Thruvision : FY24 Preliminary Announcement

28 June 2024

Thruvision Group plc

Results for the year ended 31 March 2024

Thruvision (AIM:THRU, 'Thruvision' or the 'Group'), the leading international provider of walk-through security technology, today publishes its results for the financial year ended 31 March 2024 ('2024').

Highlights

• Revenue of £7.8 million (2023: £12.4 million), primarily comprising Entrance Security, new Customs agency and Retail Distribution sales - reduction reflects previously announced lack of further significant orders from US Customs and Border Protection ('CBP') in 2024.
• Adjusting for the impact of this single customer, revenue growth was 85% to £7.6 million (2023: £4.1 million) demonstrating strong broad-based growth in demand for our solutions.
• Approximately 70% of revenue came from the existing customer base - most upgrading to our flagship WalkTHRU solution.
• Adjusted gross margin1 improved by 1.5pp to 53.0% (2023: 51.5%) mainly due to higher performance product sales. Statutory gross margin down 1.9pp which reflected lower volumes.
• Adjusted EBITDA loss1 was £2.5 million (2023: loss of £0.2 million), which is in line with market
  expectations. Operating loss was £3.0 million (2023: loss of £1.0 million).
• Cash balance as at 31 March 2024 was £4.1 million (31 March 2023: £2.8 million). The Group has no debt.
• Strategic sales partnership announced in May 2024 with Sensormatic Solutions, a leading global retail solutions company, owned by Johnson Controls Inc. (NYSE: JCI).
• £3.2m (gross) equity fundraising completed in October 2023, enabling the strategic investment by Pentland Capital to become a 10% shareholder in the Group.

	2024	2023
Continuing operations	£m	£m
Statutory measures:
Revenue	7.8	12.4
Gross profit	3.5	5.8
Gross margin	45.1%	47.0%
Operating loss	(3.0)	(1.0)
Loss before tax	(2.9)	(1.0)
Loss per share (pence)	(1.85)	(0.55)
Alternative measures1:
Adjusted gross profit	4.1	6.4
Adjusted gross margin	53.0%	51.5%
Adjusted EBITDA loss	(2.5)	(0.2)
Adjusted loss before tax	(3.0)	(0.8)
Adjusted loss per share (pence)	(1.90)	(0.46)

1 Alternative performance measures ('APMs') are used consistently throughout this announcement and are referred to as 'adjusted'. These are defined in full and reconciled to the reported statutory measures in the Appendix.

Commenting on the results, Colin Evans, Chief Executive, said:

"FY2024 was an important year for the Group. Our walk-through technology is now fully proven in the international security market and we are seeing sales coming from across the world in each of our four market sectors. Some 70% of our revenue came from existing customers who rely on our technology to screen many thousands of people every day.

Given this, we are now concentrating on expanding our reach into each of our four potentially very large markets through a broader set of sales partnerships. We are delighted to be working with Sensormatic Solutions, the global retail solutions company, and we are extending our reach through regional partners into Europe, Asia and the Middle East. With all of the well publicised security issues being experienced around the world, we are seeing significantly more interest in our Entrance Security solutions.

Trading in the current financial year is in line with the Board's expectations and our sales pipeline points to a return to activity levels the Group achieved in FY2023. This, coupled with the tight control over our cost base, provides us with the confidence that we are heading towards sustainable profitability and positive cashflow generation."

For further information please contact:
Thruvision Group plc	+44	(0)1235 425400
Colin Evans, Chief Executive
Victoria Balchin, Chief Financial Officer
Investec Investment Banking (NOMAD & Broker)	+44	(0)20 7597 5970
James Rudd / Patrick Robb / Sebastian Lawrence
Meare Consulting	+44	(0) 7990 858548
Adrian Duffield

About Thruvision (www.thruvision.com)

Thruvision is the leading international developer, manufacturer and supplier of walk-through security technology. Its technology is deployed in more than 30 countries around the world by government and commercial organisations in a wide range of security situations, where large numbers of people need to be screened quickly, safely and efficiently. Thruvision's patented technology is uniquely capable of detecting concealed objects in real time using an advanced AI-based detection algorithm. The Group has offices and manufacturing capability in the UK and US.

