TIDMIGE
RNS Number : 5119H
Image Scan Holdings PLC
04 December 2020
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
4 December 2020
Image Scan Holdings plc
("Image Scan", the "Company" or the "Group")
PRELIMINARY RESULTS FOR THE YEARED 30 SEPTEMBER 20 20
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 2020.
HIGHLIGHTS
-- Sales increased 50% to GBP3.5m (2019: GBP2.4m)
-- Pre-tax trading profit of GBP113k (2019: Loss of GBP402k)
-- Aftersales revenues increased by 50%
-- Strong cash generation, yielding a year-end balance of GBP1.4m (2019: GBP640k)
-- Sales of portable X-ray systems doubled
-- A new cabinet X-ray system was launched
-- A partnership agreement was signed with a major security technology company
-- Strong cash flow due to excellent working capital management
Bill Mawer, Chairman and Chief Executive of Image Scan
commented: "It is gratifying to be able to report a profit in the
middle of such a difficult period for manufacturers around the
world. The COVID-19 pandemic has impacted our customers, our supply
chain and our staff. However, I am proud of the way the whole
Company has pulled together through this period to keep the
business operating and to be able to deliver a profit for the year
that exceeded our earlier estimates.
The recent launch of the Axis-CXi cabinet X-ray machine is an
exciting step forward for the Company and should bring new
customers and new sources of revenue. With our strong cash position
and our ambitious product development programme we look to emerge
from the pandemic well-placed for the future
--
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
Enquiries:
Image Scan Holdings plc Tel: +44 (0) 1509 817
William Mawer, Chairman and Chief Executive Officer 400
Sarah Atwell King, Finance Director and Company ir@ish.co.uk
Secretary
----------------------
W H Ireland - Nominated Adviser and Broker Tel: +44 (0) 117 945
Mike Coe/Chris Savidge (Corporate Finance) 3470
----------------------
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.
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
I am pleased to announce that the Group is reporting a profit
after tax for its year ended 30 September 2020 of GBP137k compared
with a loss last year of GBP367k. This result reflects a strong
first half, building on a large portable X-ray order won at the end
of the previous year, and a lower level of activity in the second
half as COVID-19 led to a slowdown in new business. However, the
Group has continued to receive orders, run its manufacturing site,
and supported its customers throughout the pandemic. Additionally,
careful management of costs and stock made the business strongly
cash generative. Product development activity continued at near
normal levels and led to the launch of a new cabinet X-ray system,
while a partnership agreed with a security technology company will
lead to further product launches.
FINANCIAL RESULTS
New orders received in the year declined under the influence of
COVID-19 to GBP2.4m (2019: GBP3.9m), however, the strong order book
brought forward from the prior year allowed sales of GBP3.5m (2019:
GBP2.4m), a 50% increase year on year. Geographically the
destinations for these sales were highly diverse and included
customers in South America and Africa alongside more normal targets
in the Middle East and Asia. Aftersales revenues, which consist
primarily of service, spares and training, were up by nearly 50%,
supported by valuable spares contracts for a nuclear screening
system originally delivered in 2015.
Gross margins returned to more normal levels at 49% (2019: 54%)
reflecting the balance of product mix towards portable X-ray.
Overheads declined slightly to GBP1.6m, as the Company used the
Government's Coronavirus Job Retention Scheme to support salaries
during periods of reduced activity. The pre-tax trading profit for
the year was GBP113k (2019: loss of GBP402k).
The Company ended the period with an order book of GBP633k
(2019: GBP1.7m) and a healthy year-end cash balance of GBP1.4m
(2019: GBP640k). The strong bank balance represents cash generation
of GBP769k (2019: reduction GBP142k), achieved in part by carefully
trading out of the high stock holding reported at the end of the
previous period. Stock has been managed tightly, particularly in
the period of the pandemic, with a balance being struck between
control of working capital and the need to offer favourable
delivery times to customers. In the year, the Company took
advantage of the Government's Bounce Back loan for GBP50k which
will be repaid in FY2021.
Overall net assets at the year-end increased to GBP1.4m (2019:
1.3m) and with year- end cash balances of GBP1.4m this leaves the
Group in a strong financial position to both weather the pandemic
and continue its investment in its products and markets.
BUSINESS REVIEW
The business started the year with a strong order book of
GBP1.7m, which included a large order valued at over GBP800k for
portable X-ray systems from a European government customer. That
order was manufactured in the first quarter and delivered in the
second quarter through our local partner. The production team was
also kept busy by a succession of smaller portable X-ray orders
from customers in a wide range of geographies, contributing to a
strong and profitable first half. The rate of portable X-ray sales
in the second half declined, but the figures for the full year were
pleasing, showing a doubling of unit sales numbers over FY2019.
The sales process for portable X-ray systems typically incudes
trade shows, customer demonstrations and live trials, often
conducted with our overseas partners. COVID-19 has significantly
impacted this activity, but our team has successfully migrated to
online campaigning. This is a multi-platform effort, and includes
the creation of new video material, the ability to conduct online
demonstrations where the customer is able to control the equipment
remotely, and our first attendance at an online security trade
show. We are creating a permanent exhibition area in our facility
to support both visits and online demonstrations.
