PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2021
07 December 2021
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 2021.
- Order intake increased to £2.8m (2020: £2.4m)
- Sales of £2.9m following subdued first half (2020: £3.5m).
- Tight control of overheads, reduced by 18% to £1.3m (2020: £1.6m)
- Pre-tax trading profit of £189k (2020: £112k)
- Strong year-end cash balance of £1.2m (2020: £1.4m)
- Large portable X-ray order for an Asian government
- First orders for new cabinet X-ray systems
- First orders for government customers in the USA and Canada
- Chairman announces role change as part of succession plan
Bill Mawer, Chairman and Chief Executive of Image Scan commented: “It is gratifying to be able to report that a second profitable year has been delivered, despite the continuing Impact of the COVID-19 pandemic on our customers, our supply chains and our staff. Important “firsts” in the year included: first sales of the AXIS-CXi cabinet X-ray machine, first portable X-ray sales in North America and key new customers in the UK. The product development programme continues to move forward, and I look forward to launching more new products in FY22.
As part of the Board’s succession plan, I will relinquish the CEO role in January and we will appoint Vincent Deery, currently Sales Director, as Interim CEO. Vince and I have worked closely on the development of the organic growth plan for the business, and I have every confidence in his ability to play a larger part in implementing that plan. I will continue to drive strategy and product development, allowing Vince to focus on sales and operations. All the board remain optimistic for the future of Image Scan.”
|Image Scan Holdings plc
William Mawer, Chairman and Chief Executive Officer
Sarah Atwell King, Finance Director and Company Secretary
|Tel: +44 (0) 1509 817 400|
|W H Ireland – Nominated Adviser and Broker
Mike Coe/Sarah Mather (Corporate Finance)
|Tel: +44 (0)20 7220 1666|
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 fourteen 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.
I am pleased to announce that the Group has been profitable for the second year in succession. Whereas COVID-19 only impacted the second half of last year, in FY2021 the pandemic has been a constant presence for the full year, impacting us across the full range of our activities. Our sales teams have been unable to carry out face to face customer demonstrations, trade shows have been cancelled, supply chains have been disrupted and customer spending has been diverted. It is a testimony to the resilience of the Image Scan team that, despite this adverse environment, the value of orders won has increased, new products have found their first customers, important new markets have been opened, and the research and development (“R&D”) programme has pushed ahead.
After a slow start, order intake improved as the year progressed and included a 30-unit order for portable systems for an Asian customer. The order came through one of several reliable partners in the region who supply our systems to a variety of Government agencies in their territories. Order intake was up in the year by 16% to £2.8m (2020: £2.4m). Sales followed a similar pattern, with second half sales over double those seen in the first half. Total sales for the full year were £2.9m (2020: £3.5m). Despite the impact of the pandemic on overseas travel, service revenue remained constant. Strong margins on portable X-ray sales pushed overall margins to 53% (2020: 49%).
Overheads for the year declined by 18% to £1.3m (2020: £1.6m). Contributors to this decline included reduced travel and trade shows, selective use of the Government furlough scheme in quiet periods, lower R&D spend and with qualifying costs being capitalised under IAS38. The R&D spend reduction was due to less money being spent on prototypes and lower software spend, as engineer time was allocated to externally funded development projects.
The combination of strong margins and lower overheads led to the Group recording a pre-tax trading profit for the year of £189k (2020: £112k). Much of the product development effort to the Group is now focussed on development of new product ranges, such as cabinet and conveyor X-ray systems which are expected to generate new revenue streams for the business. The Group is therefore in a position to apply the policy of capitalising its new product development spend under IAS38 Intangible Assets. Costs of £96k (2020: £nil) have been capitalised resulting in the reportable pre-tax profit for the year of £189k.
The balance sheet strengthened as a result of the financial performance of the business and cash balances remained strong but fell in the year to £1.2m (2020: £1.4m). This was due to changes in working capital mix, because the commercial terms for two contracts to government bodies and the continuing reduction in stock balances, together with the early repayment of the Bounce Back Loan.
The Group finished the year with an order book of £516k (2020: £633k) which has the potential to be fulfilled in the first quarter.
The business started the year with a relatively weak order book, which impacted first half performance, and the continuing effect of COVID-19 could be seen in delays to government procurement programmes. Although order intake improved as the year progressed, the number of portable X-ray units sold declined by 20% compared to the prior year.
The sales process continued to be impacted by the lack of security technology trade exhibitions and the inability to travel abroad to carry out live customer demonstrations. These challenges were partially overcome by working closely with our international distributers, improved on-line marketing, and the development of a new demonstration facility, fully equipped for on-line demonstrations, at the Group’s site near Loughborough. Some important new customers were acquired, including regional and national bomb squads in Australia, the UK, Canada, and the USA. Since the year end, an additional order has been received from a federal agency in the USA, further vindication of our recruitment of an ex-US Marine Corps bomb technician to take our products to that market.
