REG - Zytronic PLC - Final Results for the year ended 30 September 2023
09/01/2024 07:00
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RNS Number : 0254Z Zytronic PLC 09 January 2024
9 January 2024
Zytronic plc
("Zytronic" or the "Company"
and, together with its subsidiaries, the "Group")
Final Results for the year ended 30 September 2023 (audited)
Zytronic plc, a leading specialist manufacturer of touch sensors, announces
its audited full year results for the period ended 30 September 2023
("FY23"). Comparative data is provided for the year ended 30 September 2022
("FY22").
Overview
§ Decrease in revenues to £8.6m (2022: £12.3m)
§ Headwinds arise in Gaming and Vending markets over the year impacting
revenue to both. Reduction of Gaming sales of £2.3m and Vending of £1.0m
§ Gross margin excluding exceptional costs of 24.5% (2022: 30.5%) and
including exceptional costs of 17.4% (2022: 30.5%)
§ LBITDA excluding exceptional costs at £0.4m (2022: EBITDA of £1.5m) and
including exceptional costs at £1.4m (2022: EBITDA of £1.5m) with loss
before tax of £2.0m (2022: profit before tax of £0.7m)
§ Basic loss per share of 15.4p (2022: earnings per share of 5.6p)
§ Proposed final dividend of 0.0p (2022: 2.2p)
§ Closing net cash of £4.7m (2022: £6.4m) with interest earned of £0.2m
(2022: less than £0.1m)
Commenting on current trading and the outlook for the business, Non-executive
Chair, Chris Potts said:
"With the trends exhibited in the second half of FY23 continuing in the first
quarter of FY24, revenues in the current year to date are lower than the same
period last year. Nevertheless, the Group benefits from a strong balance sheet
and has good visibility over its cost base over the next twelve-month period.
With reinvigoration of the Group's business development function and
differentiated technology and products, there are grounds for cautious
optimism over the medium term."
1. The exceptional figure includes one-off charges of £1.0m relating to
previously announced stock and doubtful debt impairment of £0.5m, costs of
restructuring of £0.3m and goodwill impairment of £0.2m
Enquiries:
Zytronic plc (0191 414 5511)
Mark Cambridge, Chief Executive
Claire Smith, Group Finance Director
Singer Capital Markets (Nominated Adviser & Broker) (020 7496 3000)
Aubrey Powell, Alex Bond, Finn Gordon
A copy of this announcement can be found on the Group's website as detailed
below. The Annual Report and Accounts for FY23 will be made available on the
website in late January 2024 and posted to shareholders who have requested a
hard copy. A further announcement will be made in this regard which will
also confirm posting of the Group's notice of Annual General Meeting and
proxy voting forms.
Notes to Editors
The Group's operating subsidiary Zytronic Display Ltd ("ZDL") is a
world-renowned developer and manufacturer of a unique range of internationally
award-winning optically transparent interactive touch sensor overlay products
for use with electronic displays in industrial, self-service and public access
equipment.
ZDL's products employ a sensing solution that is readily configurable and is
embedded in a laminate core which offers significant durability, environmental
stability, and optical enhancement benefits to meet system-specific design
requirements.
ZDL has continually developed process and technological know-how and IP since
the late 1990's around two projected capacitance ("PCAP") sensing
methodologies; trademarked by as PCT™ ("Projected Capacitive Technology")
and MPCT™ ("Mutual Projected Capacitive Technology"), in which 15
internationally granted patents are held.
The Group is headquartered at Blaydon-upon-Tyne in the United Kingdom. ZDL
operates from this site, providing its manufactured products globally through
a number of sales channel partners. ZDL is relatively unique in the touch
eco-system as it offers a complete one-stop solution including processing
internally of the form and factor of glass and film substrates, the assembly
of the associated touch overlay products, in environmentally controlled
cleanrooms to customers' specific requirements and the development of the
bespoke firmware, software and electronic hardware which links the
manufactured touch interactive overlays to customer's integrated systems and
product.
For more information about ZDL's technologies and products please see
www.zytronic.co.uk (https://www.zytronic.co.uk/) and for information about the
Group, please see https://www.zytronicplc.com (https://www.zytronicplc.com)
,
2023 Chair review
Introduction
Since joining the Board in August 2023, I have greatly enjoyed learning about
the business and meeting the team and, I am proud to take on the role of
Non-executive Chair at a British company with such strong potential, albeit at
a challenging time.
Markets and trading
Group performance in FY23 has been disappointing following the apparent
recovery evidenced in FY22. This recovery was a false dawn which was not
sustained in FY23, as demonstrated by the decline in revenue from all the main
contributory markets.
Performance is described in detail in the FY23 Chief Executive review. In
summary the main reasons for the lack of continued recovery in the year were a
major end customer in the Gaming market entering a voluntary Chapter 11
Bankruptcy, which immediately suspended all orders and discussions for the
remainder of the year; the continuing effects of electronic component
shortages, which affected both Gaming and Vending; and the lack of trade
events in previous years due to COVID-19, which underpin our interaction with
channel partners and customers, and which has inhibited new business
development in all our key market sectors.
From my early analysis of the situation, there is little doubt that the lack
of sustained recovery is linked to the continuing impact of international
events on the business, which sells into a complex global sector and where
exports are the dominant source of revenue with 92% of sales outside the UK in
FY23 (2022: 95%). The transnational supply chains and markets in which the
Group operates have been fundamentally affected, and potentially permanently
changed, by the pandemic and its consequences.
In addition, within the Group during the year there have been resignations of
key staff, including the Sales and Marketing Director, and further
restructuring in the operations department, the reasons for which are
explained in the Chief Executive and Financial reviews.