Important information

This announcement may include statements that are, or may be deemed to be, 'forward-looking statements' (including words such as 'believe', 'expect', 'estimate', 'intend', 'anticipate' and words of similar meaning). By their nature, forward-looking statements involve risk and uncertainty since they relate to future events and circumstances, and actual results may, and often do, differ materially from any forward-looking statements. Any forward-looking statements in this announcement reflect management's view with respect to future events as at the date of this announcement. Save as required by applicable law, the Company undertakes no obligation to publicly revise any forward- looking statements in this announcement, whether following any change in its expectations or to reflect events or circumstances after the date of this announcement.

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Chairman's statement

The past year has been one of mixed fortunes for Thruvision. On one hand we failed to build on the record results from the year ending 31 March 2023 ('2023') with a significant reduction in both revenue and profitability in the year ending 31 March 2024 ('2024'). But on the other, we made significant progress on a number of the strategic and commercial initiatives that we have been targeting for some time. In doing so, we have built a much stronger underlying business, which has exited the year with a more distributed customer base, wider opportunity and activity in more markets, a better product portfolio, and a stronger balance sheet.

As we announced in October, the financial results for the past year were dominated by the lack of a previously anticipated material follow-on contract award from our major customer, US Customs and Border Protection ('CBP'), which had contributed £8.3 million (or 67%) of our revenues in 2023. Inevitably, this had a material impact on both revenue, which fell to £7.8 million (2023: £12.4 million) and profitability, as our Adjusted EBITDA loss expanded to £2.5 million (2023: £0.2 million loss). As we explained when we announced this, the lack of a follow-on order was due in large part to the well-publicised US Federal budget stale-mate. It does, however, indicate the challenges faced by a small business with a substantial reliance on a single customer.

However, aside from this significant event, the year saw a number of very positive actions and results that place the business in a considerably healthier position than 12 months ago. Revenue from customers other than CBP actually grew by 85%, demonstrating the increasing scale and resilience of our other revenue streams and the potential that exists for Thruvision to grow in the future. Of these revenues, 70% came from existing customers across our various markets, most of whom are well- known government agencies and leading retailers, who enthusiastically embraced our new 'WalkTHRU' solution. This high level of repeat business derives from a clearly defined competitive market position with now proven technology, which has delivered over £50 million of revenue since we became an independent company in 2017, with more than 700 units deployed in over 30 countries.

The more fragile global security situation resulted in a significant bounce-back in our Entrance Security market and led to strong revenues from Customs Agencies in numerous countries, many of whom look to CBP for technology leadership. Retail Distribution, which for us is still mainly UK focused, proved more challenging as retailers restricted budgets in response to significant cost headwinds and consumer belt-tightening. Aviation too continued to be challenging, although recent policy changes are expected to drive future demand for worker screening in US Aviation. As a result of these various factors, our four markets are all showing signs of healthy demand for 2025 and beyond.

Since its launch in 2023, our WalkTHRU technology has become a powerful growth driver in all our markets. This unique capability allows our customers to screen people at walking pace for many applications and hence greatly increase throughput relative to conventional security solutions. We launched our latest AI-powered products, the LPC71 Series, in the year to further improve WalkTHRU performance.

As our technology and international position has become more established, we are increasingly using channel sales partners as we seek to widen our distribution more globally. To this end, we were delighted to announce, in May 2024, our Strategic Sales Partnership with Sensormatic Solutions, the leading global retail solutions company, owned by Johnson Controls Inc. (NYSE: JCI).

There has been considerable commentary that small public companies, particularly in the UK, have for some time not seen their progress reflected in enhanced valuations. Thruvision is certainly in this position. However, we have exhibited great resilience during the past year and we are delighted that Pentland Group has become a new significant shareholder. This has enabled us to continue with our

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investment programme in our leading international technology and sales capability as well as to end the year with an enhanced cash position.

