Preliminary Results 2018
05 December 2018
The following replaces the announcement released at 07:00 today under RNS number 4474J in which the (Decrease) / increase in trade and other receivables in the cash flow statement was incorrectly stated as 744,208 rather than 774,208. All other details remain unchanged and the full amended announcement is set out below.
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 2018.
- Sales of £3.5m (2017: £5m)
- Gross margin increased to 47% (2017: 38%)
- Profit before tax and exceptional costs associated with aborted acquisition of £96k (2017: £480k)
- £780k of cash at the year end (2017: £1.3m)
- Record sales of industrial inspections systems
- Launch of ThreatScan® 2 precision detectors
- Strengthened operations and sales teams
- Re-certificated Quality system to ISO 9001:2015
Bill Mawer, Chairman and Chief Executive of Image Scan, commented: “Image Scan grew rapidly in both sales and profits between 2015 and 2017 and so the cancelled order and the failure of the attempted acquisition have come as disappointments. A decline in portable X-ray orders has exacerbated this. Our order pipeline is strong, we have strengthened our team and re-focussed our research and development activity to drive the business forward through organic growth.
In FY19 we plan to expand our security product range, extend our geographical market reach, and further build on our recent operational improvements. Our industrial activity is performing well and continued tightening of automotive emissions legislation around the world provides a helpful backdrop for the highly specialised inspection systems we provide.
The company has attractive and highly differentiated products in strongly performing market segments. We are well placed to put the setbacks of 2018 behind us and return to the growth of previous years.”
Image Scan Holdings plc Tel: +44 (0) 1509 817400
William Mawer, Chairman
Sarah Atwell-King, Company Secretary
Cantor Fitzgerald Europe Tel: +44 (0) 207 894 7000
Rick Thompson / William Goode (Corporate Finance)
Caspar Shand Kydd (Sales)
About Image Scan Holdings plc
Image Scan Holdings plc (AIM: IGE) is focused on the development and commercialisation of market leading real-time X-ray solutions for use in the global Security and Industrial inspection markets. The Company’s Security portfolio includes the ThreatScan® range of portable bomb and suspect package detection systems; the Axis range of baggage inspection systems; and SVXi, a small vehicle inspection system. The Industrial inspection solutions include the MDXi product range, cabinet X-ray systems for laboratories and production lines. The Company was founded in 1996 and joined AIM in 2002.
The results for Image Scan Holdings plc for the year ended 30 September 2018 reflected the twin setbacks faced by the business during the year. The first of these was the cancellation of a large order from an important Asian customer, reported in February; the second was the failure to garner support from the Company’s largest shareholder for the intended acquisition of the security X-ray company Todd Research Limited. The first of these contributed to adverse sales performance, the second added exceptional legal and other costs to the bottom line. The impact of these setbacks was partially offset by strong performance in the industrial range, where a record number of inspection systems were delivered. The Group has a strong product range and an excellent route to its major markets. It is well placed to put the setbacks of 2018 behind it and return to strong performance in future years.
ATTEMPTED ACQUISITION OF TODD RESEARCH LTD
The acquisition of Todd Research Limited had been a part of the Group’s strategy for some time prior to FY 2018. The deal offered both technical and market synergies and Todd Research’s recurring service revenue and overall margins made a very attractive acquisition target. Having agreed a transaction price with the vendor, the Board felt that the final deal structure, which included 6,250,000 shares issued at 4p and £2.0m of vendor loans, provided a viable and balanced way to finance this deal and minimised the dilution of existing shareholdings.
It was disappointing that, despite extensive face to face communication with Rise Step International Development Limited, the Group’s largest shareholder, we were unable to achieve a positive vote for the resolutions required to complete the acquisition, In a further meeting, following the adjourned AGM, Rise Step made it clear that, while supporting the overall acquisition strategy, they remained opposed to the issuing of shares at the price achieved in the fund raising. The Board had the overwhelming support of other shareholders.
Legal and other costs totalling £250k were incurred.
Sales declined to £3.5m (2017: £5.0m), impacted both by the cancelled order and lower security system sales in the Indian subcontinent. Gross margins were strong at 47% (2017: 38%) reflecting the change in the sales mix. Overheads (excluding the transaction costs relating to the failed acquisition of Todd Research) were fractionally higher at £1.6m (2017: £1.5m) and included a planned £100k increase in Research and Development spend. Profit before tax and exceptional costs was £96k (2017: £477k).