The R&D team continued to add features to our portable X-ray
products and expand the range of peripheral options available. An
example of this, released in the period, is a hand-held trigger
which allows our portable X-ray generators to be used with X-ray
film, without the need to set up a detector panel or laptop, an
important option for some bomb scenarios. Our US based sales
consultant, an experienced former bomb technician, has created
detailed instruction videos to support this and other new
developments. Bomb technician training courses were carried out in
the US under the 3DX-Ray name for the first time.
The new Axis-CXi cabinet X-ray system, launched at an online
trade show just after the year end, presents a level of
sophistication in image capture and processing not previously
available in this type of screening system. Use of many components
and software modules from the portable X-ray systems made this an
efficient development process and will help in manufacturing and
customer support. The team has also made good progress on a new
conveyor X-ray system based on technology from our technology
partner. Both project teams have included Bluefrog Design, an
award-winning industrial design company based in Leicester, who
have helped create an impactful external design for machines.
New measurement techniques for the MDXi range of industrial
scanners were taken to market during the year and, shortly after
the year end, this activity led to a software contract to finalise
the development of the techniques and implement them on deployed
MDXi inspection systems. This demonstrates the close working
relationships we maintain with our key industrial customers,
important for our continued success in this profitable niche.
ADAPTING THE OPERATION OF THE BUSINESS
While the focus of operational improvement efforts in the prior
year had been on-time delivery and quality, in FY2020 the emphasis
has been on adapting to the challenging demands of the COVID-19
pandemic. The manufacturing space has been reorganised to create
social distancing, new controls have been introduced and access to
software tools for remote product development has been improved.
Sales and administration functions have worked almost entirely from
home. Our customer support staff have had to re-think how they
operate, increasing remote access to deployed systems and, in some
cases, finding and training local support partners.
We have worked hard to maintain the atmosphere of co-operative
teamwork that existed when the whole team was working in one place.
The business will continue to adapt and improve in this new and
challenging environment.
OUR STRATEGY
The Group's short-term strategy is 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 play in profitable niche
security segments for which it can create highly differentiated
products that it can take to market at good margins. The Group
recognises that as a relatively small business it can only support
a limited range of technologies and it is therefore creating an
underlying toolkit as the core of a broad range of its products.
The new Axis-CXi is a good example of this approach, using
detectors and software from the portable X-ray range.
Where it is not cost-effective to entirely develop a product
ourselves, we will look to partner with other companies, just as we
have done in this year. This allows us to further expand the
product range, 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 X-ray system and planned conveyor X-ray
systems create new opportunities in building security, mail
screening, prisons and sports stadia. X-ray equipment in these
markets must, by law, be serviced regularly allowing the Group to
increase its 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 recently won a contract to
develop sophisticated new measurement methods for inspection of
catalytic converters. We will continue to look for new customers in
this sector, while selectively investigating opportunities 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.
COVID-19 AND THE OUTLOOK FOR IMAGE SCAN
The Covid-19 pandemic has impacted the Group's customers, its
supply chain and its staff. However, the Group created a
Covid-secure working environment at its facility and continued
manufacturing operations onsite. R&D has continued, with staff
working both onsite and from home, and sales and administrative
staff have mainly worked from home. Provided our staff remain
healthy, this method of operation will continue for as long as
Government guidance recommends it.
As our international government customers have tended to focus
effort and budget on healthcare, some larger government
procurements of security systems have been delayed. Nevertheless,
we have continued to receive a steady stream of smaller orders and
are optimistic that this will continue. By continuing to invest in
the portable X-ray product range we expect to be well positioned
when procurement returns to a more normal level. We aim to make the
first sales of our new cabinet X-ray systems in the current
financial period and expect growth beyond that. Accessing broader
groups of customers with this and other new products will add new
revenue streams that make us less dependent on the highly
competitive portable X-ray market.
It is hard to anticipate when spending on security systems might
return to more normal levels, but we are confident that our
expanded product range and wide market access puts us in a good
position to benefit when that happens.
The Group's industrial sales in FY2020 were consistent with
previous years, but the wider automotive sector, which includes our
industrial customers, has been severely hit by the pandemic, as
sales across that sector are estimated to be 20% down in 2020
(Source IHS Markit). Our customers are reducing activity in key
plants and we expect a low level of new system acquisitions over
the next 12 months. It is anticipated that recovery in the car
market will be strongest in China, where growth was particularly
impressive before the pandemic, and we would expect to benefit as
manufacturing capacity is further increased there.
The impact of Brexit on the business is hard to estimate with
any accuracy but we have considered both direct and indirect
effects. A relatively small part of our turnover comes from EU
customers so, even if there is a tendency by those customers to
procure from within the EU, the impact should be small. Our only
significant EU supplier has already been replaced by an alternative
source within the UK. The most likely indirect impact is a general
slow-down of customs processes for incoming parts and outgoing
finished goods, but we anticipate that this will be manageable. The
Board reviews potential impacts of Brexit on the business every
month.