Our people remain the bedrock of the business and their continued commitment is key to our success. We continued to invest in our sales capability and we added several important hires in this area, including a new Sales Director who joined from a leading security solution provider. Competition for talent remains acute, especially in the technology arena. I am pleased to say that we have filled all of our openings with very high-calibre staff which, I believe, is an endorsement of our belief that Thruvision is well positioned to be an important player in the UK technology landscape.

Outlook

2024 was undoubtedly a challenging year for Thruvision with the absence of a major contract award from our previously largest customer, CBP. However, the very strong revenue growth we achieved from customers outside CBP, and the fact that 70% of our revenues came from existing customers provides an encouraging platform from which we can now return to growth. We also remain confident that our further product release plans will continue to enhance the competitiveness of our market positioning.

The more fragile global security situation when combined, as it currently is, with a generally improving global macro-economy and our increased focus on indirect sales channels has resulted in strengthening interest levels for our technology across each of our four target markets. This is resulting in a pipeline which points to activity levels in 2025 back towards those we achieved in 2023. With our cost base remaining under tight control, this in turn should drive us towards our primary strategic goal of sustainable profitability and positive cash flow generation.

Chief Executive's review

Strategic update

Overview

With a further expansion of our customer base and strong growth outside CBP, we continued to strengthen our market-leading international position as a developer, manufacturer and supplier of unique walk-through security technology.

Overall, revenue was £7.8 million (2023: £12.4 million), with the reduction reflecting the lack of further

orders from CBP in 2024 following the £8.3 million of revenue that it generated in 2023 (2024: £0.2 million). Excluding CBP, revenue grew by 85% to £7.6 million. Adjusted gross margin remained strong and improved to 53.0% (2023: 51.5%) with statutory gross margin down to 45.1% (2023: 47.0%) as a result of lower throughput.

We were very pleased to benefit again from high levels of repeat purchasing by existing customers, which stood at approximately 70% of revenue. Most of these were upgrading to our latest 'WalkTHRU' capability, which gives us confidence that our technology continues to deliver real-world benefits. We face little direct competition at present in our areas of focus.

Looking forward, our objective now is to increase our market share in a number of growing and established market sectors and to thereby scale the business to reach sustained profitability.

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Strategy for growth

With a strong recovery in demand from our Entrance Security market, and policy changes driving renewed interest in US Aviation worker screening, the Group is, once again, seeing opportunities for growth across all four of our market sectors including Customs and Retail Distribution.

With highly referenceable, household name customers in all of our market sectors and a wide geographic spread, the Thruvision brand and technology is now well known in the international security market.

Given this, and with the addition of new sales leadership earlier in 2024, we have been placing greater emphasis on building out our indirect sales partnerships in order to proactively develop our sales pipeline and deliver orders.

As mentioned in the Chairman's statement, in May 2024 we announced our Strategic Sales Partnership with Sensormatic Solutions, the leading global retail solutions company. Sensormatic is seeing interest in Distribution Centre ('DC') security technology from some of the world's largest retailers and this partnership means it is now able to offer Thruvision technology to meet this need.

With Sensormatic, we have a rapidly growing sales pipeline across UK, Europe and the US and have a dedicated senior sales executive managing this relationship.

With our increasingly well understood technology maturity, we have refreshed our Value Added Reseller ('VAR') network and now have 11 covering much of Europe and Asia. These partners have been selected for their expertise and existing customer base in three of our four markets, Aviation, Customs and Entrance Security, complementing the Sensormatic relationship for Retail Distribution.

Our product roadmap is designed to maintain our significant performance advantage over different competitors through our continued investment in improving our patented, AI-enhanced Terahertz ('THz') imaging technology. We made very good progress in the year with a major new release, the 71 Series, featuring a significant new AI-based software functionality. This work also lays the foundations for further similarly important new AI-based capability in the next 12 months.