Summary results and cash position
In summary, the full-year revenue performance was towards the upper end of the
range guided to by the Company in the trading update issued on 4 May 2023 at
£8.6m (2022: £12.3m). This reduction was the result of the events described
in the trading update. Gross margin decreased to 24.5% excluding exceptional
costs (2022: 30.5%) and 17.4% including exceptional costs (2022: 30.5%).
Overall, this resulted in the LBITDA excluding exceptional costs at £0.4m and
including exceptional costs at £1.4m (2022: EBITDA of £1.5m) with loss
before tax of £2.0m (2022: profit before tax of £0.7m). This is the
equivalent of a loss of 15.4p per share (2022: earnings per share of 5.6p).
Closing net cash was £4.7m (2022: £6.4m), with further commentary provided
in the Financial review.
Dividends
Based on the FY23 results and in line with the Board's prior position of not
paying dividends other than from profits generated in the period, the Board is
not proposing the payment of a final dividend for FY23. With no prior payment
of an FY23 interim dividend, full year dividends for FY23 are therefore nil
(FY22: 2.2p).
Activity
Despite the disappointing outcome for FY23, the Group has continued investment
in products and future technology, which is an essential part of maintaining
the competitive edge of a high technology business. This includes development
work in new sensor configurations, further evolution of the AI algorithms,
hybrid sensor designs to incorporate electromechanical devices on and within
its interactive PCAP surface and product initiatives beyond touch components
such as full interactive tables and ElectroglaZ™.
In FY24, it will continue to invest in these, as well as starting the scoping
phase for a new Application Specific Integrated Circuit ("ASIC"), which is at
the heart of its globally recognised, market leading, PCAP controller
technology.
The Group promoted and appointed a new Sales Director during October 2023,
whose first act has been to review carefully all the sales opportunities in
the Customer Relationship Management system. The number and value of
opportunities continues to grow overall, confirming an encouraging trend. The
Group will also recruit further business development and sales executives and
expand the channel partner network, to ensure the continued growth in the
opportunities pipeline.
Despite a disappointing delay in order and revenue recovery post COVID-19, the
short-term focus will be on continuing product investment and ensuring that
the clear market opportunity reflected in the sales pipeline is realised
through a revitalisation of the Group's business development activities.
Board structure
My appointment as independent Non-executive Chair has rebalanced the Board and
ended the period of acting and interim Chair appointments. John Walter, who
joined the Board in February 2023 as a temporary Non-executive Director, has
helped us to manage the situation and led the recruitment process resulting in
my appointment. The Board thanks him for his service, and for his valuable,
considered, and clear input on the issues facing the business while a
Director. John stands down from the Board immediately following the release of
these audited results.
The Board is now comprised of two Executive Directors and two Independent
Non-executive Directors, one of whom is the Chair, with a casting vote. This
provides an efficient and effective Board that is compliant with the
requirements of the QCA Corporate Governance Code.
Strategic situation
The Group has a 23-year record of innovation and technical excellence in the
field of PCAP touch technology and operates in a truly global market, with an
experienced and professional leadership team. Most of what we develop, and
manufacture is exported from the UK. I am looking forward to working with the
Board and the management team to build on this enviable foundation of proven
capability and past success.
The Group has experienced the full range of possible changes in its global
markets, covering political, economic, social and technology elements in
recent years. Reflecting on this and all the points above, the Board
recognises that a significant evolution of its existing strategy is
required. The Board is therefore undertaking a review of the whole business
and will lay out a clear strategy for recovery and the future direction of the
Group in due course.
Current trading and outlook
With a continuation of the trends exhibited in the second half of FY23 into
the first quarter of FY24, revenues in the current year to date are lower than
the same period last year. Nevertheless, the Group benefits from a strong
balance sheet and has good visibility over its cost base over the next
twelve-month period. With reinvigoration of the Group's business development
function and differentiated technology and products, there are grounds for
cautious optimism over the medium term.
Chris Potts
Non-executive Chair
8 January 2024
2023 Chief Executive review
Introduction
The following provides the 2023 fiscal year ("FY23") review of sales and
marketing, operations and the research and development ("R&D") undertaken
by the Group's operational subsidiary Zytronic Displays Ltd ("ZDL"), drawing
appropriate comparisons as necessary against the prior 2022 fiscal year
("FY22").
FY23 has been hampered by continued operational headwinds, tempered by an
improvement in addressable opportunities as a consequence of a return towards
normality post COVID-19 of the critical lead generation processes and
marketing efforts for business development and the ongoing innovations around
the projected capacitance ("PCAP") touch sensing technology by the R&D
department.
A number of factors have had an influence on the revenue generation
performance of ZDL over the course of FY23, the largest being the unpredicted
turmoil that occurred with the customers in the Gaming market, coupled with an
overstocking generated in FY22 in the Vending market, which are covered in
more detail in this review.
On 4 May 2023, the Group issued an FY23 trading update, which explained the
effects anticipated to occur by the year end as a consequence of the above,
setting an expected revenue generation range of between £8.0m and £8.8m. The
year concluded with reported revenues of £8.6m, a reduction of 30% against
the £12.3m reported for FY22 but, in the circumstances, satisfactorily
towards the top end of those revised expectations.
Markets
Of the major five key contributory markets, all have shown decline in FY23
compared to FY22, the largest being the £2.3m revenue reduction from the
Gaming market. This resulted in Gaming being the second highest revenue
generating market, and the Vending market becoming the highest revenue
generating market in FY23.
The table below shows the revenues for each of the differentiating markets,
and the lesser combined markets, referenced as Other.
