Kromek Group plc (4KM.F) Earnings Call Transcript & Summary

Thank you all. I think that all the attendees have joined. Thank you all for joining. Welcome to Kromek's Interim Results call. My name is Harry Chathli and I'll be your moderator for the duration of the presentation. [Operator Instructions] Thanks to a large number of you who have taken the trouble to send questions in advance. I will be putting these questions to Arnab, the CEO; and Paul, the CFO, after they've made their presentation. [Operator Instructions] I now have the pleasure of handing over to Arnab to start the presentation.

Thank you, Harry, and good evening, everybody. Thanks for joining. It's a pleasure presenting to you our results. So we will get to Slide 3. So last -- this reporting half has been a continuation of the journey of growth for the business itself. And the business has grown -- continue to get traction from both sides of the segments that we serve, both in advanced imaging and in CBRN. And we'll be talking about those market segments in a much more detail. And as you have seen, we are focusing quite a lot on cost and profitability and gross margin, which Paul is going to talk to in a lot more detail. And we will be reporting EBITDA-positive full year and a record revenue for the year, which ending 30th of April 2024. So I'll hand you over to Paul who's going to take you through the numbers, and then I will be talking about the core markets and what we are doing, developments and opportunities in those markets.

Thank you, Arnab. Good evening, everyone. I'll start off with the financial headlines, and I'll come back to a number of these points in the later slides in the deck. So revenue increased 5% to GBP 7.1 million from the last half year. And importantly, we continue to deliver a high percentage of that as product sales. If I take you back a few years, there was an element of R&D revenue, which is reducing now as a percentage of total sales. Gross margin improved from 40% to 54% in the period. And that, together with focused cost control, has significantly reduced our loss before tax by over GBP 2 million to GBP 3.5 million. And also we were virtually EBITDA breakeven from a GBP 2.7 million EBITDA loss in the prior 6-month period. We ended the period with cash of GBP 3.7 million, and we've got very good visibility of our -- of market expected revenue for the current year. And I'll come back to each of those 2 points on later slides. So turning to the profit and loss account, and the focus is very much on improving bottom line profitability. And starting with gross margin, and that increased from 40.4% to over 54% in the current -- in the period that we're looking at. A few reasons for the increase in gross margin, one of which is some revenue and product mix. We enjoy currently a higher margin in our CBRN business than our advanced imaging. And I'll come back and say a bit more about the segmentation of our business in a minute. The high component costs that we saw in the last half year and the nonavailability of certain electronic components in the normal markets has eased significantly in the half year that we're reporting here. So that has contributed to a part of that increase in margin. And also, we're seeing margin improvements from efficiency, which reflects the benefit of the investments that we've been making, particularly in advanced imaging in recent times. Arnab mentioned briefly in his intro that -- about operating costs. We've driven quite a lot of cost out of our operating expense. You can see that there's been a reduction of GBP 1.8 million from GBP 8 million to GBP 6.2 million, and that will continue in the current half year and also into next fiscal year. So that tight cost control is an important part of our business. And just to address growth, we've got sufficient staff. We've got the operating cost that we need in the business. So in case there was any concern there, the reduction in cost won't have any impact on our planned growth going forward. Loss before tax significantly reduced because of that gross margin improvement and the tight cost control. Turning to the balance sheet. We continue to invest in tangible and intangible assets. For the latter, it's mainly capitalized development costs, and that was GBP 2.6 million in the period. And the largest part of that was GBP 1.6 million, represented by further investment in advanced imaging and particularly in medical imaging. And what -- and that spend is to improve capacity and throughput through our facilities both in the U.K., where we grow the CZT crystals in our fabrication plant in the U.S. Just some reminders on cash and liquidity. We completed in the period an GBP 8 million fundraise before expenses. And we also refinanced our debt facility, which was with HSBC Bank at the end of September with the new GBP 5.5 million 18-month secured term loan. And just as a reminder that we have convertible loan notes that were received in August 2022. And there was some reduction of those loan notes in September 2023 in the period that we're looking at by 15% conversion to equity from 3 of those noteholders. Turning to cash and just looking at the main movements in cash in the 6-month period to October. And reading this chart from left to right, in time, we started off the period with GBP 1.1 million of cash. We issued the shares in May, which is the GBP 7.8 million gross before expenses. Importantly, operating cash was positive in this period at GBP 700,000. And there was some cash outflows for working capital, GBP 2.3 million. This is really reflective of the timing of receivables and payables in the period. And moving over to the right, the investing piece of GBP 2.7 million, that's the investment in intangible assets and particularly in advanced imaging that I just spoke about. Financing costs were just under GBP 1 million. The largest part of that is interest on the term loan and accrued interest for the convertible loan notes. So we ended the period with GBP 3.7 million. And just as a point for the current half year, we anticipate cash being broadly neutral as we lead up to our April 30th year-end, and we expect to report cash of around about GBP 3.5 million at the end of the fiscal year. Turning to revenue visibility. And as you can see in this chart and the bar to the left-hand side is for the full business. And the 2 bars to the right-hand side are breaking that out between our 2 segments: advanced imaging and CBRN detection. First of all, looking at total revenue visibility. And with 3 months to go, exactly starting tomorrow, we have good visibility over 84% of market expected revenue of GBP 21 million for the current year. We segment our revenue visibility into 4 main buckets, the largest of which is contracted and shipped and that is, as it suggests, it's revenue that we've already recognized, plus orders that we have in hand which we are able to deliver in the period that we're looking at here, which is the year up to April 2024. We have a category which we term awarded not contracted. This is where the customer has placed the order with us, perhaps verbally or informally, and we're just completing legal documentation, if that's the case, and dotting i's and crossing t's on terms and conditions. We have a small element of run rate, which is repeat good [drumbeat] business. And then we have a gap, in this case, it's 16% with 3 months to go. And we expect to fill that up with known opportunities from our opportunity funnel. Just saying a little bit about the 2 segments of the business, so looking at the 2 bars to the right-hand side the chart here. Advanced imaging and CBRN detection are very different profiles. Advanced imaging comprises usually multiyear contracts. And as you would expect, we have a lot much higher visibility of revenue in the current year and going into next year as well with those contracts. So there's only a small 5% gap to meet our expected GBP 10.5 million of revenue from advanced imaging this year. So looking at CBRN detection on the far right-hand side chart. CBRN detection is a very different sell. Many customers, it's a tender business. So -- and the turnaround between receipt of order and shipping product and recognizing revenue is much shorter than in advanced imaging, but it also means that we generally have less visibility. In this case, we've got a gap of about GBP 2.5 million in order to make up the expected revenue in that segment. But we've got a very good opportunity funnel, as I mentioned. And in fact, we have one particular order of around GBP 2.5 million which we anticipate receiving in the coming weeks, which we'll be able to ship between now and the end of April.