Financially, we aim to maintain adjusted gross margin in the low 50% range through a newly designed, more aesthetic and easier to assemble enclosure and by increasing the relative value of the high margin software component of our sales. With an increasing percentage of sales coming via partners, we will be able to manage our cost base such that we expect to see operational leverage improving as revenues grow, leading to sustained profitability.

Business review

Markets

The Group was, until the pandemic, active in four different market sectors, each of which has differing end-user requirements and operating on different economic and geopolitical cycles. In the last year, Entrance Security and Aviation, which at the time were badly affected by the pandemic, have both started generating significant interest again. This means that we once more see growth opportunities across all four of our market sectors.

Customs

Thruvision was already used by international Customs agencies in nine countries to screen travellers for drugs, cash and other contraband. In the year, we made further good progress in broadening our

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international customer base in this market, adding two new customers in the year. This brings the total number of Customs agencies that have purchased solutions from Thruvision to 11 internationally. We also received a further order from an existing customer in Asia.

Well-publicised US Federal budget issues led, in-part, to our largest customer, US Customs and Border Protection ('CBP'), not ordering further equipment from us in 2024. Although our multi-year CBP framework purchasing agreement remains in place until September 2026, Presidential election politics means funding for border security remains uncertain. However, opportunities for fleet expansion with other existing customers and new customer prospects means we expect to see revenue growth from this sector.

Retail Distribution

Retailers and their logistics partners use our technology to check employees for a wide range of potential theft items as they leave DCs. Our analysis shows there are around 20,000 DCs in the UK, US and Europe, which could use Thruvision systems.

Our model in this market is characterised by a larger number of smaller orders as customers typically buy on a site-by-site basis. Evidence shows that once a new customer buys Thruvision and establishes an initial Return on Investment ('RoI'), they are more likely to either buy more units or upgrade existing units as they better understand how to minimise theft in their organisation.

The market research we published with Retail Economics in November 2023, showed that theft by employees from UK retailers' DCs was a growing issue, which was estimated to have cost £1.4 billion in 2023. However, many retailers have faced a broader set of challenges given current general economic weakness, which led to us experiencing weaker than expected demand in the past year.

With retailers tightly controlling discretionary spend in 2024, we signed up three new retail customers. Of our Retail Distribution revenue in the year, 75% came from existing customers with already proven RoI. They typically invested to upgrade to our WalkTHRU solution, given the additional throughput rates and deterrence it offers.

Looking forward, we expect to see similar levels of repeat buying and upgrading given our very focused product strategy.

The signing of the sales partnership with Sensormatic is a very important initiative, which we are confident will help us win new customers and reinvigorate international growth in this sector.

Aviation

In Aviation, we focus on the US market given our long-standing relationship with the US Government's Transportation Security Administration ('TSA'). Our technology is used in security checkpoints to ensure no prohibited items are taken airside and onto planes and is in service in three large US airports where it is used for screening aviation workers.

Security screening in the aviation industry is a regulated activity and, to date, Thruvision technology has only been given regulated approval for aviation worker screening in the US. However, in response to changes in international aviation policy, the TSA issued a National Mandate in autumn 2023 requiring US airports to upgrade their capabilities for security screening aviation workers. Under this Mandate, Thruvision technology is listed by the TSA in its Aviation Worker Screening Toolkit.

In order to further strengthen our market position, we recently completed operational testing and evaluation of our WalkTHRU solution at San Diego International Airport with the National Safe Skies

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Alliance ('Safe Skies'). Safe Skies is an independent, non-profit organisation funded by the US Federal Aviation Administration.

This testing demonstrates that Thruvision is well placed to help US airports meet their new TSA- mandated aviation worker security obligations and, since the announcement, we have seen a meaningful pick-up in sales enquiries, which we expect to lead to new sales in 2025. We are developing plans for how best to partner strategically to maximise our reach as this market moves into its specification and purchasing phase.