Market FY23 FY22
Vending £2.6m £3.6m
Gaming £2.4m £4.7m
Industrial £1.2m £1.6m
Financial £1.1m £1.2m
Signage £0.6m £0.6m
Other £0.7m £0.6m
Total £8.6m £12.3m
Note: values rounded to nearest £0.1m
Sales of products to the Vending market in FY23 have shown a circa £1.0m or
28% decline, compared to FY22. In FY23 sales were made to 36 independent
customers, compared to 47 in FY22. The largest two contributors in FY22, whose
combined revenues accounted for £1.5m of sales, both declined in FY23 by a
combined total of £1.1m, with the largest accounting for 76% of the
reduction. The decline in this instance was associated with the US-based,
independently branded fountain drinks dispenser customer, which, due to fears
of electronic component shortages in FY22 overstocked at that point and
therefore reduced its demand in FY23.
On a positive note, an increase was observed in FY23 sales of £0.9m to 21 of
the 36 customers supplied, with the value-add reseller ("VAR") channel
partners in Italy and Spain, the latter particularly in its sales to
commercial electric vehicle charging station customers, accounting for a
combined £0.3m of the increase.
The majority of sales revenues from the Gaming market, as a component
supplier, were attributable to three main display integrator customers all
based in South Korea. The supplied design solutions to these customers, were
then used by them to provide an integrated interactive display module to a
number of slot machine original equipment manufacturers ("OEM") for use within
a wide range of cabinet designs.
The 49% decline in FY23 Gaming market revenues to £2.4m was attributable to
several contributory factors, the most notable being the total demise of the
Aruze gaming group ("AGG"). In February 2023 AGG's casino sales entity Aruze
Gaming America Inc. ("AGA") filed for a voluntary petition under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the State of
Nevada.
The subsequent effect of the Chapter 11 filing on ZDL was an inability to
recover trade receivables from the AGG affiliate Aruze Philippines
Manufacturing Inc. ("APMI"), the slot cabinet assembler of AGG and one of its
sub-tier suppliers, and work in progress and finished goods stock for orders
placed by the same sub-tier supplier, which subsequently became undeliverable.
The year was then further affected by a lack of ongoing demand that would have
been expected and deliverable during the second half period. Details of the
financial impairments and actions taken are covered in more detail in the
Financial review.
The business assets of AGA were sold by way of auction in July 2023, the slot
operations, including land-based assets and online gaming, being bought by
Play Synergy (in October 2023 re-branded as Aruze Gaming Global), an Empire
Technological Group company, and the interactive table game assets being
bought by Interblock USA. AGA was then officially wound up on 18 August
2023, which resulted in the total demise of AGG.
However, as indicated, other factors also contributed to the decline observed
in the Gaming revenues for FY23, including the COVID-19 effects of "chip" and
other electronic component shortages during FY22, which forced significant
controller redesigns.
For one display integrator customer, and one design, which was reducing in
volume as it moved towards end-of-life ("EOL"), the controller redesign meant
the end OEM had to seek new extensive regulatory approvals, and thereby
allowed its approved secondary source supplier to replace ZDL as primary
supplier. The effect of both the loss of primary supply and reducing total
volumes led to a reduction in comparable FY23 revenues of approximately
£1.2m.
Sales of product solutions to the Industrial market, which are generally
associated with machine control interfaces and informational kiosks, were 26%
lower in FY23 over the £1.6m reported in FY22. The largest program decline
coming from a USA customer, where the product is used in control dials for
industrial boilers. Regionally, EMEA exhibited the largest monetary decline
of £0.3m, which was relatively spread across most western European countries
other than Spain, which exhibited a modest £0.1m increase. In a similar
fashion to that of Vending, there are numerous individual customers that make
up the sales generators in that market, being 49 in both FY23 and FY22. Of the
FY23 49 customers, 34 were repeat customers from FY22, accounting for 94% of
the total FY23 sales.
Product sales to the Financial market, historically dominated by two ATM
customers, their affiliated group companies, sub-tier suppliers and products,
have, as indicated in the FY22 review, achieved a maintenance level of revenue
generation, as the products supplied are low volumes of old version new builds
and in-field replacement spares. FY23 sales were 96% of the £1.2m in FY22,
with sales into one ATM entity up by £0.2m at £1.0m, whilst sales to the
other were down by £0.2m at £0.2m.
Sales of products to the Signage market in FY23, which comprises informational
systems, wayfinders, street furniture, and tables, etc. achieved 90% of the
£0.6m sales reported in FY22, with the largest individual regional declines
experienced in Germany and France. Signage, is also a market where there are
numerous customers, having made sales to 22 individual entities during FY23,
17 being FY22 repeat customers, with eight of these being channel partner
VARs.
Sales of products to the combined Other general category in FY23, comprising
of smaller individual markets such as Healthcare, Home Automation, Industrial
Telematics, Military, etc. achieved an increase of 3% on the FY22 £0.6m
revenues. This was generated from trading with 38 customers (FY22: 38), 23 of
which we had also traded with in FY22 across those markets. The increase in
revenues came from sales to the UK, offset by a near equal decline in sales to
Germany.
In total across all markets, 43,500 touch sensor units were supplied in FY23,
compared to 60,000 units in FY22. The Group observed a 19% reduction in
small (≤14.9") touch sensors sold to 14,000 units, a 24% reduction in medium
(≥15.0" ≤29.9") touch sensors sold to 22,500 units and, due in the main to
the problems in the Gaming and Vending markets, a 47% reduction in large
(≥30") touch sensors sold to 7,000 units. As a consequence of the
significant drop in large, supplied sensors, the PCAP units supplied under the
trademark MPCT™ halved to 9,500 units, whilst curved units supplied reduced
by 32% to 4,500 units. The latter two trends had a particular effect on gross
margin, as they carry premium pricing compared to PCT™ flat PCAP sensors.
Export sales of £7.9m reduced as a percentage in FY23 to 92% (FY22: £11.7m,
95%), with an 8% decline in EMEA invoiced sales to £3.4m, a 44% decline in
the Americas to £1.4m, a 44% decline in APAC to £3.1m and a 10% improvement
in the UK to £0.7m.
