Thruvision : 2023 Annual Report

Adjusted gross margin2

Overview

Strategic report

Continuing operations

Headlines

• Revenue was up 49% to £12.4 million (2022: £8.4 million).

Governance

Financial statements

• Multi-yearframework contract awarded by US Customs and Border Protection ('CBP') and related orders from the same customer delivered revenue of £8.3 million (2022: £3.7 million).
• Adjusted gross margin2 up 4.8pp to 51.5% resulting from positive product mix and higher margin software revenue, with statutory gross margin3 growing 6.2pp to 47.0% reflecting production efficiencies.
• Adjusted EBITDA2 loss was £0.2 million (2022: loss £1.7 million).
• Operating loss was £1.0 million (2022: loss £1.9 million).
• Cash balance as at 31 March 2023 was £2.8 million (31 March 2022: £5.4 million), with cash at 20 July 2023 of £2.4 million.

Other information

Chairman's statement

This was a breakthrough year for the Group where we delivered very strong revenue growth and took a significant step towards sustainable profitability. I am delighted with the excellent progress we made towards our strategic objective of becoming the leading provider of walk-through security technology to the international market.

It was very pleasing to see such strong revenue growth during the year to 31 March 2023. This was based on a combination of adding new customers, often as a result of recommendations from existing users and, equally encouragingly, from those existing customers extending and upgrading their use of our solutions. This supports our long-held view that Thruvision technology adds significant value for our customers which underpins our long-term confidence in the business.

We are now a leader in the development, manufacture and supply of walk-through security technology to the international market. Our systems are used by a growing number of both government and commercial organisations in a variety of security situations, where, typically, large numbers of people need to be screened quickly, safely and cost-effectively for items hidden in their clothing.

Although we have an established product range now in place, we continued to invest in R&D. This paid off with the highly successful launch of our "WalkTHRU" solution, based on our latest AI-driven detection software and developed in close cooperation with NEXT plc, a long-term user and one of our most highly-valued customers. This new offering enables very high numbers of people per hour to be checked for all types of concealed item, allowing NEXT to security screen 100% of staff leaving its Distribution Centre at the end of their shift, thereby maximising deterrence and reducing theft rates. Such capability meets a very clear market need and we are delighted to be unique in the market with such a solution.

Our decision to focus our efforts primarily on International Customs Agencies and on the Retail Distribution (previously called Profit Protection) markets has paid off. Significant progress with US Customs and Border Protection ('CBP') led to very strong demand from the Customs market which offset a weaker performance in Retail Distribution which was not surprising given the strong headwinds faced by the retail sector. We remain confident that both markets represent significant growth opportunities and that their complementary nature provides us with a high degree of resilience to economic cycles.

We continued to strengthen our leadership team during the year. The most significant arrival was Victoria Balchin, our new Chief Financial Officer ('CFO'), who joined last Autumn. More recently, we promoted Nick Graham-Rack to Chief Technology Officer ('CTO') to accelerate the development of our new software capabilities. John Woollhead, our Company Secretary, retired in December after 12 years of service with the Group and was replaced by Hannah Platt. John was a first-class and trusted colleague for almost 20 years, and we will greatly miss his wise counsel and good humour.

On behalf of the Board, I would like to express our thanks to all our staff who have worked so hard to grow the business during the year. Many are long-term employees, and some have been with Thruvision since its inception, and I am delighted that they are now seeing the Group starting to fulfil its undoubted potential.

Outlook

Having proved the value of our solutions beyond doubt, the focus of the business is now moving towards scaling as rapidly as our markets and resources will allow. We believe that our target markets are significant and should impose no foreseeable limits on our growth. Our growing sales team will focus equally on acquiring new customers, particularly in the US, and on increasing the Thruvision presence in existing customers. Meanwhile, our technology investment will ensure that we build an even greater lead over our competition.

The past year, combined with current activity levels,

have reinforced our confidence that Thruvision will continue to grow well and become the solution of choice for walk-through security.