Regarding passenger screening, while our testing contract with the TSA has been extended for a further three years, testing activity levels have slowed. This is because TSA funding remains focused on completing the unrelated rollout of new passenger bag CT scanners, which is both costly and running later than anticipated.

Entrance Security

Thruvision is used by a wide variety of venues ranging from high-security government sites to public museums to check visitors, typically for concealed weapons.

The Group saw a strong growth in sales in 2024 in traditional entrance security weapons checks. Sales also included a specific counter-terrorism deployment in the Middle East, other early-stagecounter-terrorism work for the US Department of Defense and a counter-drugs deployment for a European Prison Service.

In all cases, Thruvision technology was selected for its unique ability to detect reliably a broad range of threat objects, including non-metallics, in a diverse range of operational environments.

With a continuing increase in geopolitical instability and the related terrorism risk, we saw significantly growing interest and received orders from customers across the Middle East, Europe and Africa. We expect this interest to continue and revenue growth to result.

Product R&D and Intellectual Property ('IP')

Our technology allows security guards to see items hidden in clothing, which means that intrusive physical searches, or 'pat-downs', are no longer necessary. Based on our patented THz sensor and image processing software, our systems can detect, quickly and reliably, all types of material (non-metallic as well as metallic).

Our product strategy aims continuously to improve throughput rates, detection performance and ease of use, and is now almost wholly focused on expanding our WalkTHRU capability.

Our R&D and product roadmap therefore, has three objectives. We have made good progress in the last year against each of these:

• Focus on utilising latest developments in AI to deliver additional new functionality and to offer this as optional software licences to help improve product profitability;
• Provide clear value-add upgrade paths for existing customers to take advantage of latest developments; and
• Improve the physical design of our product range to improve in-field useability and aesthetics.

These three strands came together with a major new product release in early 2024, the 71 Series. This new series, focused initially on Retail Distribution, was the result of feedback from our retailer user forum.

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The 71 Series features major new software functionality that adds significant new video AI capability and, for the first time, tightly couples THz with video image processing to deliver significant performance benefits to users, including improved detection performance and people-counting. This new redesigned software will allow significant further new functionality to be released in the next 12 months.

With some of the new software functionality sold as an optional extra licence, the 71 Series should ensure the Group can enhance product profitability.

The Group currently holds patents in five families and our patent strategy is designed to cover the IP value, which is based on our modular, satellite-grade engineering THz sensor platform, the unique combination of this sensor with purpose-designed optics and scanning mirror, and our purpose- developed image processing software.

As part of our ongoing patent portfolio management, we have taken initial steps towards increasing our patent portfolio by patenting some new capability which has resulted from our recent R&D activities.

Manufacturing and support

We have delivered further improvements in our manufacturing capability across the UK and US. This has mostly focused on optimising supply-chain management to better manage our working capital needs and redesigning our products for ease of assembly and reduced manufacturing and support costs. We also saw far fewer component supply shortages than in previous years.

We expect to see further reductions in build cost through improvements in product design and economies of scale as revenues grow.

We continued to improve our post-sales support capability and have also been ensuring full skills transfer to our growing number of VARs. Our product reliability remains good with a new fault-free record of 28,000 hours in-service operation being recorded on units deployed in a particular US airport.

People

Average headcount remained at 43 staff during the year. Within this, we made changes to introduce a new senior sales leader, from a global airport security equipment provider, into the business to enhance and execute our sales strategy. To support this strategy, we then also added an experienced Channel Sales Manager to develop our VAR network into a more proactive, new demand generator for the Group.

Financial review

Highlights

Revenue for the year to 31 March 2024 was down £4.6 million (37%) to £7.8 million (2023: £12.4 million) attributable to the lack of further significant orders from CBP in 2024. Adjusting for the impact of this single customer, revenue from other customers grew by 85% to £7.6 million, with strong growth in Entrance Security and Customs.

Adjusted gross margin improved by 1.5pp to 53.0% (2023: 51.5%) mainly due to product mix.