Operations
With the reduced productive workload over the year, manning levels were under
significant operational scrutiny, particularly over the second half period. As
stated in prior years' annual reports, the multi-skilling and retention of
skilled operatives is key to productivity and efficiencies within the
business. It was for this reason that when a reduced workload became evident
as the Group was entering the second half of FY23, ZDL's operational
management took the decision to reduce the working week and the manufacturing
scheduling was flexed to align with demand and, in an attempt to retain the
skills, a furlough scheme to pay up to 70% of normal basic pay for non-worked
time for affected operatives was introduced.
However, as the scheme ran longer than management first anticipated and to
align with a return to normal 5-day manufacturing practices at the start of
the new 2024 fiscal year ("FY24"), a restructuring and permanent reduction in
the number of direct labour employees was considered, which resulted in a
14-person reduction to 48 persons during September 2023. Of the 14 persons
affected by the redundancy process, ten accepted voluntary redundancy.
Marketing
As indicated in the opening paragraph of this review, FY23, has proven to be
the first year post the problematic periods associated with COVID-19, where
near-normal business prospecting activities around sales and marketing are
considered to have resumed, other than the human factor change to working from
home permanently or as hybrid, which has made face-to-face lead generation
meetings, other than at tradeshows particularly in western Europe and the USA,
more difficult than they were pre-COVID-19.
Over the FY23 period, with a return of the increasing calendar of tradeshow
events and pre-pandemic and international attendance levels, which started
with the Global Gaming Expo in October 2022, ZDL has attended as either
exhibitors (in collaboration with regional channel partners in several
instances) or as attendees at a number of significant market related
tradeshows, in the USA, Spain, the UK, Germany, Taiwan, Japan, Italy and
China. The Group continues to see this as a primary strategy in the return to
growth of the existing organic business, which will continue to be driven in
FY24, as due to the global nature of ZDL sales revenues, a tradeshow provides
a unique opportunity to address a wide range of existing and new customers in
a geographical region in a compact time period.
At the annual Integrated Systems Europe ("ISE") expo in February, ZDL won the
Best of ISE 2023 award for the Most Creative Touchscreen Control System
Interface for our demonstration unit where we integrated a curved version of
our multi-touch PCAP sensor product and ZXY500 controller electronics on a new
to market Samsung 49" Odyssey Neo G9 gaming monitor.
Unfortunately, the previously recruited marketing specialist (as mentioned in
the FY22 annual report) resigned from the business in March 2023, as did the
Sales and Marketing Director, in July 2023. At the start of FY24, Zytronic
has internally appointed a new Sales Director, to drive global business
development. The changes provided the opportunity to re-examine the marketing
processes in place and make, where deemed appropriate, changes and
improvements for FY24. The first improvement has been the commissioning of a
new Zytronic website, in which the Group will now combine the previous
disparate trading (www.zytronic.co.uk (http://www.zytronic.co.uk) ) and
investment (www.zytronicplc.com (http://www.zytronicplc.com) ) websites into
one addressable entity, reducing the technology focus to one more aligned with
market applications. It is expected that this process will conclude with the
new website launch circa April 2024.
In combination with this, the Group will also look to change the way it
addresses trade PR to reinforce its markets and associated applications
knowledge and expertise, and its digital PR in combination with the new
website design to focus on the key business-to-business social media outlets
of LinkedIn and YouTube.
Opportunities log
A key monitored metric in the effectiveness and responsiveness of ZDL's
prospecting activities is the movements in and additions to the Opportunities
Log, which is presently through a Microsoft Dynamics CRM system, which will
transition as part of the move to a new integrated Epicor enterprise
resource planning ("ERP") system during FY24, to log and monitor leads and
opportunities generated from a combination of tradeshow participation, direct
business development, indirect channel partner engagement and application
directed marketing campaigns.
As it is a dynamic system, inevitably opportunities move from "Open" to
"Closed" on a near-daily basis. A Closed opportunity is either "won", as it
has moved from the CRM system to productive purchase order(s) (not sampling
orders), or "lost", being the point at which the potential customer has
confirmed either it has lost its opportunity or it no longer has interest in
pursuing a ZDL solution, which can be for reasons of price, specification,
capability, or opportunity duplication through multiple prospective customers
who were pursuing the same end customer. Over the ten-year period between FY13
and FY23, the volume win rate of Closed opportunities is at a 34% average.
A snapshot of the CRM system is taken at each month end, to interrogate,
evaluate and report upon the respective month-on-month movements. It is each
business development manager's responsibility to ensure their individual and
regional opportunities are accurately maintained as additions and changes
occur. Consequently, with the recent appointment of a new Sales Director, they
are undertaking a line-by-line review to identify any discrepancies that may
exist in the Open opportunities, that should have resulted in them being
Closed earlier.
To illustrate the end-of-month volume and value of Open opportunities, which
are the critical fuel for new future revenue generation, as new opportunities
add, which for won opportunities has an historical average maturation period
of two years, the graph below is presented.
The graph illustrates the dynamic changes in the levels of Open opportunities
at month ends, in both the total quantity and the total unsensitised customer
projected lifetime value ("CPLV"), over the five-year time frame from the
start of FY19, through to the conclusion of FY23.
As the period covers the COVID-19 pandemic and its aftermath, the graph
illustrates what became an inability to add new opportunities to the log
whilst existing opportunities moved from Open to Closed, as the numerous
global lockdown protocols initiated from circa January 2020, and new global
business prospecting activities became increasingly difficult. The result was
a lagged decline for nearly two-years, before exhibiting an improvement, as
business development and tradeshow activities in particular started ZDL on its
road to recovery.
However, although the volume of Open opportunities has shown an improvement to
pre-pandemic levels, the recovery in CPLV of those opportunities lags somewhat
behind a full recovery, due in the main to post-pandemic pricing pressures
emanating from Asian-based competitors.
