Final Results

RNS Number : 8934Z

Image Scan Holdings PLC

24 January 2011

 

24 JANUARY 2011

IMAGE SCAN HOLDINGS PLC

("Image Scan" or the "Company")

PRELIMINARY RESULTS

FOR THE YEAR ENDED 30 SEPTEMBER 2010

Image Scan, an AIM-listed specialist in the field of real-time 3D and 2D x-ray imaging for the security and industrial inspection markets, announces preliminary results for the year ended 30 September 2010.

KEY POINTS

·      Revenue at £1,472,000 (2009: £1,444,000);

·      Gross margin of 55% (2009: 48%);

·      Reduced overheads of £1,218,000 (2009: £1,283,000);

·      Loss on ordinary activities after taxation of £382,000 (2009: £537,000);

·      Year-end cash of £348,000 (2009: £850,000);

·      ISO:9000 accreditation;

·      Launch of new website; and

·      Appointment of UK sales manager.

POST YEAR END EVENTS

·      Order intake in year to date exceeds £1.3million and includes:

Ø Award of material nuclear contract worth £750,000;

Ø New industrial contracts worth £335,000 for both systems and software;

Ø Orders for FlatScan-TPXi from the Middle East, Southeast Asia and China;

·      Introduction of a smaller FlatScan system to complement the product range driven by market demand; and

·      Project focused on improving market competitiveness of our Axis baggage screening systems through substantial sub system cost reductions.

Brian Emslie, Chairman of Image Scan, commented:  

"The financial results for 2010, whilst still disappointing, mask the fundamental progress being made in changing the historical culture and repositioning the strategic focus of the Company. The contracts secured since the year end are an encouraging testament to our implementation of the strategy during the past two years in developing a business based on marketing a range of standard security systems whilst pursuing high value industrial opportunities.  During the year the cost base was further reduced despite the additional investment of appointing a UK sales manager.  I believe that we now have the appropriate infrastructure and mix of skills capable of focusing on securing additional revenue growth and delivering expected operational and technical performance. The order intake in the year to date provides a stronger platform for the Company to move towards its key short-term goal of achieving breakeven."

-END-

Enquiries:

Image Scan Holdings plc                                             Tel: [phone]

Brian Emslie, Chairman

Louise George, Chief Executive

[e-mail]

Seymour Pierce                                                           Tel: [phone]

Sarah Jacobs / John Cowie (Nominated Adviser)

Paul Jewell (Corporate Broking)

CHAIRMAN'S STATEMENT

INTRODUCTION

In reporting the Preliminary Results for Image Scan for the year ended 30 September 2010, I would like to comment on the Board's view of your Company's prospects for the future.

2010 has been a year of further transition for the Company with the implementation of the agreed strategy and the Board is confident that significant progress has been made in changing the historical culture of the Company to becoming a far more proactive sales and marketing led organisation.

The Company has a long history of underperformance which has continued, albeit to a lesser extent, in 2010. The Board believes that the Company has sufficient funds to meet its obligations in 2011 but clearly during the year ahead it is vital to demonstrate improved operating performance primarily through securing additional revenues.  Company performance is being closely monitored by the Board and whilst the recent encouraging level of order intake significantly reduces the risk for the year, the Board will continue to assess potential strategic options.

STRATEGY UPDATE

The repositioning of the Company from an R&D and custom solutions provider into a more commercial and customer focused organisation has been achieved.

The sales and marketing strategy has been refined during 2010 in light of additional market feedback gathered by the sales team with the primary objective for the Company to achieve breakeven as soon as possible through securing additional sales revenues from a wider customer base with a broader range of standard products and to move beyond breakeven into a sustainable and profitable business.

Implementing the strategy worldwide without a substantial customer base or reference list in our home territory was identified as a critical gap during the year.  As a result an experienced UK sales manager was appointed in May, the cost of whom has been absorbed from savings elsewhere without an increase in overall overheads.  Working closely with Government and corporate bodies in the UK has provided the opportunity to evaluate potential new products and to gain first hand end user feedback.

The security strategy is to sell standard products into emerging and niche applications rather than to focus on high volume sales for baggage screening where the probability of success against the well-established industry leaders in that segment is remote and the margins achieved are low. Greater customer contact during the year has clarified the security product strategy, firstly in identifying the need to enhance and expand the range of FlatScan products and secondly in challenging the cost base of the Axis systems and in expanding the range of the tunnel sizes being offered. The combination of the increased sales team, established distributor activity and new products being proactively marketed and quoted should result in the conversion of additional security revenues compared to last year towards the second half of 2011.

