Kromek : 25/01/17 Firm Placing and Open Offer

25 January 2017

Kromek Group plc

("Kromek" or the "Company" or the "Group")

Firm Placing and Open Offer to raise up to £21.0 million

Kromek, a radiation detection technology company focusing on the medical, security and nuclear markets, is pleased to today announce a conditional Firm Placing and Open Offer to raise up to £21.0 million. The Firm Placing has been undertaken with new and existing institutional investors in the Company and was over‐subscribed.

Highlights

• Firm Placing and Open Offer, which is subject to shareholder approval, will raise gross proceeds of up to £21.0 million;

• Firm Placing of 100,000,000 Ordinary Shares at the Offer Price of 20 pence per Ordinary Share; and

• Open Offer for an aggregate of 5,129,536 Offer Shares on the basis of 1 new Ordinary Share for every 30 Existing Ordinary Shares, at 20 pence each.

  Sir Peter Williams, Chairman of Kromek, said: "We are pleased with the support shown by our current shareholders and we welcome new blue‐chip institutions to our register. The present fundraising will considerably strengthen our balance sheet, underpinning our plans for the sustained growth of the business and supporting increasing commercial activity through the deployment of our proprietary technology. Kromek has made good progress this year, in which we achieved a number of important operational targets, enlarging our customer base and strengthening our relationship with our OEM partners. This resulted in significant contract wins over the past 18 months which have given us forward visibility over revenues in excess of 85% of market expectations for the current year. The Board has great confidence in the future of Kromek and recommends all shareholders to vote in favour of the proposals, which we believe will allow us to deliver increased value to our investors." Enquiries

  Kromek Group plc Arnab Basu, CEO Derek Bulmer, CFO	01740 626 060
  Cenkos Securities plc Bobbie Hilliam (NOMAD) Harry Pardoe	0207 397 8900
  Luther Pendragon Harry Chathli, Claire Norbury, Alexis Gore	0207 618 9100

  This announcement contains inside information.

  Capitalised terms used in this announcement have the meanings given to them in the Circular.

  Introduction

  The Company has today announced a conditional Firm Placing to raise £20 million by the issue and allotment by the Company of 100,000,000 Ordinary Shares at the Offer Price of 20 pence per Ordinary Share.

  In addition, in order to provide Shareholders who have not taken part in the Firm Placing with an opportunity to participate in the proposed issue of new Ordinary Shares, the Company is providing all Qualifying Shareholders with the opportunity to subscribe at the Offer Price for an aggregate of 5,129,536 Offer Shares, to raise up to approximately £1.0 million, on the basis of 1 new Ordinary Share for every 30 Existing Ordinary Shares, at 20 pence each, payable in full on acceptance. The Open Offer provides Qualifying Shareholders with an opportunity to participate in the proposed issue of the New Ordinary Shares whilst providing the Company with additional capital to invest in the business of the Group.

  The Offer Price is at no discount to the closing middle market price of 20 pence per Existing Ordinary Share on 24 January 2017 (being the last practicable date before publication of this announcement).

  The Firm Placing and Open Offer are conditional, inter alia, upon Shareholders approving the Resolutions at a General Meeting to be convened for 10 a.m. on 10 February 2017 that will grant to the Directors the authority to allot the New Ordinary Shares and the power to disapply statutory pre‐ emption rights in respect of the New Ordinary Shares. The Resolutions will be contained in the Notice of General Meeting included in the Circular to be posted to Shareholders today. Admission is expected to occur no later than 8.00 a.m. on 13 February 2017 or such later time and/or dates as Cenkos Securities and the Company may agree. The Firm Placing and Open Offer are not underwritten.

  Further information on the Transaction is contained within the Circular sent to Shareholders today.

  Summary of Kromek Group plc

  Kromek is a UK technology company and a leading developer of high performance radiation detection products based on cadmium zinc telluride. Using its core CZT technology Kromek designs, develops and produces x‐ray and gamma ray imaging and radiation detection products for the medical, security screening and nuclear markets.

  The Group's products provide high resolution information on material composition and structure and are used in multiple applications, ranging from the identification of cancerous tissues to hazardous materials, such as explosives, and the analysis of radioactive materials. Kromek uses multiple technologies in its manufacturing processes, including the established methods of 'liquid phase' detector production, and also 'vapour phase' production methods, which allow the production of high quality, high performance detectors on an industrial scale. Kromek has a portfolio containing over 265 identified pieces of intellectual property.

  The Group's business model provides a vertically integrated technology offering to customers, being the growth of CZT crystals through to finished products or detectors, including software, electronics and application specific integrated circuits.

  The Board believes that the vertical integration offered by Kromek, combined with the benefit of 25 years of research into CZT production and the patents and trade secrets accumulated by the Group, are unparalleled in the market place.

  The Group has operations in the UK and US (California and Pennsylvania) and is selling internationally through a combination of distributors and direct to OEMs. Currently, the Group has over a hundred full time employees across its global operations.

