REG - Zytronic PLC - Strategic Review & Trading Update

ZytronicAnnouncement

16/10/2024 07:00

For best results when printing this announcement, please click on link below:
https://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20241016:nRSP3210Ia&default-theme=true

RNS Number : 3210I  Zytronic PLC  16 October 2024

THIS ANNOUNCEMENT, AND THE INFORMATION CONTAINED HEREIN, IS RESTRICTED AND IS
NOT FOR RELEASE, PUBLICATION, DISTRIBUTION OR FORWARDING, IN WHOLE OR IN PART,
DIRECTLY OR INDIRECTLY IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA,
THE REPUBLIC OF SOUTH AFRICA, JAPAN OR ANY OTHER JURISDICTION WHERE TO DO SO
WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT
JURISDICTION

 

THIS IS AN ANNOUNCEMENT UNDER RULE 2.4 OF THE CITY CODE ON TAKEOVERS AND
MERGERS (THE "TAKEOVER CODE") AND IS NOT AN ANNOUNCEMENT OF A FIRM INTENTION
TO MAKE AN OFFER UNDER RULE 2.7 OF THE TAKEOVER CODE. THERE CAN BE NO
CERTAINTY THAT SUCH AN OFFER WILL BE MADE, NOR AS TO THE TERMS ON WHICH ANY
OFFER MIGHT BE MADE

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET
ABUSE REGULATION (EU) NO. 596/2014 AS IT FORMS PART OF UNITED
KINGDOM DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018,
AS AMENDED BY VIRTUE OF THE MARKET ABUSE (AMENDMENT) (EU EXIT) REGULATIONS
2019. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, SUCH INSIDE INFORMATION IS
NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

 

16 October 2024

 

Zytronic plc

("Zytronic" or the "Company" and its subsidiaries)

Pre-Close Trading Update

&

Strategic Review

 

The Board of Zytronic plc, a leading specialist manufacturer of touch sensors,
announces the following update.

The Company expects to report unaudited revenues for the financial year ended
30 September 2024 ("FY24") of £7.2m (FY23: £8.6m). Whilst the Company is
expected to generate a 22% increase in revenues in the second half of FY24
versus the first half (H2 FY24: £3.9m versus H1 FY24: £3.3m), trading
conditions remained challenging and based on current order intake, the Board
does not anticipate a material recovery in volumes over the short to medium
term.

Strategic Review

The Company has witnessed a sustained lack of recovery in business performance
to its pre-Covid operating level and Management's efforts to battle against a
difficult macroeconomic environment have not delivered meaningful results.
After observing disappointing volumes in FY24, the Board has come to the
opinion that it is unlikely that a significant improvement will be forthcoming
without a strategic catalyst.

As previously articulated, the Board of Zytronic has undertaken a full
business and operational review (the "Internal Review") which has now been
completed. As a result, the Board has a clearer vision for what is required to
turn the Company around. The Company is today announcing its intention to
undertake a strategic review (the "Strategic Review"), in conjunction with
shareholders, to assess the future options for the Company, which are:

1.     the implementation of a new strategic business plan
("Transformation Plan");

2.     an orderly solvent liquidation of the Company's assets;

3.     the potential sale of the Company;

4.     delisting and continuing as a private company, either:

a.     continuing with the business as currently undertaken but without
the considerable costs associated with maintaining the Company's admission to
trading on AIM, or

b.     implementing the Transformation Plan; or

5.     selling the Company's assets and continuing as a cash shell.

The following information provides further background and context on the
options to be explored.

Transformation Plan

Overview

The Board, in collaboration with the executive management of Zytronic Displays
Ltd ("ZDL"), the Company's operating subsidiary has, based on the Internal
Review, developed a new strategic and operational Transformation Plan which
aims to leverage ZDL's proven knowledge and experience of projected
capacitance ("PCAP") touch technology. The plan aims to pivot ZDL's
operational focus away from copper-wire sensor ("Wire") manufacturing and
towards providing consultative expertise during the design and prototyping
phase, whilst outsourcing alternative material sensor supply to third parties.