Statutory gross margin was down 1.9pp to 45.1% (2023: 47.0%) reflecting lower absorption of 8

production overheads as volumes decreased. The operating loss in the period was £3.0 million (2023: loss £1.0 million), with an Adjusted EBITDA loss of £2.5 million (2023: loss £0.2 million). Adjusted loss before tax of £3.0 million increased by £2.2 million (2023: loss £0.8 million) with statutory loss before tax of £2.9 million (2023: loss £1.0 million).

Cash as at 31 March 2024 was £4.1 million (31 March 2023: £2.8 million). The increase in cash of £1.3 million was driven by the share placing in October 2023, which raised net proceeds of £3.1 million and was partly offset by an operating cash outflow of £0.8 million, capital expenditure of £0.6 million and net other outflows of £0.5 million.

Revenue
Revenue is split between our two principal activities below.
	2024	2023
	£'000	£'000
Product	7,394	11,782
Support and Development	420	638
	7,814	12,420

The principal growth driver for the business is product sales. Support revenue includes extended warranty and other post-sale support revenue, as well as customer-funded development contracts. We expect warranty and other support revenue to grow in the future, with customer-funded development contracts not a key driver for future growth.

Revenue is split by market sector and geographical region below.
	2024	2023
Revenue by market sector	£'000	£'000
Retail Distribution	1,924	2,429
Customs1	3,148	9,165
Aviation	23	246
Entrance Security	2,719	580
	7,814	12,420

1 2024 includes £169k of revenue from CBP (2023: £8,281k). Excluding CBP, Customs revenue was £2,979k (2023: £884k).

	2024	2023
Revenue by geographical region	£'000	£'000
UK and Europe	2,436	2,249
Americas1	1,998	9,223
Middle East and Africa	845	346
Asia Pacific	2,535	602
	7,814	12,420

1 2024 includes £169k of revenue from CBP (2023: £8,281k). Excluding CBP, Americas revenue was £1,829k (2023: £942k).

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Gross profit

Adjusted gross profit, defined as gross profit excluding production overheads, is used to enable a like- for-like comparison of the contribution from sales after variable costs only. Adjusted gross margin is used as a key performance indicator ('KPI') to understand the impact of input cost pressures, product mix and sales price changes. Production overheads are excluded since the significant movements in revenue volumes impact labour and overhead absorption rates in each year. Production overheads are monitored on an absolute basis. As a result, adjusted gross profit is the APM used to represent this metric, see Appendix for calculation and further information.

Adjusted gross margin grew in the second half of the year reflecting improved product mix caused by an increased proportion of higher performance product sales. This contributed to the 1.5pp increase in adjusted gross margin for the full year, with statutory gross margin down by 1.9pp including a 3.4pp negative impact from manufacturing as there was lower production throughput together with pay cost inflation.

Adjusted gross profit and statutory gross profit are shown below.
	2024	2023
	£'000	£'000
Revenue	7,814	12,420
Adjusted gross profit	4,141	6,401
Adjusted gross margin	53.0%	51.5%
Statutory gross profit	3,522	5,837
Statutory gross margin	45.1%	47.0%
Administrative expenses
Administrative expenses are analysed as follows:
	2024	2023
	£'000	£'000
Sales, marketing and support	2,454	2,527
Engineering (including R&D)	1,067	1,047
Management	949	1,046
Plc costs	884	829
Property and administration	580	417
Bonus	89	458
Foreign exchange losses/(gains)	80	(198)
Overheads	6,103	6,126
Depreciation and amortisation	465	569
Share-based payments (credit)/charge	(50)	96
Impairment of intangible assets	-	36
Administrative expenses	6,518	6,827

Administrative expenses decreased by 5% (£0.3 million) to £6.5 million, with overheads flat at £6.1 million and a reduction in bonus costs offsetting adverse transactional exchange movements. The ratio of overheads to revenue increased to 78% from 49% last year driven by lower revenues. Administrative expenses include share-based payment charges, depreciation and amortisation and impairment of intangible assets, but these are excluded from overheads. Overheads benefitted from

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