The industrial strategy is more medium to long-term as it will take longer to develop sustainable and repeatable business due to the initial one-off nature of the applications. The industrial marketing strategy is to target segments where the Company has a proven track record and to commit resources to pursue enquiries for new applications only where the probability of repeat business has been assessed as being high. Close contact has been maintained with our historical industrial customers and it is encouraging to have received such material contracts from existing nuclear and industrial relationships in the first few months of the current financial year. Clearly the industrial revenue in 2011 will be substantially greater than has been achieved from industrial sales for several years and the Company will continue to pursue future nuclear and other proven industrial business.

The Board believes that the correct strategy for the development of the Company has been established, although this will continue to be monitored and refined, and that significant progress in its implementation has been achieved. The Company now has a balanced organisational structure capable of delivering the strategy with operating overheads reduced to a level beyond which this capability would be impaired. Translating strategy into measureable results and improved performance is taking time but with the strong current order book of over £1.3million the Board is confident that progress is being made whilst remaining mindful of the risks to the business and current cash limitations available to the Company.  

Brian S Emslie

Chairman                                                                                                          24 January 2011

CHIEF EXECUTIVE'S REPORT

FINANCIAL RESULTS

Revenue in the year ended 30 September 2010 was £1,472,000 (2009: £1,444,000).  Sales of security equipment continued to grow based on a more than two-fold increase in demand for the FlatScan portable x-ray scanning system emerging from a wide range of end users.  Whilst this demand more than compensated for the lower level of Axis and industrial sales, it was insufficient to make a significant step change in the overall revenue reported in the period.  Industrial sales represented 16% of total revenue and resulted from software development, consultancy, spares and support activities.  During the year the Company undertook a contract to deliver a new software platform for the MDXi systems, installed across an existing customer's manufacturing facilities worldwide.

The gross margin of 55% (2009: 48%) was strengthened as a result of the cost reduction exercise carried out in 2009 and a shift in sales mix towards standard security products.

Reduced overheads of £1,218,000 (2009: £1,283,000) reflected the personnel changes made in 2009 and the reduction in professional services in relation to the corporate website and financial PR.  It is the Board's aim to contain overheads at this level.

The actions taken to both reduce standard build costs and overheads have resulted in an operating loss of £411,000 (2009: £590,000), the lowest level for over eight years.  The net loss was £382,000 (2009: £537,000) and the loss per share was 0.65p (2009: 0.96p).

The cash balance of £348,000 (2009: £850,000) reflected the loss for the year, investment in demonstration stock and increased working capital requirements.  The Company has an agreed £100,000 overdraft facility with the Royal Bank of Scotland.

COMMERCIAL DEVELOPMENT

Commercial progress during 2010 has been focused on two main areas, marketing and product development, with the intention being to create the platform from which sales opportunities can be increased.

Marketing

In May 2010 the Company launched its new trading company website, www.3dx-ray.com, into which the Image Scan investor web pages have been incorporated.  As part of this process, all other marketing materials have been updated to the same look and feel and for each new marketing medium the Company now has the flexibility to make changes directly without the need to resort to a third party.  This has resulted in greater control and ease of production and is more cost effective.

Also in May, the Company appointed a UK sales executive with a remit to achieve additional sales and references in the UK and also to increase the Company's profile within both Government and corporate organisations in the home territory.  Coupled with the attendance at five UK security exhibitions and the placement of articles in high quality trade journals, the awareness of 3DX-RAY Limited has increased substantially.

In terms of our international presence, the remit of our regional sales manager for the Middle East has been extended to include Southeast Asia, with good representation being established throughout these territories. 

Product development

During the year the Company developed the second generation FlatScan-POD, a mobile battery-powered screening system which has been sold into the British Transport Police and a US Government agency.

Taking advantage of the recent significant reduction in component costs for 3D computing, the Company has invested in the redesign of the Axis baggage screening system resulting in more competitively priced 3D and 2D versions of the Axis system.  A sale into the Middle East has already been secured on the back of this revised costing and pricing model. 

The increased market feedback via the sales team has been instrumental in driving the product development to meet end user requirements.  This is resulting in plans for the introduction of new products to the Company's portfolio, including a range of AXIS tunnel sizes and an alternative smaller FlatScan system, which are expected to address wider market requirements and support sales growth in 2011 and beyond.

OUTLOOK

Building on the experience acquired from a significant nuclear project delivered in 2008, the Company's Chief Technical Officer, Nick Fox, has been working closely with a key contractor to the nuclear sector to offer an innovative x-ray solution for the management of nuclear waste.  As a result the Company has secured a £750,000 contract for the supply of an x-ray inspection system for use within a large UK nuclear facility.  The image quality and the analysis thereof offered by the Company were critical to the client in meeting their requirements.  The contract provides for a number of milestones such that the Board expects approximately 50% of the revenue to fall in the financial year 2011.

Although in recent years demand for new industrial equipment sales has been at a very low level, the Company has continued to pursue strategic high value industrial opportunities where a tailored x-ray solution to complex industrial inspection is required.  This strategy is beginning to show early signs of success as, in addition to the substantial nuclear sector contract win, the Company has recently secured orders totalling £335,000 from another key industrial customer.