Thank you, Paul. I will take you through the 2 different business segments, what they are and what the opportunities are and what we are doing and the progress over the last 6 months. So the advanced imaging, as many of you will know, you have seen this slide before, this is primarily medical imaging. We address this market through supplying OEM components CZT-based detector modules or CZT detectors into medical OEMs who are involved in making SPECT and CT. These are 2 diagnostic imaging modalities, very well established in the market, but going through a generational change from black and white SPECT -- analog SPECT into digital and color SPECT and from normal CT into photon counting spectroscopic CT. And we have a unique position in this market as being the only remaining commercial supplier of CZT technology in this market. The customer concentration is very high. So there is only X number of customers who are involved in manufacturing CT and SPECT system, primarily dominated by 4 Tier 1 OEM companies, which is Philips, Siemens, GE and Canon. And so the customer relationships in this market is very direct. We -- and it's pretty strategic in nature both from a customer's point of view but also from our side. So through this journey, we get designed into a system, we get qualified. At that point, we are -- basically, we enter into a longer-term contract. That could be anywhere between a 3- and a 7-year contract. But in reality, once you are designed in, you -- we are there in the supply chain for a much longer period of time. So if I look at the 2 markets that -- in SPECT and CT, which are the big growth markets coming through, these markets in totality is about $8 billion of end-user products and of which about 15% represents the detector components that we supply into that. And as you know, many of you that -- many of the OEMs have gone out and acquired and internalized their supply chain. In SPECT, Canon and GE has internal supply of CZT. And similarly, in CT, Canon, GE and Siemens has got an internal supply of detected material in this market. Remainder of the players, as you see in the box on the left, are our potential customers, are already our customers, in some cases, named and in some cases, not named in various [RMSs] that you have seen. The total market that is available for detectors from the customers on the left is between $400 million and $600 million once the conversion into the new generation of detection technology is complete within that group. And that commercialization, that adoption is well and truly on its -- it is maturing in the market. And this is the reason why -- what the external pointers are, why this is happening now. So if you look at the SPECT journey, you look at GE acquiring Orbotech in Israel back in 2008 and then finally launching their first product, the Discovery 670 product in 2018, followed by -- very shortly by Spectrum Dynamics, our customer launching VERITON CT/SPECT in 2019, of course, we win the $58 million contract in the same year. And then post-COVID period, which was really -- nothing happened in the COVID period, end of '21, '22, '23, 3 further product launches happens from GE and 2 from Spectrum Dynamics. So the market is active. The adoption of CZT is truly happening at scale at this point, and we expect to win further customers beyond Spectrum Dynamic in here and grow substantially in this business going forward in the coming periods. CT a couple of steps behind, but the journey is exactly the same. Siemens acquires Acrorad, the Japanese company making CADTEL in 2011; and finally, launches Naeotom Alpha in 2022, post COVID again; and then announces a major scale-up in detector manufacturing in Foirchheim of $80 million -- EUR 80 million investment in 2023. And of course, in 2021, as we all are aware, Canon acquires Redlen for 300 -- excess of $300 million. And in 2023, last year, we, of course, announced 2 major contracts in this segment from a Tier 1 OEM and also from Analogic as an end customer. So both in terms of M&A activity, investments in this market, but also new product introduction is happening rapidly and at scale at the moment. And we are strategically positioned very well to benefit from this adoption and scale-up in CZT. So what happens in the market -- in the segment over the last reporting period? So we, of course -- our customer engagement has remained very, very robust and strong. We ended the last fiscal year with 2 announcements, one with the Tier 1 OEM and the other with Analogic. And then we followed that up with another engagement with a CT OEM during the period and announced a number of other contracts. But our delivery on contracts are on track. So we are delivering to Spectrum Dynamics. We're delivering on our other sort of contracts that are in place in this market, which is in BMD, in breast imaging, in gamma probes, which are the other niche segments we serve in this market. And the business is moving and the supply capability is improving on a day-to-day basis. The contracts that we have in place, we indicated at the time that -- of winning the contracts, particularly