RNS Announcements

Preliminary Results for the Year Ended 30 September 2022

13 December 2022

Image Scan (AIM: IGE), the specialist supplier of X-ray screening systems to the security and industrial inspection markets, today announces preliminary results for the year ended 30 September 2022.

HIGHLIGHTS

 OPERATIONAL HEADLINES

• New, highly integrated ThreatScan®-AS1 portable X-Ray system launched
• Australasia territory performed strongly
• New customer in the catalytic converter industry
• Further contracts with UK Police Forces
• Support revenues held firm despite travel restrictions

FINANCIAL HEADLINES

• Order intake £2.2m (2021: £2.8m)
• Sales £2.0m (2021: £2.9m)
• Gross profit 54% (2021:53%)
• Costs £1.4m (2021: £1.3m)
• Pre-tax loss £0.35m (2021 profit: £0.19m)
• Year-end order book £0.712m (2021: £0.52m)
• Year-end cash balance £0.69m (2021: £1.2m)

Image Scan’s Chief Executive, Vince Deery, commented:

“Following the organisational changes completed during the year, I would like to thank Bill Mawer for his leadership and contribution over the last eight years.  Furthermore, I would also like to express my appreciation to the new Chairman Tim Jackson and the entire Board for their support in this transitional period.  Both myself and the Board take this opportunity to commend the staff for their valued contribution during a challenging year.  Our goal is to build upon Bill’s legacy while focusing on the expansion of our higher margin portable product line which we believe is our route to returning to profit in 2023.”

For further information on the Company, please visit: www.ish.co.uk and for further information on its products, please visit: www.3dx-ray.com

-ENDS-

Image Scan Holdings plc                                                                     Tel: +44 (0) 1509 817400

Vincent Deery CEO

Sarah Atwell-King, CFO & Company Secretary

WH Ireland Limited – Nominated Advisor and Corporate Broker     Tel: +44 (0) 207 220 1666

Mike Coe/Sarah Mather (Corporate Finance)

ABOUT IMAGE SCAN HOLDINGS PLC

About Image Scan Holdings plc

The core activity of the Group is the manufacture of portable X-ray systems for security and counter terrorism applications. The Group recently launched a cabinet X-ray machine and is replacing its Axis range of checkpoint X-ray systems with new machines developed with a partner. All these products are taken to market across the world through a strong network of international partners.

In addition, over the last fifteen years, Image Scan has developed and manufactured industrial X-ray inspection systems, the MDXi range. The primary market for these systems is in automotive emissions control where they are used for quality control inspection of catalytic converters and diesel particulate filters.

The visibility and reach of the Company’s 3DX-Ray brand has been further strengthened through a new LinkedIn profile focussed on its EOD and counter-terrorism activities. This can be found at:  https://www.linkedin.com/company/3dx-ray/  

For further information on the Company, please visit: www.ish.co.uk – and for further information on its products, please visit: www.3dx-ray.com

CHAIRMANS STATEMENT

Overview
2022 was a challenging year, balancing lower booking levels with cost increases whilst maintaining research and development investment which lays the foundations for a stronger 2023. We are very encouraged by our new product offerings and the reception these have received in the marketplace both with our partners and end users.

Introduction

For the year ended 30 September 2022 (“Year” or “Period”), the Group generated revenues of £2.0m (2021: £2.9m), down 31%, and a loss before tax of £0.35m (2021: profit of £0.19m). This performance was as a result of the slow recovery from the COVID-19 pandemic in certain key markets and Government procurement cycles, coupled with some delays with component sourcing.  At 30 September 2022, the Group had net cash of £0.69m (2021: £1.2m).

The launch of new products during the Year and the continued opening up of our markets gives us confidence for 2023.

Environmental, Social and Governance

Image Scan recognises the importance of adopting a strong environmental, social and governance (“ESG”) framework, and this guides our overarching business objectives and is influential to serving the needs of all of our key stakeholders. Improving Image Scan’s ESG credentials is important to the Group’s development strategy. We are confident in the robust procedures we have in place across the business and intend to build on these further in 2023.

Board Composition and Management Changes

Bill Mawer, the former Chairman and CEO, stepped down as CEO in January 2022 and retired from the Board in June 2022. Bill was appointed to the Board in January 2014 and has played an integral part in the successful development of the Group since then. The Board extends its thanks to Bill for his dedicated leadership of the Group.