The customer service team has also been subjected to travel restrictions that are only now starting to be released. With over 50 heavily used industrial screening systems deployed from Mexico to Macedonia and from South Africa to Shanghai, the team has had to find inventive solutions to carry out system installation, training, routine maintenance, and repair. The fact that all our customer support contracts have been renewed through this period is testimony to the combination of remote diagnostics, on-line training, and new service partners put in place by the team.
Throughout the period, global supply chains have been impacted by a variety of factors and, over the past year we have had to deal with shortages in items as varied as microprocessors and packaging materials. So far, these risks have been mitigated successfully, though it may, in future, be necessary to hold strategic stock of key components.
A suite of new measurement techniques has been developed for our MDXi industrial inspection systems and delivered to the customer. Employment of part of our software team on this project has had some impact on internally funded product development but that impact is now being recovered. It is hoped these new techniques will lead to wider adoption of our industrial inspection systems.
The new product development programme continued to make good progress and launches of both portable and conveyor X-ray systems are anticipated for early in FY 2022.
ADAPTING THE OPERATION OF THE BUSINESS
In common with other manufacturing companies, Image Scan has had to adapt its operations in the light of the ongoing threat posed by the COVID-19 pandemic. The end of FY2021 coincided with the gradual opening of international travel, but infection levels in the UK remain high. The rate of serious illness has been eased by high vaccination take up in the UK. Since the year end, the situation has again started to become more serious and the Board continues to monitor it carefully.
The Group has invested in its facility to increase safety through improving ventilation, the provision of screens between workspaces, and development of clear protocols for visitors.
It has started to implement a flexible working regime for some categories of staff, combining working from home with a specified minimum number of days in the facility. We look to regain the benefits of face-to-face interaction within teams, while keeping control on the total number of staff in the building. We will remain flexible and will carefully monitor future developments.
The Group’s short-term strategy continues to be to pursue organic growth through expansion of the product range, selling these products in a wider range of market segments, and filling in gaps in its geographic reach. The Group seeks to develop profitable niche security segments for which it can create or source highly differentiated products that it can take to market at good margins.
Where it is not cost-effective to entirely develop a product ourselves, we will look to form partnerships with other companies in one of two models: collaborations, within which technology resources of multiple companies are combined to create new products; and factoring, where we will use our extensive partner network to sell carefully selected third party products to our customers. This allows us to further expand the product range and increase sales and service revenues while keeping our own R&D investment at affordable levels.
The Group’s core security segment is the “bomb squad” market to whom it sells its portable X-ray systems. We will continue to invest in this sector, broadening and strengthening our offer to customers. The new cabinet and conveyor X-ray systems create new opportunities in building security, mail screening, prisons and sports stadia. X-ray systems and will increase recurring service and support revenue as new systems are deployed.
In industrial screening, we will look for customer investment to enhance the MDXi product range and we have recently delivered a suite of sophisticated new measurement methods for inspection of catalytic converters. We will continue to look for new customers in this sector, while selectively investigating opportunities for our unique inspection and measurement technologies in the broader industrial X-ray market.
The Board’s longer-term ambition to increase the critical mass of the business through carefully selected acquisitions remains. However, we recognise that the opportunities will be limited by the current low share price and market capitalisation.
THE OUTLOOK FOR IMAGE SCAN
The impact of the COVID-19 pandemic has been felt throughout the financial year and infection rates in the UK and elsewhere remain high. Only now are security technology trade shows and travel for customer demonstrations, two important parts of our product sales process, starting to resume. Servicing of industrial X-ray machines, an important source of recurring revenue, has also been impacted and the team have done an exceptional job to retain this revenue and keep our customers happy. The Board expect it will be at least a further six months before travel-based activities such as these, return to something like pre-pandemic levels.
The year has continued to see delays in the larger Government procurements of portable X-ray systems. However, a number of these programmes are now underway, and we are participating in the early phases of several Government competitions. The on-going investment in our portable X-ray products and the software which supports them should make us strong contenders in these programmes. The portable X-ray market is increasingly competitive, with several new players emerging in recent years, and this drives both our continued evolution of our ThreatScan systems and our diversification into other X-ray screening systems and markets. We expect the ongoing revenue from routine portable X-ray purchases to be steady, with year-to-year growth dependant on the larger system procurements. The Group’s success in winning its first portable X-ray contracts in the US and Canada, starts to build a customer base in these important markets, both increasing our visibility and giving us a platform for further growth.
The Group has won its first customers for the AXIS-CXi cabinet X-ray system and will launch the first versions of the new AXIS conveyor X-ray range early in FY2022. Revenue contribution from these systems will increase over the next few years. Our manufacturing partner for conveyor X-ray has made a wide range or screening systems available to us and we will selectively add these to our portfolio. A key benefit of achieving installations for cabinet and conveyor systems is the legal requirement for regular servicing that will, over time, increase our recurring after-market revenues.
Although the automotive sector has been heavily impacted by the pandemic, the Group has continued to receive orders for new industrial inspection systems in FY2021, with demand more robust than anticipated. We expect tighter emissions control legislation to continue to drive demand for installations in India and China and there may be opportunities to replace some older systems. The successful development of a new suite of measurement techniques creates opportunities for further deployment with existing customers and gives us stronger arguments for adoption of X-ray screening by other catalytic converter manufacturers. We recognise that with use of petrol and diesel engines set to decline, we need to find alternative outlets for our industrial inspection technology, and this will be a focus over the medium term.