with the Tier 1 OEM, Mark Brewer, the analyst from Cavendish, indicated that the -- there are 2 phases to this contract: one is the development phase and then goes into the supply phase. And he estimated that it's about 18 to 24 months of that development phase, beyond which it gets into the commercial phase of that contract. And we are pretty much online in that term. So the Spectrum contract is expanding. So we still have just over GBP 30 million to deliver over the next 4, 4.5 years. And we will be scaling this contract up on a month-by-month basis as we are moving forward. Of course, Spectrum also launched the VERITON 300 system, which is again a very important milestone within Spectrum's own journey. So the SPECT modality is being adopted, not only for fastest patient scan, better patient scan, but also for use in modalities like theranostics, whereby you can provide radio-guided therapy at the same time while you are imaging with drugs like lutetium for prostate cancer, which has just been approved last year both in Europe and in America by FDA. And CZT is really the way to make theranostic happens, and that is where GE is driving. That is where Spectrum is driving. And the next product launch plans from other customers are getting really, really solid and defined. So in this market, we feel very good for growth, and the growth is substantial and the growth is very getting closer on a monthly basis. And so we feel very good on a sustainable -- building a sustainable, profitable large business in the advanced imaging segment, as Paul points out. And the results of investment over the last few years are going to -- we are going to reap the benefit over the next 2 decades or so. CBRN detection, of course, is a completely different business. This is where we provide handheld radiation detectors for the security, homeland security, defense and civil nuclear markets. This market is -- the drivers are reasonably easy to understand. It's real security concerns and nation's perspective of risks of a nuclear accident event to happen so that they need to be prepared to have early warning or deal with the mitigation strategies post event or prevent an event, such as dirty bombs from a terrorists. So we have a strong customer base in here. But of course, the customer base is very -- completely distributed around the world. Unlike the advanced imaging business, where the customer base is highly concentrated, this customer base is much more distributed. So we do business here through distributors, partners in many, many different countries, some on global partnership basis. So we've got a branding deal -- dual branding deal with Mirion, for example. We announced a partnership with distribution partnership with Smiths Detection. And those all are really routes to address this distributed market around the globe. And the revenue is -- that is an element of recurring revenue, but also this is, as Paul rightly points out, this is a tender business. The pipeline is looking very good, but it is a tender business, which we delivered very shortly once we win a tender, and that is -- that will remain the case. So if we look at the market over the last year, the market is driven by the world we live in, the conflicts that we are seeing in Europe, in Middle East, in other parts of the world, developments on a daily basis where the rhetoric is getting worse and worse and the risk of a nuclear event is probably at the highest in our lifetime. So the spend plans, the actual spend is increasing in this market. So we have announced some contracts in this market over the reporting period and beyond and including one we did the last week, which is a GBP 1.4 million delivery contract to rescEU, which is a stockpiling effort going on in Europe. And we are going to see further contracts coming through in and around that conflict zone and in Europe as well. Our products are quite widely used in the market today. So it's used in America quite extensively. We have got major customers both in the government agencies but also in ports. We have got customers in the U.K. We -- a lot of the critical events uses our products in -- for security. We have got -- in Brussels, in European Commission, there's lots of use of our products, and it's quite extensively used. In Ukraine, every power plant is surrounded by our products and where we provide second-by-second data to the security state emergency services to monitor the situation here. The usage of these products are expanding. And if we look at the spend plans of nations, those are getting solidified and actually expanding. So we talked about, if you may remember from previous conversations, that there was a major spend plan in U.K. that was planned over the last 2 years. That is now intended. So currently, we are in active tenders or about to tender to about GBP 100 million worth of business. We are not going to probably win all of that, but we are going to certainly win a fair part of that. And as in some cases, we are incumbents in some of these tenders, which are expanding the use and application of our detectors. And when we look forward