As of 30 September 2023, there were 564 Open opportunities in the CRM system,
with a CPLV of £68.6m (30 September 2022: 484 and £59.0m), the following
table provides a split of these Open opportunities across the reportable
markets.
Open Opportunities
Market Volume CPLV
Vending 174 £36.9m
Gaming 32 £12.0m
Industrial 155 £4.6m
Financial 20 £3.7m
Signage 92 £3.5m
Other 91 £7.9m
Total 564 £68.6m
Note CPLV is rounded to nearest £0.1m
Research and development
In combination with the increased sales and marketing activities, ZDL's
R&D team, was also able to look at more market and application specific
product innovations over the course of FY23, as the concerns over, and support
needed for, the well documented global issues in electronic components, began
to subside as expected.
Major R&D projects, which have been worked on over the course of the year,
have been:
· full product designs for shelving and retail tables incorporating
embedded wireless inductive phone charging and localised spotlight
illumination in powered wireless, fully transparent floating designs,
utilising ElectroglaZ™ panels;
· designs and developments for touch integrated round and square
LCD monitors, and their utilisation in full interactive table design
solutions;
· improvements to our touch controller data processing and
Artificial Intelligence ("AI") algorithms that allows for improved touch
sensing functionality and interfacing with other PCAP sensing methodologies
and materials, which they continue to actively evaluate as a potential ZDL
supplied alternative; and
· advancements in the incorporation of mechanical devices, such as
buttons, joysticks and rotary dials, as floating elements within the visible
area of a touch display structure, whilst maintaining full touch interactivity
around these devices, enabling designers with the ability to realise hybrid
solutions on a single product entity.
As the work undertaken with ZDL's technology solutions in the PCAP
environment, is novel, ZDL continues to ensure adequate and appropriate IP
protection is valid and in place, through the filing of patents, not only in
the UK, but in other applicable international jurisdictions.
Over the course of FY23, granted patent protection has occurred in the USA
(filed on 22 April 2021, granted on 25 October 2022 as US11,481,057), in Japan
(filed on 9 May 2018, granted on 26 June 2023 as JP7302824) and in South Korea
(filed on 9 May 2018, granted on 13 July 2023 as KR10-2556872), under the
Display Arrangement Patent Family (P031248). This now takes the number of ZDL
national and international granted patents to 15, across ten patent families,
with a further ten patents pending, from four of the patent families, with
priority dates ranging from May 2017 through to October 2021.
In FY24, work will continue on new button format integrations with the PCAP
technology including new sensor configurations, which is seen as particularly
pertinent to the Gaming, Industrial and Healthcare markets, as well as
improved AI algorithms in support of this. As electronic capabilities are
ever advancing, R&D will also begin a scoping exercise to review design
concepts for a new evolution of a ZDL Application Specific Integrated Chip
("ASIC"), to incorporate improved design and greater functionality over the
existing ZXY500 Series ASIC, whose initial release was in 2018.
I would finally like to conclude the review, by thanking all employees of ZDL,
who have contributed to the Group over the course of a difficult FY23 trading
period.
Mark Cambridge
Chief Executive
8 January 2024
2023 Financial review
Statutory results
The FY23 results for the year report Group revenue of £8.6m (2022: £12.3m),
as a result of a difficult year of trading due to a number of factors.
Reported gross margin at 17.4% (2022: 30.5%) and increased administration
expenses at £3.5m (2022: £2.8m) both include exceptional items in the
year. The statutory reported loss before tax is £2.0m (2022: profit of
£0.7m).
Group revenue
Group revenue was down 30% year on year to £8.6m (2022: £12.3m) and has been
impacted by several situations, with the biggest effect being the unexpected
demise of a key end-customer in the first half of the year in the Gaming
market. The circumstances surrounding this are explained in the earlier CEO's
statement, but following this situation, the Group made no further sales of
this product over the remainder of the year.
Revenues from the Vending market were also negatively impacted as one of the
Group's Vending customers undertook an overstocking exercise in the previous
financial year due to fears of electronic component shortages at that time,
and this subsequently impacted its demand in FY23.
The split of touch sales to non-touch sales remained consistent with the prior
year at 88% (2022: 89%), despite a reduction in overall volumes sold. Sales
into Europe (excluding UK) of 39% of total sales (2022: 30%) meant that the
region continued to be the Group's biggest geographical source of revenue,
with total exports across all products accounting for 92% (2022: 95%) of total
revenue. Three major customers exceeded 10% of total revenue for the year at
£3.0m (2022: £4.1m).
Gross margin
Gross margin suffered over the year and decreased to 24.5% excluding
exceptional costs (2022: 30.5%) and 17.4% including exceptional costs (2022:
30.5%). A number of headwinds and business decisions impacted gross margin
in FY23, as explained below.
Exceptional costs for the year were £0.6m (2022: Nil) with over £0.2m of
these costs being the value of the inventory write-down of finished goods and
work-in-progress orders that occurred in the first half of the year relating
to the Gaming market Chapter 11 event. This work ceased overnight with no
likelihood of recovery at the time. As these parts are specific in design to
that particular end customer (as is normal in the nature of the Groups'
business) they could therefore not be sold to anyone else. This situation
remained unchanged at the year end and the Group assessed the carrying value
of the inventory at that time. However, post the year end, and following the
sale of the related business assets to Aruze Gaming Global, the Group has
subsequently made sales of some of this inventory in the new financial year,
to new supply chain entities.
The Group also undertook the decision to impair its goodwill of just over
£0.2m which related to the operations of Intasolve Limited (a long-dormant
subsidiary). This subsidiary had been acquired in 2001 to help establish the
Group's position in the touch marketplace but with continued technology
advancements in its PCAP solutions, the incorporated older technology is no
longer a fit. This cost has been classified as exceptional.
