations. Investigations. And and if you look at the home, you know, both the MOD contract and the UK home office contract under which we are, you know, we are delivering products, those are the kind of products which would be used in in incidents if it was to do with radiation.

57:59 So, yes, we are very much part of that solution, but the heat through incidents which was not relevant for what we do. Can you provide backlog as part of your financial reporting? Backlog should be PO backed? We we we try to be as transparent as we possibly can on contract. So we announce the size of the contract when we win. We can't disclose on a contract by contract basis because, obviously, we've got confidentiality to individual customers. And often, it's it's it's quite sensitive, we have to get approval from the the customer to make the announcement in the first place. We try to give you guidance in our presentations as to the pipeline and the the forecast that we've got in place.

58:58 Will I be doing a specific backlog based on POs? There's no plans to do that at this moment in time, but I'm always open to suggestions, and we'll take that question away and have a think about it. So traditionally, just to add on that, traditionally, what we have done and will continue to do is to provide the revenue visibility guidance in which is which is actually PO backed. And and so but it doesn't reflect the total backlog because our backlogs can be over several years in in that instance. But as we go forward, like we have done divisional reporting for the first time and given the market visibility, those are those are things that we will be, you know, put in place as and when appropriate.

59:48 Is there a plan to protect the company in event of serious illness or worse off top management? Yes. We do have critical critical illness covers and and and key key key man insurances. But most importantly, we have a team, which, you know, which is which has has got a second layer in the business as well. So there are there are people in the business who can fill gaps as and when required. So and so so, yeah, this is a continuous sort of thing that the board reviews in terms of key risks and and and we we keep an eye on.

1:00:38 But but it's it's also as as you have seen, as we go into the divisional reporting, Barry Beaumer, who is on the board, is is the president of that division. So, again, you know, the the way that business is being managed is in a devolved manner, and and we are similarly going to see the CBRN segment is also, you know, independently operating from a management point of view with its with its own commercial ahead and so on. And so so, yeah, all of that layering actually helps. But, of course, you know, this is an ongoing risk that we that we are continuously putting, you know, monitoring, and we we we have some things in place, but that's that's a con and that's done on a continuous monitoring p basis.

1:01:36 You have stated that doubtful debt provisions may relate to timing issues. Could that suggest that some sales are recognized too early as sales and return basis, in which case you should have a return provision be incepted? No. It's not sale and return. No. It's it's definitely not sale and return. I think there were some unique circumstances. That said, going forward, because of of things that that were were particularly unique that we didn't expect to happen. There have been some some changes within what we're doing and how we're going to do things going forward. So as I said before, this, provision will not be repeated. I think that answers all the questions. So thank you very much for your time.

1:02:21 Just to summarize, really, you know, this has been a pivotal year for KROMEK. You know, the Siemens deal has certainly, you know, been a been instrumental in in not only changing the financials of the business, but also demonstrating the value that we have created within our IP products and technologies, which has now got a demonstrable monetization, you know, track record. So the two markets we are in, the big growth drivers of, you know, better health care with a reduced cost through early detection where our our CZT technology plays in, or increased defense spends because of the threats of from conflicts that are emerging where our CBRN detectors putting the best capability in, with our war fighters and first responders.

1:03:11 We are very well aligned to those growth drivers in those business, in both segments. So what we do, what we produce is actually needed in the market. And that is why we are going to grow continuously on a profitable and a sustainable basis going forward and with a clear focus on building shareholder value. Thank you very much for attending. Thank you. Perfect. I'll now be clear if I may just jump back in there. Thank you very much indeed for updating investors this afternoon. Could I please ask investors not to close this session as you will now be redirected for the opportunity to provide your feedback in order the management team can only better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll 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 presentation.

1:04:00 That now concludes today's session. So good evening to you all.