for -- look ahead for the next 4 years, the known opportunity in our critical -- in our key markets like U.K., U.S., some European markets and 1 or 2 Asian markets, we are looking at a tender opportunity of about GBP 300 million in excess in addition to the GBP 100 million that we are doing right now. We, of course, have sold our products in many, many countries as a country metric shows, but these -- a lot of them are early sales. These are not big sales, but a lot of them are early sales through our distributors, through our partners. And all of them are actually aimed towards seeding the usage of our product within those countries, working with the end users and ultimately leading into procurement in some of those countries, which will ultimately scale and increase the scope of the business. So again, we have got a solid base to grow from. This business is expanding. And as Paul points out, within the group, this is a profitable business. We know this is a high gross margin business, and we are going to continue to grow in this business in the coming periods and years. The biosecurity, this is the third piece of technology, which forms part of the CBRN segment. This is pre-product. This is a program-driven business, and we have got 2 active programs. This, of course, started by -- through a DARPA program back in end of 2018, early 2019. We developed this desktop lab-in-a-box technology, which was delivered to DARPA in early 2023 when the program finished. And that has led on to 2 contracts really: one is a follow-on contract from CWMD, which was a $5.9 million contract, where the CWMD DARPA program transitioned into the CWMD program, which is aimed at delivering a field-deployable system for the -- for use of -- by the U.S. government. So CWMD is a procurement and deployment agency of DHS, and they only fund products that -- or development of products that they aim to deploy in the United States. The other program is a GBP 4.9 million program that we announced in back end of 2022, and that is from a U.K. government agency. And this is, again, is aimed at development and then delivery of products to a particular group of users in the U.K., which will have a much wider user group once the product is there. So both of these programs are now aimed at very product-focused approach in these programs because they both are driven by end users rather than innovation agencies. And so we are going to start to see commercialization happening in this segment over the next 18 to 24 months in a serious manner. But just to reiterate the fact that this part of the business is a cash -- self-sufficient business from a cash point of view, running 2 programs at the same time. And so it is not in the drain towards our working capital in any shape or form. Just a quick touch on ESG. So we do quite a bit within the business. These are all business-driven. So we have a net-zero commitment by 2050. I'd like to touch on one particular program that we are running, which -- whereby we run 150 furnaces in the -- in our U.K. factory. We use electricity to heat the furnaces that creates heat, which then we use electricity to cool. So we are working with Durham University and Durham County Council to implement a technology whereby we can effectively capture that heat, store that heat in a manner that we can transport and reuse that heat in a different place. In this case, it will be in swimming pools. So this is a good thing to do from an environmental point of view, but also it directly affects the gross margin of our product because it reduces the energy cost of this crystal growth process within the advanced imaging business. So it is a win-win in every respect. So -- but also important is that as we go into government procurement programs, carbon-reduction plans are becoming important. And also the ESG piece is becoming important as a measurement of companies that are applying for tenders and so on. So we're doing this work, and we'll be reporting on that basis as well. Just to conclude, so we are -- we had a good first half. We are on track to report record revenue and EBITDA-positive for the current fiscal year. And that growth is underpinned by key growth drivers in the market: early detection of diseases, which leads to better patient outcome and reduction of overall cost of care; keeping people safe them against sort of nuclear incident, accident or an event in a world where the threat of a nuclear event is probably at the highest in the living memory really in our lifetime. So we have got 2 businesses which are underpinned by those growth drivers where we are highly aligned to what the market needs, and that is what is going to drive growth. And we are -- particularly in the advanced imaging business, we are at that inflection point of very large-scale growth in known opportunities with known customers. And that is what is going to drive the business forward on a sustainable basis, not only from the top line, but as Paul again reiterated, a tight cost control will mean that we are going to accelerate profitability in the business as we go forward. Thank you very much.