Taking into account legal and other costs related to Todd Research of £250k, the pre-tax loss, after this exceptional expenditure, was £154k.
The financial position of the Group is strong with net assets of £1.6m (2017: £1.8m) at the year end which includes a cash balance of £780k (2017: £1.3m) and has therefore been able to meet its working capital requirements throughout the year under review
The Group’s stock includes portable systems in Work in Progress, manufactured in anticipation of new orders. This will allow a rapid response as they are received early in the new financial year.
Sales for portable X-ray systems declined over the prior year, having been impacted by the cancellation of a substantial order from an important Asian customer and by a lower volume of sales in other markets. However, important new customers were gained in a number of markets, including a first order in Brazil. An extensive marketing campaign with our distribution partners has developed a strong pipeline of opportunities.
In a project part funded by the UK Government’s Innovate UK, the Group has developed new technology for its portable X-ray detectors with a view to enhancing the precision of the images produced. The aim is to allow our products to compete more directly with companies using the alternative, and more expensive, medical X-ray type detectors. Technology from this programme has now been incorporated in a new range of Detector systems called ThreatScan®2 which offers a four times increase in image resolution. The effect is equivalent to replacing a 1 megapixel camera with a 4 megapixel camera. The company now offers an even more distinct combination of price and performance to the portable X-ray market.
The Group delivered a record number of industrial x-ray systems during the year and has already received orders for two further systems in FY 2019. Particularly gratifying has been the acceleration in the roll out of our inspection systems by another major player in the emission controls industry. This customer has held a small number of units for some years but during FY 2018 deployed systems into European and Asian manufacturing plants. We maintain very close relationships with the key customers in this industry, an activity managed directly by our Sales Director, Vince Deery.
At the start of FY 2018, the Group upgraded its internal processes to be compliant with the latest (2015) version of the ISO 9001 requirements for Quality Management Systems. The new processes were independently audited in November 2018 and subject to final confirmation has been re-certificated for a further three years. Significantly upgraded processes included those for new product development and the handling of defect reports. These are now part of a Continuous Improvement process designed to drive the Group’s quality performance and enhance customer satisfaction.
A new Operations Manager has taken charge of research and development in addition to manufacturing and quality. An integrated approach to these important parts of the business should allow the business to better manage resources and the delivery of quality product to our security and industrial customers.
Our strategy has been to build the Group using a combination of both organic and acquisition growth. Having failed to complete the acquisition of Todd Research, it is the Board’s intention to focus on organic growth over the short term, with a view to recovering the Group’s sales and profit performance to the levels achieved in FY 2017. Steps are already in place to achieve this: new sales and operations staff have been appointed and the product development programme is being redirected to add additional sources of revenue from the development of a new product range. Whilst at its earliest stages, the planned development will make use of existing Image Scan technologies and routes to market, minimising both product development time and the time required to develop new sales.
We target continued growth of the industrial business as our key customers further roll out our MDXi 400 X-ray screening systems into their global manufacturing operations. We plan to explore a number of opportunities to further extend this activity through adding new customers and applications and adding new functionality to our screening systems.
Our ambition to further grow the business through selectively targeted acquisitions remains, but the Board recognises that the value of the Group’s performance will have to recover some recently lost ground before an equity fund raise becomes attractive to either current shareholders or potential investors.
We do not believe that the decline in sales of portable X-ray systems in FY 2018 is symptomatic of any wider decline in this market. There is a robust pipeline of opportunities for sales of such systems to police, military and para military users across the world and an order for 20 portable units has been received in the first months of the financial year.
We believe our technology is well differentiated in both price and performance, and that the significant enhancements made to the range of options and accessories available, make our system desirable in a wide range of markets and applications. Our recent sales manager hire will allow us to refocus our marketing efforts in Europe and South America to supplement our well-established positions in Asia, the Indian Subcontinent and the Middle East.
The sale of a record number of industrial screening systems in the last 12 months reflects the continued strength of the market for catalytic filters and diesel particulate filters, driven in part by tighter emissions control legislation in China. This demand flows through to our major customers in the supply chain for these devices and drives them to add, enhance or move capacity to reflect the new demand and this, in turn has led to them ordering and installing more inspection systems. While demand does naturally fluctuate year on year, we see it as a strong area for the Group with continuing strong margins from both equipment sales and aftermarket service and support. We look to continue to expand our customer base in this market and broaden the range of applications for our systems.
