Final Results

RNS Number : 8164T

Image Scan Holdings PLC

13 December 2011

 



13 DECEMBER 2011

IMAGE SCAN HOLDINGS PLC

('Image Scan' or the 'Company')

PRELIMINARY RESULTS

FOR THE YEAR ENDED 30 SEPTEMBER 2011

Image Scan, an AIM-listed specialist in the field of real-time x-ray imaging for the security and industrial inspection markets, announces preliminary results for the year ended 30 September 2011.

KEY POINTS

·      Revenue at £2,173,000 (2010: £1,472,000)

·      Gross margin of 41% (2010: 55%)

·      Reduced overheads of £1,169,000 (2010: £1,218,000)

·      Loss on ordinary activities after taxation of £237,000 (2010: £382,000)

·      Break-even in the second half of 2011

·      Year-end cash of £945,000 (2010: £348,000)

·      Order intake during the year of £4.3million (2010: £1.4million)

·      Year end order book of £2.3million (2010: £90,000)

·      Increased activity in key territories

POST YEAR END EVENTS

·      Two contracts for new industrial applications

·      Sale of FlatScan-TPXi into Eastern Europe

·      Launch of ThreatSpect, the second generation FlatScan security software

Brian Emslie, Chairman of Image Scan, commented:  

"The range and value of contracts secured during the year provide affirmation that the strategy adopted by the Board over the previous two years is gaining traction. Growth in sales revenues has been achieved by the investment in an enlarged sales team actively working with agents and distributors to pursue sales of standard security systems whilst also pursuing high value industrial opportunities. The Board is encouraged by the progress made both within the security and the industrial sectors in 2011 and believes that this will provide a platform for further sales growth and sustaining revenues in future years."

-END-

Enquiries:

Image Scan Holdings plc                                             Tel: [phone]

Brian Emslie, Chairman

Louise George, Chief Executive

[e-mail]

Seymour Pierce                                                           Tel: [phone]

Sarah Jacobs (Nominated Adviser)

Paul Jewell (Corporate Broking)

CHAIRMAN'S STATEMENT

INTRODUCTION

In reporting the preliminary results for Image Scan for the year ended 30 September 2011, I would like to comment on the Board's view of the Company's prospects for the future.

Having reported a loss in the first half of 2011, the Board is encouraged that the underlying order book apparent at that time has given rise to the Company achieving break-even for the first time during the second half of the financial year, reducing the half year loss of £266,000 to £237,000.  The Board is now focused on endeavouring to maintain the sustainability of operating at break-even and moving into profitability after a long period of underperformance.

During 2011 the culture of the Company has continued to evolve, in line with our strategy, into becoming a more proactive sales and marketing-led organisation. 2011 saw the introduction of complementary security products to widen the product range.  These products, whilst extending our sales reach and potential with customers, are yielding lower margins for the Company due to increased competiveness in the market and the need to bear non-recurring engineering costs associated with the product introductions.  Whether existing or new products, there is a focus on improved design for manufacture, with a view to enhancing achieved margins.

The £300,000 investment by Rise Step Development International Ltd in June 2011 enabled the Company to meet its financial obligations, including funding the necessary working capital required for the growth achieved.  Whilst the Board is encouraged by the current level of business, it is recognised that much work is still required to ensure the long term viability of the Company.

STRATEGY UPDATE

As reported in 2010, the Company has been focused on increasing its range of standard security equipment whilst identifying high value industrial opportunities where a tailored x-ray inspection solution is required.  Having pursued this course over the previous two years, the Board is pleased with the range and value of contracts secured during 2011 from both the security and industrial sectors. The investment in an extended sales team and redesigning the Company's website in 2010 is now generating materially more relevant enquiries and resulting in ongoing levels of quotations issued being substantially higher than in previous years.

Direct and more focused customer engagement is resulting in higher quality end user feedback to enable the Company to refine existing product capabilities and to consider adding complementary products and services to the range. 

Whilst the Company does not have the technical resources or critical mass to keep pace with the major suppliers of airport baggage screening equipment, it is believed that there are certain low volume niche applications where sales can be made. To participate in these niche screening markets it is necessary to enhance and extend the current AXIS portfolio to offer a range of different size systems. It is also important for the Company to capitalise on the recent significant contract for the SVXi small vehicle inspection system and to secure repeat sales.  The Board is pleased with the initial market response to the launch of the FlatScan-15 in 2011 and the level of early sales made to date.  The appeal of this product will be further enhanced in 2012 following the launch of ThreatSpect, the second generation software for the FlatScan range.

The increased level of business during the year has tested the Company's operational and development capabilities.  As a result the operational structure has been reorganised to provide better functional accountability focusing on delivering standard products whilst maintaining the capability to produce bespoke industrial and non-standard security systems.