Within the security sector, the Company's strategy is to focus on expanding its range of standard x-ray systems to meet market demands, which recognise image quality as the key to improved threat detection.  The activity of the increased sales team is generating a greater quantity of enquiries and the Company is participating in more tender processes than before, with a considerable number of these tender specifications reflecting the technical capabilities of the FlatScan-TPXi system.  Recent contract wins include sales of the FlatScan-TPXi portable x-ray system to the Middle East, Southeast Asia and China.

As a result of these successes in both markets, the current order book exceeds £1.3million.  The cash at the bank as of today stands at £339,000.

STAFF

Our staff have remained loyal and committed to the Company.  All disciplines have worked well together, in particular with the engineering team responding to the demands of end users, as reported back to them by the sales team, into the product development.  I would like to take this opportunity to personally thank everyone at the Company for their continuing support.

Louise J George

Chief Executive Officer                                                                                      24 January 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2010

				2010 £	2009 £
Continuing operations
REVENUE				1,472,311	1,444,499
Cost of sales				(665,828)	(751,317)
Gross profit				806,483	693,182
Administrative expenses				(1,218,190)	(1,283,238)			(1,283,238)
OPERATING LOSS				(411,707)	(590,056)
Finance income				1,565	23,489
LOSS BEFORE TAXATION				(410,142)	(566,567)
Taxation				28,566	29,903
LLOSS FOR THE YEAR FROM CONTINUING OPERATIONS				(381,576)	(536,664)

EARNINGS PER SHARE				2010 £	2009 £
Loss for the year				381,576	536,664
Weighted average number of ordinary shares in issue				58,490,656	55,620,120
Basic and diluted loss per share				0.65p	0.96p

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 2010

					2010 £	2009 £
NON-CURRENT ASSETS
Property, plant and equipment					49,486	73,334
Other intangible assets					-	-
					49,486	73,334
CURRENT ASSETS
Inventories					273,007	232,592
Trade and other receivables					319,740	216,461
Cash and cash equivalents					347,637	850,117
Current tax asset					27,943	29,903
					968,327	1,329,073
TOTAL ASSETS					1,017,813	1,402,407
CURRENT LIABILITIES
Trade and other payables					197,297	300,305
Warranty provision					6,490	22,800
TOTAL LIABILITIES					203,787	323,105
NET ASSETS					814,026	1,079,302
EQUITY
Share capital					612,679	556,981
Share premium account					7,361,105	7,305,407
Retained earnings					(7,159,758)	(6,783,086)
TTOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS					814,026	1,079,302

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 30 September 2010

		Share capital £	Share premium £	Retained earnings £	Total £
As at 1 October 2008		556,981	7,305,407	(6,251,489)	1,610,899
Loss for the year		-	-	(536,664)	(536,664)
Share-based transactions		-	-	5,067	5,067
As at 30 September 2009		556,981	7,305,407	(6,783,086)	1,079,302
	Share issue Loss for the year	55,698 -	55,698 -	- (381,576)	111,396 (381,576)
	Share-based transactions	-	-	4,904	4,904
	As at 30 September 2010	612,679	7,361,105	(7,159,758)	814,026

 

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 30 September 2010

					2010 £	2009 £
Cash flows from operating activities
Operating loss					(411,707)	(590,056)
Adjustments for:
Depreciation					71,101	75,387
Loss on sale of property, plant and equipment					2,751	-
Increase in inventories					(40,415)	(78,565)
Increase in trade and other receivables					(103,279)	(63,056)
Decrease in trade and other payables					(119,318)	(94,414)
Share-based payments					4,904	5,067
Net cash used in operating activities					(595,963)	(745,637)
Corporation tax recovered					30,526	46,333
Net cash outflow from operating activities					(565,437)	(699,304)
Cash flows from investing activities
Interest received					1,565	23,489
Purchase of property, plant and equipment					(50,004)	(8,572)
Net cash (used in)/from investing activities					(48,439)	14,917
Cash flowS from financing activities
Issue of ordinary share capital					111,396	-
Net cash from financing activities					111,396	-
Net DECREASE in cash and cash equivalents					(502,480)	(684,387)
Cash and cash equivalents at beginning of year					850,117	1,534,504
Cash and cash equivalents at end of year					347,637	850,117

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 2010 and 30 September 2009 but is derived from those accounts.  Statutory accounts for 2009 have been delivered to the Registrar of Companies, and those for 2010 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 £4,904 (2009: £5,067) 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 2010 will be posted to shareholders on 15 February 2011 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 Thursday 17 March 2011 at the offices of Seymour Pierce, 20 Old Bailey, London EC4M 7EN.

 

END

 

 

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