The Transformation Plan encompasses three strategic initiatives:

1)    An expansion of ZDL's PCAP solution offerings, where ZDL will
significantly diversify its PCAP sensor portfolio by becoming a supplier of a
broader range of PCAP touch solutions, utilising Metal Mesh ("MM")* and Indium
Tin Oxide ("ITO")* powered by the Zytronic developed ZXY500 touch electronics.
The Board believe this will enhance Zytronic's market penetration as the
growth demand for these PCAP solutions is far greater than its present Wire
offering, which is a PCAP sensor solution the Board now considers to be in
relative decline;

2)    the establishment of a focused collaborative design and sales process
with market and application-specific original equipment manufacturers ("OEMs")
to deliver interactive PCAP sensor and display solutions. In this model, ZDL
will seek to lead the supply chain management; and

3)    a reduction of its manufacturing footprint at its current facilities,
transforming it into a premier PCAP engineering and solutions hub. The
transformation of the current site during FY27, may thereafter include the
establishment of a new smaller purpose-built or adapted facility appropriate
to support the revised business.

* A MM PCAP sensor is created by multi-stage chemically etching of a 2-micron
thick copper layer that has been deposited on a plastic film substrate,
forming a near-invisible electrode pattern with 6-micron wide electrodes, and
combining separate X and Y electrode layer arrays to create the sensor. An ITO
PCAP sensor is made by laser ablating a circa 70-nanometer thick ITO layer
that has been coated on to a glass or plastic film substrate, resulting in an
invisible complex electrode pattern. Separate X and Y electrode arrays are
bonded together to form the sensor.

 

Market Size

The Board believes the Transformation Plan could materially expand ZDL's
accessible market and create a more sustainable business model. The Board, in
consultation with a third-party consultancy company, estimates the addressable
market for ZDL's expanded PCAP solution offerings, excluding China, will be
c.$3.5bn by 2030. Securing a relatively modest share of the expanded
addressable market would represent a material growth opportunity for the
business.

Transformation Plan Implementation

Execution of the Transformation Plan is divided into three broad stages:

1)    Continued focus of selling the current Wire solutions to existing
customers in the short-term, to stimulate demand, through the established
operating model.

2)    Focus on distributing Wire solutions to new customers. Whilst the
Board anticipate this market is in decline, it foresees residual demand where
Wire's PCAP attributes fit some applications better than MM or ITO.

3)    Target a broader range of PCAP solutions to new and existing customer
segments. Under this plan, the Company will:

·      Develop PCAP solutions in both MM and ITO, based on partnerships
with lower cost manufacturers. Zytronic will both manage this global supply
chain and source integrated PCAP monitor solutions incorporating its developed
ZXY500 controllers and underlying electronics.

·      As the MM and ITO solutions are established there will be a
global launch of the extended option suite.

·      The sales strategy will be refreshed with an increased refocus on
direct consultative selling to OEMs.

·      The value proposition will be developed to emphasise
differentiated features of the Zytronic wider service offer rather than solely
focusing on the technical attributes of the solution.

The Board believes a consultative selling skillset integrated with Zytronic's
well regarded advanced engineering competencies will enable the business to
step forward in the industry value chain. This will enable Zytronic to sell
directly to OEM's at both component level as it has done in the past and also
at an advanced monitor solution level taking the business beyond the display
integrator.

Scenario Planning

Whilst there can be no guarantee that the Company will be able to finance the
Transformation Plan using its existing financial resources, under its base
case scenario, the expected operational cost of the Transformation Plan over
the implementation period is estimated to consume between £2.5m and £3.5m of
the Company's available headroom.

Assumptions underpinning the Transformation Plan Include:

·      A gradual reduction in revenue mix from the Company's existing
Wires business over the next five financial years;

·      Sales from MM-based products increasing substantially in FY26;

·      Initial sales from ITO-based products commencing during FY26; and

·      Overheads increasing over the three-year period, to drive the
transformation.

The Board ascribes a reasonable probability to a scenario in which Wire
product sales decline faster than expected or the Transformation Plan costs
exceed estimates which could impact cash reserves in the second half of FY25
or beyond. To support the plan, the Board has identified a number of possible
funding options to generate liquidity should there be an additional cash
requirement.

The Board will meet quarterly to appraise the ongoing progress and viability
of the Transformation Plan to ensure safeguarding of shareholder assets.