The Board believes that the Company has progressed well in implementing the strategy first adopted in 2009 and that this is now starting to translate into improved measureable results. Development of a profitable and sustainable business in time requires less reliance on one-off large contracts and more reliance on offering a broader product range to a wider more diffuse set of customers.  Whilst remaining confident that the business can develop further, the Board recognises the risks involved and the relatively limited cash position of the Company, and therefore remains open to exploring all strategic options that may materialise.

Brian S Emslie

Chairman

13 December 2011

CHIEF EXECUTIVE'S REPORT

FINANCIAL RESULTS

Revenue in the year ended 30 September 2011 increased by 48% to £2,174,000 (2010: £1,472,000) with growing activity in both the security and the industrial sectors.  Sales of security equipment increased by 11% to £1,351,000 (2010: £1,219,000) based on strong ongoing FlatScan sales, renewed demand for the AXIS system and the first tranche of a significant contract for the SVXi system.  Meanwhile having contributed just £253,000 of revenue in 2010, orders for the MDXi system and a major contract from the nuclear sector saw industrial sales increase to £823,000 (2010: £253,000) representing 38% (2010: 16%) of total revenue.

The gross margin of 41% (2010: 55%) reflects the different sales mix in 2011.  Sales in 2010 were predominantly for the FlatScan-TPXi portable x-ray inspection system on which margins have generally been good.  Industrial sales tend to perform at a lower margin because of the bespoke element of work required on each delivery.  The AXIS baggage screening market and the lower cost portable market are more price-competitive and security sales included revenue from third party products.  These factors have all contributed towards erosion in the margin.

Overheads at £1,169,000 (2010: £1,218,000) continued to fall over the past four years.  The increased revenue and the ongoing control of overheads have resulted in a loss after taxation of £237,000 (2010: £382,000).  The loss per share was 0.36p (2010: 0.65p).

The interim results reported losses after taxation of £266,000, compared to a profit of £29,000 in the second half of the year, and an overall loss for the year of £237,000 (FY10: £382,000).  This is the first half-year period in which the Company has been profitable and reflects the strong sales performance across the product range and across both sectors.

Given a loss of £237,000 and a capital injection of £300,000 during the year, the improved cash position of £945,000 (2010: £348,000) at the year end is explained by advance payments of £520,000 on projects deliverable in the first half of 2012.  The cash at the bank as of 9 December 2011 stands at £439,000.  The Company has retained its £100,000 overdraft facility with the Royal Bank of Scotland.

COMMERCIAL DEVELOPMENT

During the year the Company has sought to extend its reach through increased activity in territory and to generate additional sales through existing and new trading partners by offering a wider product range with the necessary technical capability to meet market needs.  To support this strategy, the Company invested in the following product development:

Ø AXIS range - A smaller AXIS-53 and a larger AXIS-100 baggage screening system have been designed to broaden the product range from the existing mid-tunnel size AXIS-64 and its 3D variant.  These products are expected to be launched in 2012.  The margins on this range are relatively low due to it being a mature and competitive market.  However, the Company is working to reduce the build cost through off-shore manufacture of some mechanical elements of the system.

Ø FlatScan-15 - A smaller FlatScan portable x-ray screening system was launched mid-year to compete in the lower cost portable market.  This is expected to secure incremental revenue but at a lower margin.

Ø SVXi - A significant contract for the small vehicle x-ray inspection system was secured towards the end of 2011 and is deliverable in the first half of 2012.  This contract has enabled investment in incremental development of this system to incorporate additional functionality.  These costs will not be repeated on subsequent builds.

Ø ThreatSpect - The second generation of the FlatScan software, ThreatSpect, was launched at the Milipol exhibition in October 2011.  This incorporates new functionality as well as providing a more contemporary user interface and can be sold as a retrofit upgrade to existing FlatScan users.

Ø CatSpect - During the year the industrial inspection software has been further developed as part of a project for a longstanding industrial customer.

OUTLOOK

Order intake during 2011 totalled £4.3million (FY10: £1.4million) of which £2.3million will be carried forward into 2012 compared to an opening order book of just £90,000.  Orders received include a £0.75million contract for the nuclear sector and £1.5million contract for the security sector.  In addition, there has been a steady flow of smaller orders totalling over £2million from a wide range of customers and territories and across both sectors, giving the Company a sound platform from which to grow revenue.

The threefold increase in order intake speaks volumes for the step-change that the Company has taken in the past year.  Looking ahead, the Board is cognisant that this included two significant contracts which will not necessarily be repeated in the forthcoming financial year, and that it will take time for growth in sales of the new product initiatives to take effect.  The Board is also aware that the incremental sales attainable in the new markets being pursued will not necessarily secure the same gross margin enjoyed historically and, as a result, the break-even revenue will be commensurately higher.  However, the Board believes that profitability will come through a broader product offering and increased traction of the Company's products.

The increased sales activity in territory and the investment in the new website are giving rise to a greater volume of tenders and quotations being submitted for standard security equipment.  In addition there continues to be renewed interest from the industrial sector such that since the year end two contracts have been secured within new industrial markets capitalising on applications work undertaken in previous years. Given these factors, it is expected that the success of 2011 will provide the foundation for strong sales in 2012.

