Image Scan Holdings Regulatory News (IGE)

PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2016

Image Scan, (AIM: IGE) specialists in the field of innovative real-time X-ray imaging for the Security and Industrial Inspection markets, today announces preliminary results for the year ended 30 September 2016.

KEY POINTS

· Total order intake for the year was £4.3m (2015: £1.9m).

· Sales of £3.3m (2015: £1.7m) at an improved gross margin of 42% (2015: 38%) resulted in a pre-tax trading profit of £105k (2015: loss of £550k).

· Total portable X-ray sales tripled compared to the previous year, with units delivered to customers in Europe, the Middle East, Asia and North Africa.

· The government grant assisted project to develop a new generation of portable X-ray systems reached the prototype stage.

· Industrial sales increased, driven by higher demand from key automotive industry customers.

· Total R & D spend increased to £369k, with internal funding supported by customer funding and a government grant.

· The outstanding order book at the end of the period was £1.7m (2015: £0.7m) including more than 50 portable X-ray systems.

· Cash at the end of the period was £1.1m (2015: £0.5m).

Bill Mawer, Chairman and Chief Executive of Image Scan, commented: "The strong growth in security sales validates the product strategy laid out and adopted two years ago, and demonstrates how attractive our new products are in the very active market for portable X-ray systems. Our consistent on-time delivery of these high volumes of product demonstrates the progress we have made in developing our supply chain and manufacturing processes. Sales to industrial customers have also been healthy, reflecting the current strength of the automotive emissions control market, where key players use our X-ray inspection systems to support their manufacturing processes.

Our strong order book and cash positions point to continued good performance in the short term while our product pipeline and the expanding customer base point to a strong longer-term future. The 20th anniversary of the founding of the Company comes at an exciting time for Image Scan and the immediate task is to continue the momentum we have built this year."

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.

-END-Image Scan Holdings plc Tel: +44 (0) 1509 817400

William Mawer, Chairman

Sarah Atwell-King, Company Secretary

ir@ish.co.uk

Cantor Fitzgerald Europe Tel: +44 (0) 207 894 7000

Rick Thompson / David Foreman / Michael Reynolds (Corporate Finance)

David Banks / Alex Pollen (Sales)

About Image Scan Holdings plcImage 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.

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 report on the results for Image Scan Holdings plc for the year ended 30 September 2016. The year saw substantial increases in both orders and sales, and the business recorded a profit for the first time since FY 2012/13.

Order intake during 2016 totalled £4.3m (2015: £1.9m) and was particularly strong in portable X-ray systems. Sales for the year were £3.3m (2015: £1.7m) and the business made a pre-tax profit of £105k (2015: loss of £550k). The Company closed the year with an order book of £1.7m (2015: £0.7m) and a positive cash balance of £1.1m (2015: £469k)

The pace of new product development continued into 2016. However, the primary focus of the Company has been to take the newly developed products to market, particularly the new portable X-ray systems. Orders started to build early in the year with large contracts being awarded in the second half. The business also focussed on restructuring its supply chain and manufacturing processes to better meet the demands of volume manufacturing. The results of this effort were demonstrated by on-time deliveries of high volumes of portable X-ray systems late in the year. That performance has continued into the first half of FY 2016/17.

Sales of industrial inspection systems to customers in the automotive sector increased and several new service contracts were signed. The large nuclear project, which adversely impacted Company performance for several years, has completed; the system is out of warranty and a service contract has been put in place.

Innovation has continued and the business has developed a first working prototype of its new generation of portable X-ray systems. The Company works with Ibex Innovations on this project from whom it has exclusive license to innovative X-ray detection and processing technology. In the industrial product range, substantial customer funded software development projects were delivered and new and potentially valuable techniques were developed for the inspection of large Diesel Particulate Filters.

BUSINESS REVIEW

Portable X-ray SystemsThe number of portable X-ray units sold trebled in comparison to the prior year, and the year end order book included in excess of 50 units for sale in the first half of FY 2017. The majority of units sold were the ThreatScan®-LS1 which was launched in 2015. This system, which offers exceptional imaging performance in a rugged and highly portable package, was successfully demonstrated at major global gatherings of bomb disposal experts including the International Association of Bomb Technicians and Investigators, held in Halifax, Nova Scotia. Experts who used the system liked its speed of deployment, ease of use and the quality of the image produced. During the year, potentially valuable new customers were acquired and several large multi-unit orders were received.