Global supply chains are currently suffering considerable disruption caused by the combination of COVID-19, manufacturing capacity limitations, sea freight shortages and, in the case of the UK, BREXIT. Image Scan is not immune from these global issues and continued diligence will be required if potential increases to product costs and customer lead times are to be avoided.
As anticipated, the past year has been challenging, and some of those challenges continue to impact our activities. However, we enter the new financial year with a strong cash balance, a rapidly expanding product range and important new customers. These are reasons for us to be optimistic for our ability to achieve organic growth in revenues and profits as market activity starts to return to more normal levels.
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.
It is announced that, as the first phase of Image Scan’s succession plan, from 1 January 2022, William Mawer, currently Chairman and Chief Executive of Image Scan, will relinquish the role of Chief Executive and take up a position as Executive Chairman. He will continue to take responsibility for strategy, investor relations and product development.
At the same time, Vincent Deery, currently Sales Director, will take up a position as Interim CEO, adding operations and related matters to his current responsibilities for sales and service.
Sarah Atwell King will continue as Finance Director and Company Secretary, while leading on corporate governance, risk management and process improvement. Tim Jackson and Dr Richard Leaver will remain in place as Non-Executive Directors.
Over the next 6 months, the Board will support Vince in the Interim CEO role, whilst assessing the optimal leadership structure to drive the Group forwards and may announce further changes at the end of that period.
Our staff have worked exceptionally hard to maintain the performance of the business through this difficult period and the Board is grateful for their efforts.
7 December 2021
IMAGE SCAN HOLDINGS PLC
As at 30 September 2021
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|Cost of sales||(1,359,309)||(1,760,242)|
|PROFIT BEFORE TAXATION||188,824||112,795|
|PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE EQUITY OWNERS OF THE PARENT COMPANY||
|Earnings per share|
IMAGE SCAN HOLDINGS PLC
As at 30 September 2021
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
|Property, plant and equipment||17,795||7,197|
|Right of use asset||232,428||39,664|
|Trade and other receivables||740,849||314,525|
|Cash and cash equivalents||1,186,423||1,409,494|
|Trade and other payables||752,280||707,630|
|Share premium account||8,327,910||8,327,910|
|Profit and loss account||(8,042,169)||(8,282,065)|
|TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS||1,649,287||1,409,391|
IMAGE SCAN HOLDINGS PLC
As at 30 September 2021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|Profit and loss account
|As at 1 October 2019||1,363,546||8,327,910||(8,423,897)||1,267,559|
|Profit for the year and total comprehensive income for the year||–||–||137,955||137,955|
|Transactions with owners:|
|As at 30 September 2020||1,363,546||8,327,910||(8,282,065)||1,409,391|
|Profit for the year and total comprehensive income for the year||–||–||239,896||239,896|
|Transactions with owners:|
|As at 30 September 2021||1,363,546||8,327,910||(8,042,169)||1,649,287|
IMAGE SCAN HOLDINGS PLC
As at 30 September 2021
CONSOLIDATED CASH FLOW STATEMENT
|CASH FLOWS FROM OPERATING ACTIVITIES|
|Amortisation of intangible assets||19,432||12,049|
|Amortisation of right of use asset||43,487||39,269|
|Impairment of inventories||99||(58,960)|
|Decrease in inventories||57,401||391,475|
|(Decrease)/increase in trade and other receivables||(426,324)||349,434|
|Increase/(decrease) in trade and other payables||44,650||(140,407)|
|Increase in warranty provisions||11,890||17,750|
|Cash (used in)/generated from operating activities||(48,813)||737,956|
|Corporation tax received||51,072||32,310|
|Net cash flows (used in)/generated from operating activities||2,259||770,266|
|CASH FLOWS FROM INVESTING ACTIVITIES|
|Purchase of intangibles||(111,183)||(4,555)|
|Purchase of property, plant and equipment||(18,287)||(5,035)|
|Net cash used in investing activities||(129,367)||(8,597)|
|CASH FLOWS FROM FINANCING ACTIVITIES|
|Proceeds of bank loan||–||50,000|
|Repayment of bank loan||(50,000)||–|
|Net cash (used in)/generated from financing activities||(95,963)||7,336|
|NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS||(223,071)||769,005|
|Cash and cash equivalents at beginning of year||1,409,494||640,489|
|CASH AND CASH EQUIVALENTS AT END OF YEAR||1,186,423||1,409,494|
Notes to the preliminary statement
- 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 International Accounting Standards in conformity of the requirements of the Companies Act 2006, 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 2021 or 30 September 2020 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies, and those for 2021 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 £nil (2020: £3,877) after valuation of the Group’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.
|Profit for the year||239,896||137,955|
|Weighted average number of ordinary shares in issue||136,354,577||136,354,577|
|Number of diluted shares||137,868,758||136,463,866|
|Basic profit per share||0.18p||0.10p|
|Diluted profit per share||0.17p||0.10p|