Tom Black

Chairman

20 July 2023

CEO statement

Strategic update

Our strategy is to build on our market-leading position as a developer, manufacturer and supplier of walk-through security technology. We aim to become a mainstream provider and increase our market-share in a number of growing

and established international markets. We expect that our continued investment in improving our patented, AI-enhanced Terahertz (THz) imaging technology will maintain our significant advantage over our competition.

Business performance

We took a significant step forward towards meeting a key strategic goal of sustainable profitability in the reporting period. Revenue grew strongly by 49% to £12.4 million (2022: £8.4 million) and, driven by the uptake of our new, higher performance products and AI software licences, Adjusted gross margin increased by 4.8 percentage points to 51.5% (2022: 46.7%). For the first time software license revenues made a modest but meaningful, contribution at £0.5 million (2022: nil). We see software licences as an important new and margin-enhancing revenue stream and expect to add further licensable software functionality in FY24. Statutory gross margin grew by 6.2 percentage points to 47.0% reflecting increasing economies of scale in our manufacturing operations.

Given this performance, the Board decided to award bonuses across the business for the first time. These totalled £0.5 million (2022: £0.1 million) and rewarded all employees for achieving such strong growth. While leading to a small Adjusted EBITDA loss, the Board believes this award is in the best long-term interests of the Group.

Technology strategy

Walk-through security - the ability to screen 100% of people for all types of concealed items at walking pace - is seen by many customers as their ultimate requirement. Derived from our R&D work in the Aviation sector, we were therefore delighted to be able to be the first company to offer this capability to the market in the form of our new "WalkTHRU" security system in October 2022. NEXT, Selfridges and Saks Fifth Avenue all bought walk-through lanes in the second half of the financial year and we see growing interest for this solution from a broader range of existing and new customers.

During the year we also established that, in many cases, existing customers purchase upgrades for their existing systems if available rather than wait to replace old systems at end-of- life. This point was well illustrated by US Customs and Border Protection's ('CBP') decision to upgrade its systems to the latest high-performance version during the year and purchase our AI-software algorithm to run on them.

In the light of this strong interest in walk-through security and a willingness by customers to upgrade, we have refined our technology strategy and will be launching a series of new products and product upgrades in FY24. These will extend our walk-through product range and offer the opportunity to further extend system functionality in the form of software upgrades which we will be able to license separately.

Strategic market focus

We have now firmly established ourselves in two strategic markets: International Customs Agencies and Retail Distribution, and these are described in more detail in the Business Review. With differing economic drivers, together these markets are sizeable enough to offer us a very significant growth opportunity, particularly given the increasing reliance our existing customers have on our technology. Furthermore, the two markets offer us revenue diversity and, over time, will help ensure our growth prospects are resilient to economic cycles.

A key strategic achievement in the year was the award of a multi-year CBP contract in September 2022, and CBP is already delivering operational success from these new systems.

The adoption by CBP of our technology assists our broader sales efforts with other international Customs agencies.

Retail Distribution, we believe, is ultimately our largest target market and, as such, offers us the greatest growth potential. Given economic challenges, employee theft is increasingly problematic for the retail industry and, despite challenging trading conditions for our customers, our performance in Retail Distribution remained resilient. We made progress in opening up Europe and the US, and we continued to add new customers as well as receiving further orders from existing customers.

We remain confident that the very rapid return on investment reported by our Retail Distribution customers (with many citing a payback period of less than one year) means that our performance in this market will return to growth as economic conditions recover.

Leadership team strengthening

As reported in the Chairman's statement, we continued the process of strengthening the leadership within the business and appointed a new CFO and a CTO in the period. To complete our investment in senior leadership, we have recently recruited a very senior sales leader with 20 years' experience working for one of the global security equipment vendors. With this strengthened leadership, we now have an established infrastructure, encompassing technology, operations, finance, sales and commercial, that is capable of supporting our continued international growth.

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Overview

Strategic report

Governance

Financial statements

Other information