Thank you very much, Arnab. [Operator Instructions] I'm going to move to the questions. Quite a few people have submitted questions. I have grouped them up, and I'm going to take them through operational, financials and miscellaneous through so. And I've combined a couple of questions. If people have a question on several topics, I've chosen the best one of those ones. So the first question comes from Robin [Grimston] on operational. He asks, in October, Kromek was awarded a $59 million contract from the U.S. Department of Homeland Security for research and development of technologies, focusing on agent-agnostic biodetection systems. How significant is this contract in terms of leading to substantial market opportunities and sales in the biofield in U.S. and across the board?

I touched upon on that piece in my presentation, but let's go back in how the -- this technology came into Kromek. So this was a DARPA-funded program where we started a complete rounds-up sort of development of a fully automated DNA/RNA sequencing technology. So from sampling to uploading fully sequenced data onto a sort of web-based, cloud-based server to provide early warning capability. DARPA is an innovation agency, as many of you will know, and they fund really groundbreaking innovation. Now CWMD, which is the agency which funded this program, is an agency of Department of Homeland Security. CWMD stands for Countering Weapons of Mass Destruction, focused on security and safety of citizens inside the United States. They are a deployment in procurement and implementation agency. So they fund programs which U.S. government wants to deploy. And generally, CWMD-programmed outputs are procured. And they become what in U.S. they call program of records so that once you become a program of record, then there is a contracting vehicle that comes out automatically for procurement. So we are very encouraged that the DARPA program transitioned over to the CWMD part, which means the innovation part was taken up by an implementation sort of agency. So yes, absolutely, there will be a market and commercially viable product that is going to come out of this, and that will have usage way beyond the United States shores. And we are already working with biosecurity policymakers in the U.K. and in the U.S. So the cabinet office led by security strategy development that happened in the U.K., we were an important part of that strategy development piece together with the cabinet office and DNA sequencing-based surveillance system features very highly within those strategy documents. So the technology we are developing is absolutely right and sits central to policies that are getting developed in terms of biosecurity both in the U.K. and the U.S. and WHO actually. So...