In the longer term, the Board continues to believe that a blend of organic and acquisition growth is the best way to deliver shareholder value, the greater scale providing both protection from market shocks and stronger amortisation of the relatively high fixed costs associated with a stock market listing.
Sarah Atwell King has been appointed to the board as Financial Director, having been Financial Controller since 2014. She retains her role as Company Secretary. Sarah brings considerable organisational and management strength to the Board.
The Board values greatly the considerable efforts made by our staff and, on behalf of the Directors, I would like to take this opportunity to personally thank staff and shareholders for their continued commitment to Image Scan.
5 December 2018
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|Cost of sales||(1,819,617)||(3,104,007)|
|Other operating income||47,628||57,166|
Research and development expenses
|Total administrative expenses||(1,597,029)||(1,509,704)|
|OPERATING PROFIT BEFORE EXCEPTIONAL COSTS||
|(LOSS)/PROFIT BEFORE TAXATION||(154,222)||477,377|
|(LOSS)/ PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE EQUITY OWNERS OF THE PARENT COMPANY||
|Earnings per share||
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
|Property, plant and equipment||33,944||26,842|
|Deferred Tax Asset||37,344||102,811|
|Trade and other receivables||783,470||1,557,678|
|Cash and cash equivalents||781,635||1,253,114|
|Trade and other payables||909,966||2,166,248|
|Share premium account||8,327,910||8,317,410|
|TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS||1,630,067
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|As at 1 October 2016||1,256,046||7,934,528||(8,450,523)||740,051|
|Profit for the year and total comprehensive income/(expenditure) for the year||–||–||580,188||580,188|
|Transactions with owners:|
|Shares issued during the year||101,000||426,000||–||527,000|
|Share issue Costs||–||(43,118)||(43,118)|
|As at 30 September 2017||1,357,046||8,317,410||(7,853,357)||1,821,099|
|Loss for the year and total comprehensive income/(expenditure) for the year||–||–||(219,689)||(219,689)|
|Transactions with owners:|
|Shares issued during the year||6,500||10,500||–||17,000|
|Share issue Costs||–||–||–||–|
|As at 30 September 2018||1,363,546||8,327,910||(8,061,389)||1,630,067|
CONSOLIDATED CASH FLOW STATEMENT
|Cash flows from operating activities|
|Operating profit before research and development expenditure and exceptional costs||479,079||768,684|
|Research and development expenditure||(383,187)||(291,593)|
|Impairment of inventories||43,602||30,116|
|(Increase)/decrease in inventories||112,638||(620,411)|
|(Decrease)/increase in trade and other receivables||774,208||(715,301)|
|(Decrease)/increase in trade and other payables||(1,256,282)||539,186|
|Decrease in warranty provisions||(12,978)||(3,255)|
|Cash generated used in operating activities||(465,877)||(262,621)|
|Corporation tax recovered||–||–|
|Net cash flows used in from operating activities||(465,877)||(262,621)|
|Cash flows from investing activities|
|Purchase of property, plant and equipment||(22,946)||(23,021)|
|Net cash used in investing activities||(22,602)||(22,735)|
|CASH FLOWS FROM FINANCING ACTIVITIES|
|Proceeds from issue of share capital||17,000||527,000|
|Financial costs of fundraising||–||(43,118)|
|Net cash generated from financing activities||17,000||483,882|
|Net (DECREASE)/INCREASE in cash and cash equivalents||(471,479)||198,526|
|Cash and cash equivalents at beginning of year||1,253,114||1,054,588|
|Cash and cash equivalents at end of year||781,635||1,253,114|
Notes to the preliminary statement
1. Basis of preparation
The financial information set out above does not constitute the Company’s statutory accounts for the years ended 30 September 2018 and 30 September 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 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.
- IFRS 2 ‘Share-based payments’
Operating expenses includes a charge of £11,657 (2017: £16,978) after valuation of the Company’s employee share options schemes in accordance with IFRS 2 ‘Share-based payments’. Under this standard, the fair value of the options at the grant date is spread over the vesting period. These items have been added back in the statement of changes in equity.
- .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.
|(Loss)/profit for the year||(219,689)||580,188|
|Weighted average number of ordinary shares in issue||135,774,838||129,512,227|
|Number of diluted shares||141,207,627||135,165,601|
|Basic (loss)/ profit per share||(0.16p)||0.45p|
|Diluted (loss)/ profit per share||(0.16p)||0.43p|