Over the course of the year, as the Group foresaw a reduction in productive
workload, it made the decision to reduce the operational working week and to
enable the retention of key skilled operatives, ran its own in-house furlough
scheme, paying up to 70% of normal basic pay for non-worked time for those
operatives that were affected. However, as the year ran on it became
apparent that a permanent reduction in direct labour numbers was required.
In September 2023, the Group entered into a redundancy process and made 14
employees redundant prior to the year end, with ten of those leaving under
voluntary acceptance. The cost of this exercise to the business was over
£0.1m and is classified as exceptional due to it being an infrequent
occurrence.
The volume of larger format products sold over the year, most of which are
into the Gaming market and were therefore impacted by the AGA situation,
reduced by 47% to 7k units. As these larger format products attract higher
margins, then this had an impact on gross margin over the period.
Raw material pricing continued to increase in some areas, particularly in the
semiconductor market, as the shortages of supply remained into FY23 and
thereby also negatively impacted margin as the Group was unable to pass on
cost increases in some instances.
Loss before tax
The loss before tax for the year was £2.0m compared to a profit of £0.7m in
the previous year. Administration costs increased by £0.7m over the period,
with almost £0.5m of this increase being exceptional costs relating to an
impairment of debtors and restructuring costs.
The revalued impairment of debtors at the balance sheet date of over £0.3m
relates to the ongoing issue with AGA. APMI owed the Group over £0.2m and
its sub tier supplier owed the Group over £0.1m and uncertainty remained over
the recoverability of these balances. However, since the year end the Group
has received payment of part of its debt from the sub tier supplier and is
hopeful that this will now be repaid in full. The Group is continuing to
take steps to recover the balance owed from APMI.
The other exceptional costs of over £0.1m relate to internal restructuring
costs over the year which are not expected to be repeated.
Travel and marketing costs also continued to rise over that of the previous
financial year as the Group continued its focus on its necessary face-to-face
prospecting to enable it to grow its opportunities log and showcase its new
product developments over several key market and geographical areas.
The investment in the trading company ZDL, by the Parent company that arose as
part of the initial IPO of the Group back in 2000 and totalled £9.7m at the
previous year end was also impaired over the year by £4.2m. This was a
Parent company impairment only and had no impact on the reported Group
numbers.
Tax
The tax credit arising on the loss before tax totals £0.4m (2022: charge of
£0.1m). The Group is proposing to carry forward the trading losses to
offset against taxable profits in the future at this higher rate of UK
corporation tax, which was made effective from 1 April 2023.
Loss per share
The shares in issue at the end of the year remained consistent with those at
the end of the previous year of 10,161,737. As the Group has not made a
profit for the year and reports a loss after tax of £1.6m, the loss per share
arising is 15.4p (2022: earnings per share 5.6p).
Dividend
As a result of a difficult trading year and the Group not making a profit, the
Board has proposed it is in the best interests not to pay a final dividend for
the year (2022: 2.2p) despite there being sufficient cash and reserves to do
so. This is in line with its previously disclosed position of not paying
dividends other than from profits generated in that year.
Capital expenditure
The Group further invested into capital expenditure over the year with £0.5m
being incurred in intangible assets as R&D development continued into
further product offerings and the Group continued its work on the
implementation of a new ERP system.
In continuing to protect the Group's IP, further patent applications were made
in FY23. The Group also spent £0.3m on tangible fixed assets, £0.1m of this
spend was incurred in completing the installation of the second laser bonding
machine, enabling both of ZDL's cleanroom units to have this piece of
essential kit. The remainder of the spend was on the replacement of a number
of production items. Depreciation and amortisation increased in FY23 to
£1.0m (2022: £0.8m), with £0.2m being related to the previously mentioned
impairment of Goodwill.
Cash position
Cash at the beginning of the year was £6.4m and closed at £4.7m, resulting
mainly from the operational loss made by the Group over the year. Working
capital, decreased over the period by £0.5m arising from the decrease in
debtors, offsetting the increase to inventories and the decrease to payables
and other provisions.
The increase in inventories was all in raw materials as a result of having to
purchase ahead for orders that did not arise (the reduction in sales to the
Gaming market is one of the biggest drivers of the increase and also the
increase in controllers stock for which the order lead time was increased as
the suppliers were previously struggling to satisfy demand). The Group was
also issued with a last-time buy from one of its optical adhesive suppliers,
which was at a preferred price, but had to be received in the year.
The decrease to debtors of £1.7m arises due to a couple of factors. The
FY22 closing position was inflated by £0.4m due to a late paying debtor, who
subsequently settled its debt in early FY23. The reduction in sales during
FY23 also means there is less debt to be collected at the year end. The
£0.3m of cash uncollected from the Gaming customers was offset by a provision
for the same amount in the year.
Trade payables at the year-end of £0.5m are lower than that reported in the
previous year, impacting the cash position, with accruals remaining consistent
with that of last year at £0.6m.
Cashflow used in investing activities was net £0.6m (2022: £0.5m), £0.8m
related to costs of investment in capital expenditure offsetting the interest
earned from cash deposits of £0.2m. The Group maximised its deposits over
different periods of time and obtained very good market interest rates, whilst
continuing to meet the daily cashflow demands on the business.
The only financing activities to occur over the year related to the payment of
a dividend for the financial year 2022 and costing £0.2m (2022: £0.2m).
The Group has recently increased its overdraft facility to £1.5m with its
corporate bankers Barclays Bank plc, which is available for use in any of its
three operational currencies (GBP, USD and EUR) and has again not been
utilised over the year.
The Group continues to operate with no debt and has strong cash levels
allowing it to remain in a solid financial position for the year ahead.