Thank you, Arnab. Moving on to the -- in medical imaging, Kromek appears to have 4 contracts running: Spectrum Dynamics; the Tier 1 customers signed in April 2023; Analogics; and on the 7th November, we announced a blue-chip partner. So Robin asks, is this correct? How much turnover is Spectrum Dynamics generating for current financial year? When will the other contracts enter commercial sales? And he also asks, would additional contracts need to be run to fully address the addressable market of $400 million on medical imaging?

You're absolutely correct. Those are the 4 contracts that we announced over the last year or so. And of course, Spectrum Dynamics was announced in 2019. That was a $58 million contract. We have just over GBP 30 million to deliver in that contract. And we are very confident of that -- recognize that revenue and delivery within the specified period. So we -- to address the point of whether we have won all the customers in this segment. No, we haven't won all the customers or not announced contractual relationship with all the customers. We are working with all the customers that do not have an internal supply chain of CZT in this business of SPECT and CT. So we are working with all of them. And we have stated many times, sometimes we have announced these 3 in the last 8 or 9 months. And we will continue to win new customers. So the total addressable market that I referred to, there are more customer wins to come. We are getting designed into their system. Some of them are at very advanced stages and with very firm product launch plans, which I can't really share. But these are serious sort of large opportunities and large supply chain that we are getting embedded into.

Thanks, Arnab. And moving on to your question from Lance Johnson. Can you provide any detail on the sales pipeline and process? It seems that there is a trickle of smaller contract announcement from time to time. I wondered if there was anything larger in the pipeline.

Good question. I mean we do announce contracts as and when we win. Let me take the 2 questions -- 2 segments slightly differently. So in medical imaging, as I sort of alluded that it's a highly concentrated market. So we have won -- there are 2 or 3 Tier 1 contracts to be won in either SPECT or CT. We have already announced 1, and we will continue to work -- we are working towards getting to a point of finalizing supply contracts with others. And as they come through, we will come back and announce, of course. But we are at various stages with all of the remainder of the players in the market in -- to be embedded within their supply chain. So we will be...

Go ahead, Arnab.

So we will be -- the market -- I don't think there should be an expectation that there will be many, many contracts coming out in medical imaging. This takes time, but these are also long-term contracts that happen. So -- but there is a very substantial pipeline of deals that are coming through that pipeline at various stages. So we truly believe we will win all of the customers in those boxes, and we will do business with all of them given our relationship and the stage of work we are doing. So yes, there are some substantial stuff in the pipeline in the advanced imaging which are going to come out.

Thanks. Now let's go to the question from Kevin Gregory Days. Will there be an opportunity to incorporate the new AI advancement into the development of new or existing products?

Just to add to the previous questions answered on CBRN, we have announced a number of smaller contracts, and we will continue to announce a number of smaller contracts as they come through. But as I mentioned in my presentation, the pipeline is looking good. We are tendering in very large opportunities at the moment. And as and when they mature, we are going to come back. Coming back to AI. Look, Kromek has had AI and ML group in -- working actively on products since 2016, particularly in security products. So we have implemented AI- and ML-based technologies in a couple of our security products, which has gone through certification in certain markets. And they are embedded within third-party OEM systems. We also are implementing AI in a number of other areas, including biosecurity and also relatively recently in our medical imaging in conjunction with CZT. And so AI is going to play a big role. We will have some role to play within AI. And -- but our customers are going to bring a lot of innovation in AI, which we're leveraging the CZT technology and the output that we provide from our detection system. But we do have an active AI group within Kromek.

Brilliant. Thank you, Arnab. A question submitted just now by Gavin Bradley. What is Kromek competitive positioning in each of the product categories? Could you please summarize any key strengths and potential threats?