Following Bill’s retirement, in July 2022 the following changes were made to the Board: –

• Tim Jackson took over as Non-Executive Chairman, having previously been a Non-Executive Director.
• Dr Richard Leaver became Non-Executive Deputy Chairman, having previously been a Non-Executive Director.
• Vince Deery was confirmed as Chief Executive Officer following his appointment to the interim role in January 2022. Vince has been with the Group since 2008 and has been key in the development of the global customer base.
• Sarah Atwell King was promoted to Chief Financial Officer.

Outlook

On behalf of the Board and management of Image Scan, I would like to thank all of our colleagues and customers for their contribution to our business during 2022, without whom we would not be in the position we are today. The trading performance was below expectations as government procurement continued to be held back following the pandemic challenges that remain in some of our key markets. Our balance sheet provides us with a strong operational and financial platform from which to deliver growth.

We have made an encouraging start to 2023 and are confident in meeting our expectations for the full year. Whilst there are still macroeconomic uncertainties and challenges and the domestic economic outlook looks weak, the Board of Directors is confident in the Group’s prospects in the medium to long term as we continue to seek to capitalise on our extended product range and global sales channels.

Tim Jackson

CHAIRMAN

CEO REPORT

BUSINESS REVIEW

Against the backdrop of an economy still recovering from the harshest of business interruptions, the legacy of the pandemic continues to impact the business and the industry. The product placement, marketing and sales process has yet to return to the levels experienced prior to the pandemic.

Customer visits, demonstrations and trade shows are recovering but still have some way to go to return to historic levels. We commenced the Year with a relatively low order book, experiencing delays and cancellations in government tendering activities, while global supply chain disruptions have adversely impacted our lead times, extending delivery times for customers.

Our customer service team has ensured that the installed base continues to receive the highest level of support to which they have become accustomed, despite component shortages and travel restrictions.

It is a credit to the team that in this period we have launched a new premium portable product, ThreatScan®-AS1, positioning itself at the highest level within the marketplace. Our staff have demonstrated great resilience and ingenuity in resolving supply chain difficulties and meeting customer expectations.

The Group finished the Period with a strengthened order book at £0.71m (2021: £0.52m) which supports the Board’s outlook for 2023.

OUR STRATEGY

The Group’s strategy focuses on organic growth by expansion of the product range, greater penetration of existing territories and further development and investment in new geographic territories. The Group seeks to operate in profitable, niche security segments for which it can create differentiated products that it can take to market at good margins.

The Group recognises that, as a small business, it can only support a limited range of in-house developed products and as such needs to supplement the product range by agreements with other technology providers that can either be integrated with our systems or offered as complimentary products.

The Group’s core security expertise is the “Counter-Explosive Ordnance” market to which it sells its portable X-ray systems. We will continue to invest in this sector, broadening and strengthening our offer to customers as demonstrated by the launch this Year at the Dubai Intersec security exhibition of our ThreatScan®-AS1 product which is our highest performing product in our portable range.

In industrial screening, we will look to retrofit the existing systems within the customer base with current manufacturing standard equipment and the latest improved software analysis tools. We will carefully assess the emerging technologies replacing the combustion engine, and how they might require X-ray technology in our continued focus in this area.

OUTLOOK

The outlook is improving with many developed countries where the Group operates transitioning into the post-pandemic era, and experiencing a return to normality. Current levels of demonstration and attendance at trade shows are building and we foresee this trend continuing in the coming year. After the Period end we have seen a noticeable recovery in trade show attendance, enquiry, tender and demonstration activity.

An area that we look forward for continued strong performance is the aftersales market, we have performed excellently during the Period, despite the various challenges imposed by component supply difficulties and travel restrictions. This has been accomplished by the dedication of our team and the strength of our partner links in countries and regions still imposing restrictions.

In the medium term we expect Government Procurement programmes that were delayed and / or cancelled to re-emerge,

Our focus will be on our core expertise, in particular, our portable X-ray products and associated software to enable us to maintain and grow market share by outweighing the growing competitive nature of this market; and by moving the product offering range up and across into markets with higher performance and higher value systems.

The first product development in this higher-value range has already gained sales which were previously inaccessible to the Group.  These developments will also allow a competitive offering in some more mature geographic markets that have previously been challenging due to our existing technology. This on-going investment in our portable X-ray products and the software will allow us to be strong contenders in the delayed government programmes when they return.

The Group has slowly built upon its early sales for the AXIS-CXi cabinet X-ray system and we hope to see these sales gain momentum as the delayed product placement activities come to fruition. It is anticipated that this product will grow in the coming years.