Claire Smith
Group Finance Director
8 January 2024
Consolidated statement of comprehensive income
For the year ended 30 September 2023
2023 2022
Notes £'000 £'000
Group revenue 3 8,610 12,340
Cost of sales (7,109) (8,577)
Cost of sales excluding exceptional items (6,500) (8,577)
Exceptional items - Goodwill impairment (235) ꟷ
Exceptional items - Other 4(a) (374) ꟷ
Gross profit 1,501 3,763
Distribution costs (159) (258)
Administration expenses (3,547) (2,810)
Administration expenses excluding exceptional items (3,092) (2,810)
Exceptional items 4(b) (455) ꟷ
Group operating (loss)/profit (2,205) 695
Finance revenue 200 10
(Loss)/profit before tax (2,005) 705
Tax credit/(expense) 5 441 (94)
(Loss)/profit for the year (1,564) 611
Other comprehensive income - -
Total comprehensive (loss)/income (1,564) 611
(Loss)/earnings per share
Basic 7 (15.4)p 5.6p
All activities are from continuing operations
Consolidated statement of changes in equity
For the year ended 30 September 2023
Equity Capital
share Share redemption Retained
capital premium reserve earnings Total
£'000 £'000 £'000 £'000 £'000
At 1 October 2021 114 8,994 46 7,611 16,765
Profit for the year - - - 611 611
Repurchase and cancellation of shares (12) - 12 (2,019) (2,019)
Dividends - - - (170) (170)
At 30 September 2022 102 8,994 58 6,033 15,187
Loss for the year - - - (1,564) (1,564)
Dividends - - - (224) (224)
At 30 September 2023 102 8,994 58 4,245 13,399
( )
Consolidated statement of financial position
For the year ended 30 September 2023
2023 2022
Notes £'000 £'000
Assets
Non-current assets
Intangible assets 840 711
Property, plant and equipment 4,958 5,107
5,798 5,818
Current assets
Inventories 2,711 2,184
Trade and other receivables 1,252 2,957
Cash and short-term deposits 4,706 6,403
8,669 11,544
Total assets 14,467 17,362
Equity and liabilities
Current liabilities
Trade and other payables 488 1,055
Derivative financial liabilities - 92
Accruals 554 560
1,042 1,707
Non-current liabilities
Deferred tax liabilities (net) 26 468
26 468
Total liabilities 1,068 2,175
Net assets 13,399 15,187
Capital and reserves
Equity share capital 102 102
Share premium 8,994 8,994
Capital redemption reserve 58 58
Retained earnings 4,245 6,033
Total equity 13,399 15,187
Consolidated cashflow statement
For the year ended 30 September 2023
2023 2022
£'000 £'000
Operating activities
(Loss)/profit before tax (2,005) 705
Finance income (200) (10)
Depreciation of property, plant and equipment 445 543
Amortisation and write-off of intangible assets 140 223
Impairment of goodwill 235 ꟷ
Amortisation of government grant ꟷ (26)
Fair value movement on foreign exchange forward contracts (92) 76
Loss on disposal of asset ꟷ 2
Working capital adjustments
Increase in inventories (527) (749)
Decrease/(increase) in trade and other receivables 1,705 (757)
(Decrease)/increase in trade and other payables and provisions (723) 126
Cash (used in)/generated from operations (1,022) 133
Tax received/(paid) 137 (224)
Net cashflow used in operating activities (885) (91)
Investing activities
Interest received 189 7
Payments to acquire property, plant and equipment (296) (280)
Payments to acquire intangible assets (481) (201)
Net cashflow used in investing activities (588) (474)
Financing activities
Dividends paid to equity shareholders of the Parent (224) (170)
Repurchase and cancellation of shares ꟷ (2,019)
Net cashflow used in financing activities (224) (2,189)
Decrease in cash and cash equivalents (1,697) (2,754)
Cash and cash equivalents at the beginning of the year 6,403 9,157
Cash and cash equivalents at the year end 4,706 6,403
Notes to the consolidated financial statements
1. Basis of preparation
The preliminary results for the year ended 30 September 2023 have been
prepared in accordance with the recognition and measurement requirements of
International Financial Reporting Standards ("IFRS") as endorsed by the
European Union regulations as they apply to the financial statements of the
Group for the year ended 30 September 2023. Whilst the financial information
included in this preliminary announcement has been computed in accordance with
the recognition and measurement requirements of IFRS, this announcement does
not itself contain sufficient information to comply with IFRS. The
accounting policies adopted are consistent with those of the previous year.
The financial information set out in this announcement does not constitute the
statutory accounts for the Group within the meaning of Section 435 of the
Companies Act 2006. The statutory accounts for the year ended 30 September
2022 have been filed with the Registrar of Companies. The statutory accounts
for the year ended 30 September 2023 will be filed in due course. The
auditors' report on these accounts was not qualified or modified and did not
contain any statement under sections 498(2) or (3) of the Companies Act 2006
or any preceding legislation.
Each of the Directors confirms that, to the best of their knowledge, the
financial statements, prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006, give
a true and fair view of the assets, liabilities, financial position and profit
or loss of the Group and the undertakings included in the consolidation taken
as a whole; and the Group results, Operational review and Financial review
includes a fair review of the development and performance of the business and
the position of the Group and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties that they face
2. Basis of consolidation and goodwill
The Group results comprise the financial statements of Zytronic plc and its
subsidiaries as at 30 September each year. They are presented in Sterling and
all values are rounded to the nearest thousand pounds (£'000) except where
otherwise indicated.
3. Group revenue and segmental analysis
Revenue represents the invoiced amount of goods sold and services provided,
stated net of value-added tax, rebates and discounts.
For management purposes, the Chief Operating Decision Maker (the Board)
considers that it has a single business unit comprising the development and
manufacture of customised optical filters to enhance electronic display
performance. All revenue, profits or losses before tax and net assets are
attributable to this single reportable business segment.