Again, let me take it in 2 parts. In advanced imaging, as we have pointed out a few times that there were 2 independent players in providing CZT in the markets at the moment. We remain the only -- after Canon's acquisition of Redlen, we remain the only independent player who is able to supply to -- without any constraints to the entire market, which is available to us, to companies which are not an embedded supply chain through acquisition. And the slide showed the number -- the companies that we have got access to in that supply chain. So in terms of competition, it's quite a unique position we are in, in the advanced imaging segment. So in the CBRN segment, it's slightly different. Of course, we play in a competitive field. Let me start off with our competitive advantage. And in terms of our competitive advantage, our products were all developed under U.S. government DoD and DHS funding through 2014 to 2018. They are all funded by DARPA, Defense Threat Reduction Agency, CWMD, DNDL and so on. So we have -- our unique sort of value proposition is in terms of usability, size and form factor, functionality and pricing, where the design philosophies meant that we were able to design wearable detectors, which are replacing detectors size of shoeboxes. And that is DARPA's own words rather than my words. I'm just quoting DARPA there. So -- and the cost -- because of the design philosophies that DARPA push us into, we are able to have a very healthy margin within that market. So -- and of course, networkability. And why does size matters in this? Because if you're looking at a first responder, particularly a defense personnel, they're already adding all sorts of equipment to win them. When they are having to make a decision whether to carry a wearable detector or something that is weighing 2 kilograms they can't really belt-carry, the decision becomes quite easy. But of course, our performance, we are the fastest radiation detector in the world in the categories of RIID and PRD. So we have some unique capability as well within the product. So we actually in CBRN address 2 particular segments in the handheld and one particular segment in statics and large form factor detectors. In the 2 categories of handheld, the competitors are Thermo, FLIR, Symetrica and a few other companies, Polimaster, and Mirion in certain cases. They don't do all of that, but they do parts of it. So for example, Thermo and FLIR -- Thermo does compete in the D3M, which is a PRD category, whereas Symetrica competes in the RIID category, which is our D5 product. So it is an established field. It's not -- our position is not like what we have in AI, in advanced imaging, but we have a unique value proposition that we bring to the market and to our customers. And that is why although we are relatively newcomers in this handheld market, launching our products back in 2018, early to mid-2018, we have got a really good blue-chip customer base and a very, very strong brand recognition within key user groups in U.K. and U.S. So we will continue to grow. But as we -- and we take a realistic view in terms of the proportion of the business we are going to win. And that's why when I say we are tendering GBP 400 million worth of business, we will win part of it. We are not -- we don't expect to win all of it.

Thank you, Arnab. Paul, just bringing you in on 2 or 3 financial questions have been put to us. James Connelly asks, in 2016, there were 153 million shares. There are now over 600 million as at 14 September 2023 RNS. When will the company be cash-profitable generative so that there are not further huge dilution of existing shareholders?

I'm sorry, let me take the second half of that question first regarding the potential future dilution of existing shareholders. We have no plans for the foreseeable future to raise further equity for working capital or to fund any losses that might come through. Second half -- the first half of the question, when will the company be cash-profitable or cash-generative? Of course, that depends on a number of factors, but just to give you a guide, you've seen that our gross margins are 50% or more in the last 2 reporting periods. Our operating costs around about GBP 15 million. We expect it to be about that for the current year, including finance costs. So with that ratio, we would expect to be cash-generative, around about GBP 30 million of revenue. But of course, a caveat that I think, it depends on the mix of revenue between CBRN business and advanced imaging because they have 2 different gross margin profiles. But as a guide, I would say around about that figure that I've given.

Thank you. And just going to a question that Robin Gunston sent in. Kromek has about 1.4 million convertible loan notes maturing on 31st of January today and 1.4 million on 22nd Feb 2024. How are these loans to be repaid?

Thank you. There are 3 options open at the moment. One is that the noteholders can elect to convert their loan to equity. The second is that Kromek has the option to extend the period of the current loan notes from 18 months for a further 3 months. And the third one is that we can repay those loan notes in cash. So when a decision is made either by the loan noteholder or by the company as appropriate, we'll make an announcement via an RNS and shareholders will be made aware.