A new lower cost system, the FlatScan-Lite, which teams an upgraded version of the Company's smaller detector panel with a new low cost generator, was introduced and orders started to build, particularly in Central Asia. The approach makes the Company's superior Linescan X-ray technology available to new markets.

An extensive range of portable X-ray accessories were introduced. These include extended range communications, radiation protection devices and a dedicated trolley for under vehicle inspection; systems which give customers new deployment options and add value to individual sales.

For markets where even higher performance is required, the Company is developing a Precision Linescan Detector using unique detection and image processing technology licensed exclusively to Image Scam from Ibex Innovations, a Durham University spinoff. The project is supported by a grant from Innovate UK, the first time the Company has had such a grant. A prototype has been produced and is demonstrating both exceptionally clear images and excellent materials discrimination. The grant completes in February 2017 and the system will be launched later in the year.

Mail Scan systems

An agreement was signed with Todd Research Limited for Image Scan to market that company's Mail Scan X-ray systems and orders were received in Africa and Asia. Campaigns to sell further systems are underway.

Industrial inspection systemsSales of MDXi industrial inspection systems increased to 7 systems (2015: 2 systems), as the Company's major customers continued to roll out the technology into their manufacturing plants. MDXi systems are primarily used to inspect catalytic converters and diesel particulate filters in the manufacturing process.

The Company also carried out several substantial customer development projects, providing additional features and enhancements to these machines. A new technique was developed for inspecting large diesel particulate filters and it is hoped these techniques will be deployed during 2017.

The inspection system provided under a longstanding nuclear industry contract, which adversely impacted the Company's performance for several years, reached the end of its warranty period and a support contract was put in place.

OPERATIONAL IMPROVEMENTS

The process of operational improvement, which had been started under our new Operations Manager in 2015, gathered pace in 2016. In particular, it became necessary to gear up the manufacturing and supply chain processes to handle the increasing volume of security system orders in the later part of the year. In manufacturing, temporary staff were recruited and trained and an efficient resource planning system was put in place. An upgraded Sage business system led to improvements to ordering and stock control. Key strategic suppliers were identified and improvements were made in supplier communications and management. The success of this process was a key component in the Company's considerably improved on-time delivery performance and customer satisfaction ratings. The improvement process will continue in 2017.

FINANCIAL RESULTS

The Company started the year with an order book of £0.7m (2015: 0.5m), won new orders worth £4.3m (2015: £1.9m) and made sales of £3.3m (2015: £1.7m), finishing the year with an order book of £1.7m (2015: £0.7m).

Gross margin on sales made a further improvement to 42% (2015: 38%). Gross margin has increased by over 10 percentage points from the 2014 level of 31%. This improving gross margin, which has been driven by sales of higher margin, newly developed products and supply chain and manufacturing efficiencies, allowed the business to record a profit of £105k (2015: loss of £550k), its first profit since FY 2012.

Overheads were managed carefully with an increase of just £0.1m to £1.4m (2015: £1.3m), the increase due largely to increased marketing expenses as the new products were taken to market.

The business finished the year with a positive cash balance of £1.1m (2015: £0.5m).

OUTLOOK

The Company starts 2017 strongly with a substantial order book, including in excess of 50 portable X-ray machines which will be delivered during the first half. The sales pipeline remains strong and support contracts for the large installed base of industrial machines provide valuable recurring revenue.

The sales team will continue their extensive programme of demonstrations and trials of the ThreatScan®-LS1 and FlatScan-Lite portable X-ray systems and both systems are expected to continue to be popular with customers. New product launches planned for 2017 should keep the Company's products competitive and allow it to further extend its customer base.

In the industrial product range, the Company will continue its focus on the principle manufacturers of automotive emissions control systems, seeking expanded global deployment by current customers and the acquisition of new customers in this active market. Recent developments in the inspection of larger diesel particulate filters will be extended and the potential market for systems incorporating these techniques will be further explored.

The outlook for the Company remains strong in all its major markets and opportunities for further expansion continue to be explored.

STAFF

The Board values greatly the considerable efforts made by our staff and I would like to take this opportunity to personally thank staff and shareholders for their continued commitment to Image Scan.

William Mawer

CHAIRMAN

5 December 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

Notes to the preliminary statement1. Basis of preparationThe financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2016 and 30 September 2015 but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies, and those for 2016 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 £17,962 (2015: £10,689) 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. .Earnings per share

Diluted profit/(loss) 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.