  Background to and reasons for the Firm Placing and Open Offer

  As announced in the Company's interim results, which were released on 7 December 2016, Kromek continues to experience good revenue growth and has significantly improved revenue visibility for the years ending 30 April 2017 and 30 April 2018.

  The Directors continue to believe that it is increasingly evident that CZT‐based detectors are set to replace the prevalent scintillator‐based detectors. CZT is a semiconductor that directly converts x‐ray or gamma‐ray photons into electrons, at room temperature, creating a spectroscopic resolution that the Directors believe outperforms commercially‐available scintillators. This performance means CZT is an ideal detector solution for medical, industrial and homeland security applications and therefore represents a significant addressable opportunity to the Group.

  The market positioning of Kromek leaves the Group strategically placed to benefit from the increased adoption of CZT within its identifiable markets.

  The Directors believe that a perceived lack of balance sheet strength has, at times, weakened the Group's position when negotiating contracts with OEM and government bodies. Whilst these organisations are increasingly interested in pursuing CZT as a new technology, when the Group has historically engaged in commercial discussions with these organisations concerns have been expressed about the financial strength of the Group and its ability to supply significant quantities of CZT detectors over an extended period of time. The Directors believe these concerns have delayed or prevented the Group from entering into significant supply contracts with potential new and existing customers.

  The net proceeds of the Transaction will therefore provide the Group with the necessary cash reserves to provide comfort to third parties over the Group's balance sheet, whilst also providing working capital to allow the Group to continue to invest in product development to satisfy customer requirements.

  The Board continues to target a self‐funding business model, with EBITDA breakeven expected in the next financial year being for the twelve months ending 30 April 2018.

  Use of proceeds

  The Company has conditionally raised £20.0 million before expenses through the Firm Placing and up to a further £1.0 million before expenses under the Open Offer. The estimate of expenses for the Transaction is expected to be up to £1.1 million dependent on the proceeds from the Open Offer.

  The Company expects to use the net proceeds for the following purposes:

  • £17.0 million - to strengthen the Company's balance sheet, driven by OEM requirements; and

  • £3.0 million - for general working capital requirements; capital expenditure to drive efficiency in SPECT; and, to invest in the Company's patent portfolio.

Current Trading and Prospects

The Company confirmed in its interim results for the six months ended 31 October 2016, released on 7 December 2016, that the Company has significant visibility over expected revenue for the remainder of the financial year. The Board can confirm this revenue visibility has continued into 2017 and that the Company continues to trade in line with market expectations.

The Firm Placing and Open Offer

Details of the Firm Placing

The Company has conditionally raised £20.0 million before expenses through the Firm Placing of 100,000,000 Firm Placing Shares at the Offer Price to the Firm Placees.

The Firm Placing is conditional, inter alia, upon:

1. the passing of all of the Resolutions;

2. the Firm Placing and Open Offer Agreement becoming or being declared unconditional in all respects and not having been terminated in accordance with its terms prior to Admission; and

3. Admission becoming effective by no later than 8.00 a.m. on 13 February 2017 or such later time and/or date (being no later than 8.00 a.m. on 21 February 2017) as Cenkos Securities and the Company may agree.

If any of the conditions are not satisfied, the Firm Placing Shares will not be issued and all monies received from the Firm Placees will be returned to them (at the Firm Placees' risk and without interest) as soon as possible thereafter.

The Firm Placing Shares are not subject to clawback.

The Firm Placing Shares (and the Offer Shares) will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue.

Application will be made to the London Stock Exchange for the Admission of the Firm Placing Shares and Offer Shares to trading on AIM. On the assumption that, inter alia, the Resolutions are passed, it is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 13 February 2017 at which time it is also expected that the Firm Placing Shares will be enabled for settlement in CREST.

Details of the Open Offer

The Company is proposing to raise up to approximately £1.0 million before expenses. A total of 5,129,536 new Ordinary Shares are available to Qualifying Shareholders pursuant to the Open Offer at the Offer Price, payable in full on acceptance. Any Offer Shares not subscribed for by Qualifying Shareholders will be available to Qualifying Shareholders under the Excess Application Facility. The balance of any Offer Shares not subscribed for under the Excess Application Facility will not be available to Firm Placees under the Firm Placing.

Qualifying Shareholders may apply for Offer Shares under the Open Offer at the Offer Price on the following basis:

1 Offer Share for every 30 Existing Ordinary Shares

and so in proportion for any number of Existing Ordinary Shares held on the Record Date.

Entitlements of Qualifying Shareholders will be rounded down to the nearest whole number of Offer Shares. Fractional entitlements which would otherwise arise will not be issued to the Qualifying Shareholders but will be made available under the Excess Application Facility. The Excess Application Facility enables Qualifying Shareholders to apply for Excess Shares in excess of their Open Offer Entitlement. Not all Shareholders will be Qualifying Shareholders. Shareholders who are located in, or are citizens of, or have a registered office in certain overseas jurisdictions will not qualify to participate in the Open Offer.

Application has been made for the Open Offer Entitlements to be admitted to CREST. It is expected that such Open Offer Entitlements will be credited to CREST on 26 January 2017. The Open Offer