Solvent Liquidation

As at 31 March 2024, being the date of the Company's most recently notified
statement of financial position, Zytronic had net assets of £12.9m of which
£8.4m comprised property, plant and equipment and cash. An extract of the
Company's statement of financial position from its most recent unaudited set
of financial statements to 31 March 2024 (being the latest practicable date)
is set out below:

 £'000                            31 Mar 2024             30 September 2023 (annual) - audited

                                  (interim) - unaudited
 Current Assets
 Cash & short-term Deposits       3,665                   4,706
 Other current assets             4,475                   3,963
                                  8,140                   8,669
 Pence per share                  80.1                    85.3

 Non-current Assets
 Property, Plant & Equipment      4,768                   4,958
 Other non-current assets         926                     840
                                  5,694                   5,798
 Pence per share                  56.0                    57.1

 Total Cash + PPE                 8,433                   9,664
 Total Assets                     13,834                  14,467
 Total Liabilities                927                     1,068
 Net Assets                       12,907                  13,399
 NAV per share (pence)            127.0                   131.9

 

Note: the total issued share capital figure used for the per share figures was
10,161,737 ordinary shares.

The Company's cash balance as at 30 September 2024 was £3.7m (H1 FY24:
£3.7m).

The Directors note that a recent third-party valuation report obtained by the
Company concurs with the value of property assets as at the latest statement
of financial position date.

It should be noted that there can be no guarantee that the Company will be
able to achieve the stated statement of financial position values in the event
of a solvent liquidation and that these values are included for reference only
and do not constitute an asset valuation under Rule 29 of the Code.

The Potential Sale of the Company

One possible outcome of the Strategic Review is the sale of the Company. The
Takeover Panel Executive has granted a dispensation from the requirement of
Rule 2.4 (a) and (b) of the Takeover Code such that Zytronic is not required
to identify any potential offeror which Zytronic subsequently refers to the
existence of in an announcement unless that potential offeror has been
specifically identified in any rumour or speculation.

The Company is not in discussions with, nor in receipt of any approach from,
any potential offeror at the time of this announcement.

As a consequence of this announcement, Zytronic is now in an "offer period" as
defined in the Takeover Code and the attention of Zytronic shareholders is
drawn to the dealing disclosure requirements of Rule 8 of the Takeover Code,
which are summarised below.

Shareholder Consultation and Next Steps

The Board intends to undertake informal discussions with shareholders and
invites shareholders to send comments to the Chairman via Singer Capital
Markets Advisory LLP ("Singer Capital Markets"), in particular on their
priorities for their investment in the Company and the options described
above.

We would respectfully remind shareholders that any such informal discussions
will be conducted on a confidential basis and the Board may not be able to
answer certain queries, provide any assurances as to the outcome of the
consultation exercise or the wider process and/or provide shareholders with
all the information they may request in relation to the Strategic Review or
otherwise.

Next Steps

The Board looks forward to updating shareholders on the progress of the
Strategic Review and will make further announcements in due course, noting
that there is currently no certainty as to the outcome of the Strategic
Review.

Investor Presentation via Investor Meet Company

ZYTRONIC PLC is pleased to announce that Mark Cambridge, Chief Executive
Officer and Claire Smith, Chief Financial Officer will provide a presentation
relating to the Strategic Review via Investor Meet Company on 24 Oct 2024,
11:00 BST.

The presentation is open to all existing and potential shareholders. Questions
can be submitted pre-event via your Investor Meet Company dashboard up until
21 Oct 2024, 16:30 BST.

Investors can sign up to Investor Meet Company for free and add to meet
ZYTRONIC PLC via:

https://www.investormeetcompany.com/zytronic-plc/register-investor
(https://url.uk.m.mimecastprotect.com/s/iWuqCwJGFGyxPnsVfgFJX6xN?domain=investormeetcompany.com)

Investors who already follow ZYTRONIC PLC on the Investor Meet Company
platform will automatically be invited.

 

Enquiries:

 Zytronic plc                                                0191 414 5511

 Mark Cambridge, Chief Executive

 Claire Smith, Chief Financial Officer

 Singer Capital Markets (Nominated Adviser and Broker)       020 7496 3000

 Alex Bond, Sandy Fraser, Sam Butcher (Investment Banking)

Notes to Editors

The Company's operating subsidiary Zytronic Display Ltd ("ZDL") is an
established 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 copper wire-based 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
intellectual property since the late 1990's around two PCAP sensing
methodologies; trademarked by it as PCT™ ("Projected Capacitive Technology")
and MPCT™ ("Mutual Projected Capacitive Technology"), in respect of which 15
internationally granted patents are held. As part of this the Company has
invested in and developed an advanced controller, the ZXY500.

