If only x-ray technology could be used to better predict new business. This may be a lament among investors in Kromek (KMK:AIM) after the x-ray technology kit designer issued a huge profit warning today. Not that it was expected to make a pre-tax profit this year to end April, or next to April 2015 either for that matter. So let's settle for revenue warning.


While on the cusp of accelerating its commercial strategy across several markets (aviation, defence, nuclear among them) the north-east based company has found itself on the wrong end of delays to the start of UK and US government contracts. There's also weakness in the Japanese market for nuclear detection products, delays in setting up its distribution channels in nuclear radiation and delays in other commercial contracts.


'Despite strong revenue growth year-on-year, the company expects revenue for the period to be significantly below current market expectations,' says the company. 'The shortfall for the year is due to a delay in a number of large contracts.' Chief executive Arnab Basu added that 'the build up of our sales and marketing resources since the IPO has been slower than expected which has also been a contributory factor in the shortfall.'


This looks like an almighty failure for its commercial people. Coming just six months after its £15 million IPO at 51p merely adds to the scale of the blow and management must face up to being overly optimistic in the face of clearly opaque end markets. Investors are rushing to sell, sparking a near 47% collapse in the share price to 36.25p. You can't blame them. Kromek banks on a handful of clients responsible for substantial contracts and that implies that the company could prove reliably unreliable when it comes to new business transparency in future.


KROMEK GROUP - Comparison Line Chart (Rebased to first)


Panmure Gordon, the house broker, is quick to reach for the red pen. 'In light of the impact of the issues described in today’s statement, our forecast downgrades reflect Kromek delivering adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) loss in full-year 2014 of £2.4 million,' says analyst Dr Mike Mitchell. That's £1 million bigger than was expected. The cuts to estimates run deep into 2015 too, Mitchell slashing his EBITDA for next year from £7.7 million to just £700,000.


David Johnson, analyst at independent broker Northland remains positive long-term, saying the 'technology remains attractive with numerous applications and inevitable weakness may represent an interesting entry point.' But you can see why investors might not be ready to read that sort of analysis any time soon.


Issue Date: 28 Mar 2014