There are a multitude of reasons why companies tap investors for money. However, to us the most productive use of fresh capital is to enable businesses to satisfy unprecedented demand in their core areas of expertise. Exactly the situation that Kromek finds itself. Here, the D3S is already the de facto standard for ‘dirty bomb’ detection, whilst in medical imaging, a secular upgrade cycle (re CZT replacing scintillated materials) has already kicked off, augmented by the need for OEMs to respond to GE’s first mover advantage. Hence at today’s General Meeting, Kromek concluded it’s (previously announced) £20m placing & £1m open offer - issuing 84.0m new shares at 25p, and enlarging the equity base by 24.7% to 344.6m.
The funds will be invested in tried & tested technology, underpinned by multi-year contracts and an approx. $100m orderbook. Most of these deals were secured thanks to its proprietary technology, strong customer-centric ethos and long term commitment. A marvellous position to be in. The only slight headache ongoing forward, being able to simply make enough of these innovative products to meet requirements.
All told, the £21m (£19.9m net post fees) has been ear-marked to:
- expand capacity at its healthcare grade manufacturing facility in Pittsburgh (US), along with freeing up working capital to support record growth in medical imaging (£10m).
- enhance overall sales & marketing capability – eg for D3S ‘dirty bomb’ detectors (£3m-£4m).
- further bolster the balance sheet to take advantage of future opportunities as they arise (£6m-£7m). We estimate net cash (excl the notional capitalisation of IFRS16 leases) will close Apr’19 at £19.1m (vs £2.1m Oct’18).
Encouragingly too, a number of esteemed institutional investors (eg Miton £5m, 20.1% stake) participated in the fund raise, along with 4 Directors, including the Chairman and CFO.
Chairman Sir Peter Williams, adding “Over the last 3 fiscal years we have won contracts totalling $138m across all of our core sectors – reflecting the conversion of our expanding pipeline and customers increasingly launching next-generation CZTbased products. With the growing demand for our flagship products in all our market segments, this fundraise has strengthened our ability to capitalise on these substantial opportunities.”
Finally, from a risk perspective we understand that the buoyant orderbook provides approx. 89% and 72% revenue cover for this year and next.