The Company 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 differentiates itself from others 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 customer's specific requirements and the development
of the bespoke firmware, software and electronic hardware which comprise the
controller that links the manufactured touch interactive overlays to a
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 more information
about the Company please see https://www.zytronicplc.com
(https://www.zytronicplc.com)

 

Notice related to the Nominated Adviser and Broker

Singer Capital Markets Securities Limited ("SCM Securities"), which is
authorised and regulated in the United Kingdom by the FCA is acting solely for
the Company and no-one else in connection with the subject matter of this
announcement. SCM Securities is not responsible to anyone other than Zytronic
for providing the protections afforded to clients of SCM Securities or for
providing advice in connection with the subject matter of this announcement.

Singer Capital Markets, which is authorised and regulated in the United
Kingdom by the FCA, is acting as nominated adviser to Zytronic for the
purposes of the AIM Rules and no-one else in connection with the subject
matter of this announcement. Singer Capital Markets is not responsible to
anyone other than Zytronic for providing the protections afforded to clients
of Singer Capital Markets or for providing advice in connection with the
subject matter of this announcement. Singer Capital Market's responsibilities
as Zytronic's nominated adviser under the AIM Rules for Nominated Advisers are
owed solely to the London Stock Exchange and are not owed to the Company or to
any Director or to any other person.

Disclosure requirements of the Takeover Code

Under Rule 8.3(a) of the Takeover Code, any person who is interested in 1% or
more of any class of relevant securities of an offeree company or of any
securities exchange offeror (being any offeror other than an offeror in
respect of which it has been announced that its offer is, or is likely to be,
solely in cash) must make an Opening Position Disclosure following the
commencement of the offer period and, if later, following the announcement in
which any securities exchange offeror is first identified. An Opening Position
Disclosure must contain details of the person's interests and short positions
in, and rights to subscribe for, any relevant securities of each of (i) the
offeree company and (ii) any securities exchange offeror(s). An Opening
Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no
later than 3.30 pm (London time) on the 10th business day following the
commencement of the offer period and, if appropriate, by no later than 3.30 pm
(London time) on the 10th business day following the announcement in which any
securities exchange offeror is first identified. Relevant persons who deal in
the relevant securities of the offeree company or of a securities exchange
offeror prior to the deadline for making an Opening Position Disclosure must
instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Takeover Code, any person who is, or becomes,
interested in 1% or more of any class of relevant securities of the offeree
company or of any securities exchange offeror must make a Dealing Disclosure
if the person deals in any relevant securities of the offeree company or of
any securities exchange offeror. A Dealing Disclosure must contain details of
the dealing concerned and of the person's interests and short positions in,
and rights to subscribe for, any relevant securities of each of (i) the
offeree company and (ii) any securities exchange offeror, save to the extent
that these details have previously been disclosed under Rule 8. A Dealing
Disclosure by a person to whom Rule 8.3(b) applies must be made by no later
than 3.30 pm (London time) on the business day following the date of the
relevant dealing.

If two or more persons act together pursuant to an agreement or understanding,
whether formal or informal, to acquire or control an interest in relevant
securities of an offeree company or a securities exchange offeror, they will
be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by
any offeror and Dealing Disclosures must also be made by the offeree company,
by any offeror and by any persons acting in concert with any of them (see
Rules 8.1, 8.2 and 8.4). Details of the offeree and offeror companies in
respect of whose relevant securities Opening Position Disclosures and Dealing
Disclosures must be made can be found in the Disclosure Table on the Takeover
Panel's website at www.thetakeoverpanel.org.uk
(http://www.thetakeoverpanel.org.uk) , including details of the number of
relevant securities in issue, when the offer period commenced and when any
offeror was first identified. You should contact the Panel's Market
Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether
you are required to make an Opening Position Disclosure or a Dealing
Disclosure.

Rule 26.1 disclosure

In accordance with Rule 26.1 of the Takeover Code, a copy of this announcement
will be available (subject to certain restrictions relating to persons
resident in restricted jurisdictions) at www.Zytronic.com by no later than 12
noon (London time) on the business day following the date of this
announcement. The content of the website referred to in this announcement is
not incorporated into and does not form part of this announcement.

Rule 2.9 information

In accordance with Rule 2.9 of the Code, Zytronic confirms that as at the
close of business on 15 October 2024 its issued share capital consisted of
10,161,737 ordinary shares of 1 pence each (excluding shares held in
treasury). The International Securities Identification Number for Zytronic
ordinary shares is GB0006971013.