The Group’s industrial sector is directly influenced by the automotive market and, as such, the outlook remains steady. We see the deployment of our systems in the Asian regions as being most likely as they continue to introduce European style legislation over emission controls.

We recognise that with the decline of the internal combustion engine and the transition to net zero, we need to identify other areas where our industrial inspection technology would be a suitable, and cost-effective solution. We see the internal combustion engine replacement technologies pursued by the automotive sector as our most likely route for success. This will be a medium-term focus.

Image Scan, like many other companies, has been impacted by disruption to supply chains and logistics difficulties, the impact of which continues to create challenges in both meeting customer demands and cost control. This area will continue to require considerable focus and resource in the coming year to ensure the competing demands of product availability and price for the customer, versus the management of the company’s stock profile.

It is anticipated that the challenges of the Year will decline in influence on the business, but we are mindful of the global economic pressures of rising inflation and currency variability and geo-political events which may also impact on our markets.

We are however very encouraged by our new product offerings and the reception these have received in the marketplace both with our partners and end users, which coupled with a strengthened opening order book offer us confidence for a much improved year ahead.

Vincent Deery

CHIEF EXECUTIVE OFFICER

CFO REPORT

KEY PERFORMANCE INDICATORS

FINANCIAL RESULTS

Revenue in the Year fell by £0.9m to £2.0m (2021: £2.9m) due mainly to ongoing COVID-19 restrictions in our Asian and Far East markets which saw year on year sales in these regions fall by £0.73m to £0.61m (2021: £1.34m). We expect this to start returning to normal levels as these markets open up and Government’s invest in their national security.

The Group, like many manufacturers, faced the challenge in the Year of both sourcing components and increased component prices.  Additional pressures on our costs included increased delivery charges and a fluctuating exchange rate and in the face of these pressures, it is a credit to the team that a gross margin of 54% (2021: 53%) was delivered. This was achieved in part by forward buying of components which results in an increase in stock levels at the Year-end.

Cost of sales were also impacted by the decrease in the dollar exchange rate over the Year and particular the Year-end rate of in September £1: $1.106 (2021 £1:$1.347) which is the basis of the balance sheet valuation. As the Group does not trade in high volume in currency, we are dependent on natural hedges between purchases and sales to manage currency fluctuations.

Costs increased by £0.10m to £1.4m (2021: £1.3m) as government support was withdrawn and the Group invested in marketing activity as markets began to open up.  We expect to see the benefit of this marketing activity in 2023.

The combination of reduced sales and increased costs led to the Group making a pre-tax loss of £0.35m (2021: profit of £0.19m) which is disappointing following two years of profit.

The Group continued to invest in our product range and 2022 saw the launch of the new premium portable X-ray product, the ThreatScan®-AS1 and the first contract was delivered in the Year.  This investment will show returns in 2023 as sales of the product impact performance. Part of this expenditure will be re-couped via R&D tax credits.

The increase in value of inventories, trading losses and the development costs delivered a reduction of cash balance by £0.50m to £0.69m (2021: £1.2m).  A focus for 2023 will be on cost reduction to ensure that funds continue to be available for the business to invest in its products and their marketing to deliver profits in future years.

Sarah Atwell King

CHIEF FINANCIAL OFFICER

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2022

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2022

STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2022

CONSOLIDATED CASH FLOW STATEMENT

Year ended 30 September 2022

Notes to the preliminary statement

1. Basis of preparation

While the financial information included in this annual financial results announcement has been prepared in accordance with the recognition and measurement principles of UK adopted international accounting standards, this announcement does not contain sufficient information to comply therewith.

The financial information set out above does not constitute the Group’s statutory accounts for the years ended 30 September 2022 or 30 September 2021 but is derived from those accounts. Statutory accounts for 2021 have been delivered to the Registrar of Companies, and those for 2022 will be delivered following the Company’s Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 498 of the Companies Act 2006.

2. Earnings per share

Diluted profit per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of dilutive potential ordinary shares.  The Company’s dilutive potential ordinary shares are shares issued under the Company’s Enterprise Management Incentive (EMI) scheme and options issued under the Company’s Unapproved scheme. Some of the share options could potentially dilute basic earnings per share in the future but were not included in a calculation of diluted earnings per share in the current year. This is because the exercise price of the share options is below the average share price in the year and, in light of the losses being reported, all options are therefore considered to be anti-dilutive.