STAFF

The Board is continuing to manage its staff to achieve their potential and have restructured the internal organisation to enable key individuals to step up into more challenging roles.  I would like to take this opportunity to personally thank everyone for their continuing commitment to the Company.

Louise J George

Chief Executive Officer

13 December 2011                                                                                                                     

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2011

				2011 £	2010 £
Continuing operations
REVENUE				2,173,757	1,472,311
Cost of sales				(1,272,548)	(665,828)
Gross profit				901,209	806,483
Administrative expenses				(1,169,323)	(1,218,190)
OPERATING LOSS				(268,114)	(411,707)
Finance income				875	1,565
LOSS BEFORE TAXATION				(267,239)	(410,142)
Taxation				30,056	28,566
LLOSS FOR THE YEAR FROM CONTINUING OPERATIONS				(237,183)	(381,576)

EARNINGS PER SHARE				2011 £	2010 £
Loss for the year				(237,183)	(381,576)
Weighted average number of ordinary shares in issue				65,418,617	58,490,656
Basic and diluted loss per share				(0.36)	(0.65)p

IAS 33 requires presentation of diluted earnings per share ('EPS') when a company could be called upon to issue shares that would decrease net profit or increase net loss per share.  For a loss-making company with outstanding share options, net loss per share would only be increased by the exercise of out-of-the-money options.  Since it seems inappropriate to assume that option holders would act irrationally and there are no other diluting future share issues, diluted EPS equals basic EPS.         

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2011

					2011 £	2010 £
NON-CURRENT ASSETS
Property, plant and equipment					43,548	49,486
Other intangible assets					-	-
					43,548	49,486
CURRENT ASSETS
Inventories					315,450	273,007
Trade and other receivables					566,632	319,740
Cash and cash equivalents					945,201	347,637
Current tax asset					29,474	27,943
					1,856,757	968,327
TOTAL ASSETS					1,900,305	1,017,813
CURRENT LIABILITIES
Trade and other payables					999,380	197,297
Warranty provision					29,449	6,490
TOTAL LIABILITIES					1,028,829	203,787
NET ASSETS					871,476	814,026
EQUITY
Share capital					762,679	612,679
Share premium account					7,501,105	7,361,105
Retained losses					(7,392,308)	(7,159,758)
TTOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS					871,476	814,026

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 30 September 2011

				Share capital £	Share premium £	Retained earnings £	Total £
As at 1 October 2009				556,981	7,305,407	(6,783,086)	1,079,302
Share issue				55,698	55,698	-	111,396
Loss for the year				-	-	(381,576)	(381,576)
Share-based transactions				-	-	4,904	4,904
As at 30 September 2010				612,679	7,361,105	(7,159,758)	814,026
Share issue				150,000	140,000	-	290,000
	Loss for the year			-	-	(237,183)	(237,183)
	Share-based transactions			-	-	4,633	4,633
	As at 30 September 2011			762,679	7,501,105	(7,392,308)	871,476

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 30 September 2011

				2011 £	2010 £
Cash flows from operating activities
Operating loss				(268,114)	(411,707)
Adjustments for:
Depreciation				39,615	71,101
Loss on sale of property, plant and equipment				-	2,751
Increase in inventories				(42,443)	(40,415)
Increase in trade and other receivables				(246,892)	(103,279)
Decrease in trade and other payables				825,041	(119,318)
Share-based payments				4,633	4,904
Net cash generated from / (used in) operating activities				311,840	(595,963)
Corporation tax recovered				28,525	30,526
Net cash inflow / (outflow) from operating activities				340,365	(565,437)
Cash flows from investing activities
Interest received				875	1,565
Purchase of property, plant and equipment				(35,731)	(50,004)
Receipt from disposal of assets				2,055	-
Net cash outflow from investing activities				(32,801)	(48,439)
Cash flowS from financing activities
Issue of ordinary share capital				290,000	111,396
Net cash inflow from financing activities				290,000	111,396
Net DECREASE in cash and cash equivalents				597,564	(502,480)
Cash and cash equivalents at beginning of year				347,637	850,117
Cash and cash equivalents at end of year				945,201	347,637

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 2011 and 30 September 2010 but is derived from those accounts.  Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 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    IFRS 2 'Share-based payments'

Operating expenses includes a charge of £4,633 (2010: £4,904) 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.

3    Posting of accounts

It is intended that the financial statements for the year ended 30 September 2011 will be made available to shareholders on the Company's website by 6 February 2012 and will also be available thereafter at the registered office, 16-18 Hayhill, Sileby Road, Barrow upon Soar, Leicestershire LE12 8LD.

4    Annual General Meeting

The Annual General Meeting will be held at 11.00am on Wednesday 29 February 2012 at the offices of Seymour Pierce, 20 Old Bailey, London EC4M 7EN.

 

END

 

 

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