In summary, we have entered the new financial year with
continuing economic and political uncertainties. Without the
benefit of exceptionally strong order book going into last year and
the current delays in the placing of large orders, we therefore
expect a challenging year ahead. However, our strong cash balance
gives us confidence that we can weather these uncertainties and our
expanded product range a wide market access means we are
well-placed to benefit as and when activity levels 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 will provide both protection
from market shocks and stronger amortisation of the relatively high
fixed costs associated with a stock market listing.
STAFF
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.
William Mawer
CHAIRMAN
3 December 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2020 2019
GBP GBP
REVENUE 3,484,410 2,365,202
Cost of sales (1,760,242) (1,086,595)
Gross profit 1,724,168 1,278,607
Operating expenses (1,312,562) (1,272,779)
Research and development
expenses (299,804) (408,531)
Total administrative expenses (1,612,366) (1,681,310)
OPERATING PROFIT/ (LOSS) 111,802 (402,703)
Finance income 993 892
PROFIT / (LOSS) BEFORE TAXATION 112,795 (401,811)
Taxation 25,160 33,939
PROFIT/(LOSS) AND TOTAL COMPREHENSIVE
INCOME FOR THE YEAR FROM
CONTINUING OPERATIONS ATTRIBUTABLE
TO THE EQUITY OWNERS OF THE
PARENT COMPANY 137,955 (367,872)
Pence Pence
Earnings per share
Basic 0.10 (0.27)
Diluted 0.10 (0.27)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2020 2019
GBP GBP
NON-CURRENT ASSETS
Intangible Assets 17,839 25,334
Property, plant and equipment 7,197 11,575
Right of Use Asset 39,664 -
Deferred Tax Asset - 7,150
64,700 44,059
CURRENT ASSETS
Inventories 450,574 783,089
Trade and other receivables 314,525 663,959
Cash and cash equivalents 1,409,494 640,489
2,174,593 2,087,537
TOTAL ASSETS 2,239,293 2,131,596
CURRENT LIABILITIES
Trade and other payables 707,630 848,037
Lease Liability 38,522 -
Warranty provision 33,750 16,000
Bank Loan 3,147 -
783,049 864,037
NON-CURRENT LIABILITIES
Bank Loan 46,853 -
46,853 -
NET ASSETS 1,409,391 1,267,559
EQUITY
Share capital 1,363,546 1,363,546
Share premium account 8,327,910 8,327,910
Retained earnings (8,282,065) (8,423,897)
TOTAL EQUITY ATTRIBUTABLE
TO SHAREHOLDERS 1,409,391 1,267,559
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share capital Share premium Retained Total
GBP GBP earnings GBP
GBP
As at 1 October 2018 1,363,546 8,327,910 (8,061,389) 1,630,067
Loss for the year and total
comprehensive income/(expenditure)
for the year - - (367,872) (367,872)
Transactions with owners:
Share-based transactions - - 5,364 5,364
As at 30 September 2019 1,363,546 8,327,910 (8,423,897) 1,267,559
Profit for the year and total
comprehensive income/(expenditure)
for the year - - 137,955 137,955
Transactions with owners:
Share-based transactions - - 3,877 3,877
As at 30 September 2020 1,363,546 8,327,910 (8,282,065) 1,409,391
CONSOLIDATED CASH FLOW STATEMENT
2020 2019
GBP GBP
Cash flows from operating activities
Operating profit before research
and development expenditure and exceptional
costs 411,606 5,828
Research and development expenditure (299,804) (408,531)
Operating profit/(loss) 111,802 (402,703)
Adjustments for:
Depreciation 9,414 13,482
Amortisation of intangible assets 12,049 10,458
Amortisation of lease 39,269 -
Impairment of inventories 26,263 13,297
Decrease in inventories 306,252 142,253
Decrease in trade and other receivables 349,434 119,511
Decrease in trade and other payables (140,407) (61,929)
Increase/(decrease) in warranty provisions 17,750 (18,999)
Share-based payments 3,877 5,364
Cash generated by/(used in) operating
activities 735,703 (179,266)
Corporation tax 32,310 64,133
Net cash flows generated by/(used
in) operating activities 768,013 (115,133)
Cash flows from investing activities
Interest received 993 892
Purchase of intangibles (4,555) (16,915)
Purchase of property, plant and
equipment (5,035) (9,990)
Net cash used in investing activities (8,597) (26,013)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank loan 50,000 -
Lease payment (40,411) -
Net cash generated from financing 9,589 -
activities
Net INCREASE/(DECREASE) in cash and cash equivalents 769,005 (141,146)
Cash and cash equivalents at beginning
of year 640,489 781,635
Cash and cash equivalents at end
of year 1,409,494 640,489
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 2020
and 30 September 2019 but is derived from those accounts. Statutory
accounts for 2019 have been delivered to the Registrar of
Companies, and those for 2020 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 GBP3,877 (2019:
GBP5,364) 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.
3. 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.
2020 2019
GBP GBP
Profit/(loss) for the year 137,955 (367,872)
Weighted average number of ordinary
shares in issue 136,354,577 136,354,577
Number of diluted shares 136,463,866 136,354,577
Basic loss per share 0.10p (0.27p)
Diluted loss per share 0.10p (0.27p)
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