The Board monitors the operating results of its entire business for the
purposes of making decisions about resource allocation and performance
assessment. Business performance is evaluated based on operating profits.
All manufacturing takes place in the UK and accordingly all segment assets are
located in the UK. The analysis of segment revenue by geographical area based
on the location of customers is given below:
30 September 2023 30 September 2022
Touch Non-touch Touch Non-touch
£'000 £'000 £'000 £'000
Sale of goods 207 251 322 15
- Americas (excluding USA)
USA 962 ꟷ 2,015 191
- EMEA (excluding UK and Hungary) 2,468 114 3,153 58
- Hungary 660 124 251 187
- UK 342 373 339 314
- APAC (excluding South Korea) 496 74 283 254
- South Korea 2,483 56 4,586 372
7,618 992 10,949 1,391
Total 8,610 12,340
revenue
Individual revenues from three major customers exceeded 10% of total revenue
for the year. The total amount of revenue was £3.0m (2022: £4.1m).
The individual revenues from each of these three customers were: £1.0m (2022:
£1.7m), £1.0m (2022: £0.8m) and £1.0m (2022: £2.4m).
4 (a). Exceptional costs - cost of sales
30 September 30 September
2023 2022
£'000 £'000
Write-down of stock impairment associated with doubtful debt 239 -
Costs of goodwill impairment 235 -
Costs of restructuring 135 -
Total exceptional costs 609 -
The write-down of stock in the consolidated statement of comprehensive income
relates to the effects on the Group of AGA filing a voluntary petition under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the State of Nevada.
The goodwill impairment costs of write down relate to the operations of
Intasolve Limited.
The Group undertook a restructuring exercise in the year and these costs are
classed as exceptional as this was a one-off event.
4 (b). Exceptional costs - administration costs
30 30 September
September 2022
2023 £'000
£'000
Write-down of doubtful debt 332 -
Costs of restructuring 123 -
Total exceptional costs 455 -
The write-down of debt in the consolidated statement of comprehensive income
relates to the effects on the Group of AGA filing of a voluntary petition
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the State of Nevada.
The Group undertook a restructuring exercise in the year and these costs are
classed as exceptional as this was a one-off event.
5. Tax
30 September 30 September
2023 2022
£'000 £'000
Current tax
UK corporation tax - 40
Tax due on foreign subsidiary 1 -
Corporation tax over provided in prior years - (79)
Total current tax charge/(credit) 1 (39)
Deferred tax
Origination and reversal of temporary differences (435) (24)
Movement related to change in tax rates - 43
Movement related to prior year adjustments (7) 114
Total deferred tax (credit)/charge (442) 133
Tax (credit)/charge in the statement of comprehensive income (441) 94
Reconciliation of the total tax (credit)/charge
The effective tax rate of the tax credit in the statement of comprehensive
income for the year is 22% (2022: 13% charge) compared with the average rate
of corporation tax charge in the UK of 22% (2022: 19%). The differences are
reconciled below:
30 September 30 September
2023 2022
£'000 £'000
Accounting (loss)/profit before tax (2,005) 705
Accounting (loss)/profit multiplied by the average UK rate of corporation tax (441) 134
of 22% (2022: 19%)
Effects of:
Expenses not deductible for tax purposes 73 (4)
Depreciation in respect of non-qualifying items 18 18
Enhanced tax reliefs - R&D and patent box (33) (99)
Enhanced tax reliefs - super deduction - (27)
Effect of deferred tax rate reduction and difference in tax rates (52) 37
Tax under-provided in prior years (7) 35
Tax due on foreign subsidiary 1 -
Total tax (credit)/expense reported in the statement of comprehensive income (441) 94
Factors that may affect future tax charges
The main rate of corporation tax increased from 19% to 25% from 1 April 2023.
The Group has considered the timing of the unwind of its deferred tax and
has calculated its deferred tax balances at the rates at which they are
expected to unwind. This has resulted in a rate of 25% being applied to
deferred tax balances at the year end. As a result of this increase in the
main rate of corporation tax, the Group expects its effective tax rate to
increase in the medium term. The Group is expecting to carry forward its
trading losses for this year to offset against taxable profits in the future.
The Patent Box regime allows companies to apply a rate of corporation tax of
10% to profits earned from patented inventions and similar intellectual
property. Zytronic generates such profits from the sale of products
incorporating patented components. The Group has determined that all relevant
criteria has been satisfied for bringing income within the regime. While the
loss-making position of the Group in 2023 has meant that there will be no
benefit from the regime at present, the Group will continue to make Patent Box
claims and expects to obtain tax deductions from such claims going forwards.
6. Dividends
The Directors do not propose the payment of a final dividend for this year's
results. This will bring the total dividend for the year to Nil (2022:
2.2p).
30 September 30 September
2023 2022
£'000 £'000
Ordinary dividends on equity shares
Final dividend of 1.5p per ordinary share paid on 18 March 2022 ꟷ 170
Final dividend of 2.2p per ordinary share paid on 24 February 2023 224 ꟷ
224 170
7. (Loss)/earnings per share
Basic LPS/EPS is calculated by dividing the (loss)/profit attributable to
ordinary equity holders of the Company by the weighted average number of
ordinary shares in issue during the year. All activities are continuing
operations and therefore there is no difference between LPS/EPS arising from
total operations and LPS/EPS arising from continuing operations.
Weighted Weighted
average average
number number
Loss of shares LPS Profit of shares EPS
30 September 30 September 30 September 30 September 30 September 30 September
2023 2023 2023 2022 2022 2022
£'000 Thousands Pence £'000 Thousands Pence
(Loss)/profit on ordinary activities after tax (1,564) 10,162 (15.4) 611 10,836 5.6
Basic LPS/EPS (1,564) 10,162 (15.4) 611 10,836 5.6
There are no dilutive or potentially dilutive instruments.
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