 

Risk Factors

 

The alternative available options outlined above ("Strategic Review options"),
which are likely to be considered in further detail following discussions with
shareholders in due course as part of the Strategic Review, all involve the
assessment and making of certain assumptions and bring potential risks, which
could ultimately impact the success or otherwise of any of the available
options. No assurance can be given that shareholders will ultimately realise a
profit or will avoid a loss on their investment.

 

The Board has identified the following risks in connection with the Strategic
Review options which it considers to be the most significant for shareholders
in the Company. The risks outlined below do not purport to be exhaustive and
do not necessarily comprise all the risks to which the Company and its
subsidiaries may be exposed. In assessing the potential risks involved with
the Transformation Plan the Board has sought to identify and analyse the
mitigating factors that may help to mitigate relevant potential risks, The
risk factors described below are not set out in any particular order of
priority.

 

If any of the following events identified below occur the business of the
Company and its subsidiaries business, financial condition, capital resources
and/or future operations or prospects could be materially adversely affected.
In that case, the market price of the Company's shares could decline and
shareholders may lose part or all of their investment. Additional risks and
uncertainties not currently known to the Board, or which the Board currently
deem immaterial, may also have an adverse effect on the Company's business. In
particular the Company's performance may be affected by changes in the market
and/or economic conditions and in legal, regulatory and tax requirements. A
shareholder should carefully consider their investment in the Company and its
suitability in light of his, her or its individual circumstances and the
financial resources available to him, her or it. If a shareholder is in any
doubt about the action a shareholder should take then they should consult your
independent financial adviser authorised under FSMA.

 

Risks relating to the Company's operations

 

Revenues arising from new product offerings are uncertain or may take longer
to materialise

 

The Company's Transformation Plan is predicated on the business being able to
deliver a material change in its product mix towards technologies, namely MM
and ITO,  in which the Company has recently started to generate small levels
of revenue in the former. There is a risk that sales of these new technologies
take longer to grow, or the Company is unable to offer its products at a
suitably competitive rate to generate sales demand.

 

Current Financial Resources and potential requirement for further funding

 

Should the Company not have sufficient cash resources to be able to fund the
Transformation Plan then the Company is likely to require additional capital,
whether from equity or debt sources. If the Company is not able to obtain such
capital on acceptable terms or at all then it may be required to alter,
curtail or abandon the Transformation Plan. The Company's current available
overdraft facility is an on-demand facility and could therefore be withdrawn
by the Company's incumbent bank at any time which would therefore affect its
ability to take advantage of it should such overdraft facility be required in
order to fund the Transformation Plan.

 

The Company is subject to risks associated with developments in its sector of
operation

 

The success of the Company, and in particular the Transformation Plan, depends
on the ability to successfully develop, identify, expand into new sectors and
take to market viable price-appropriate products in the Company's sector of
operation and to generate a sufficient volume of sales and revenue as a result
of doing so. The Company cannot be certain that such a successful outcome is
possible. Should the Company's sector and markets undergo technological
change, new product introductions or enhancements involving evolving industry
standards then the Company may encounter unforeseen operational, technical or
other challenges which may in particular impact the ability of the Company to
successfully enact the Transformation Plan.

 

The implementation of the Transformation Plan will depend on the ongoing
retention and engagement of the Company's key employees and recruitment of new
personnel in order to implement and execute the Transformation Plan

 

The ability of the Company to achieve the Transformation Plan is significantly
dependent upon the ongoing retention of the Company's  key employees, as well
as the ability of the Company to attract and retain other staff required to
ensure the success of the Transformation Plan. The impact of the departure of
one or more of the key employees on the Transformation Plan cannot be
determined or underestimated and may depend on, amongst other things, the
subsequent ability to recruit other individuals of similar experience and
credibility.

 

General economic conditions

 

The Company is affected by general economic and political changes and
uncertainty. Factors such as global conflicts impacting the supply chain,
supply and demand of capital, import tariffs, export and trading arrangements,
industrial disruption and any future increases in the cost of labour have an
impact on business costs and stock market prices. The Company's operations,
business and profitability can be affected by these factors, which are beyond
the control of the Company.

 

An orderly solvent liquidation of the Company's assets or the potential sale
of the Company or its assets

 

Any potential return to shareholders as a result of an orderly solvent
liquidation will ultimately be dependent upon the value able to be achieved by
a liquidator for the assets of the Company, including the value able to be
obtained in respect of a sale of some or all of the Company's property, which
may be a different value to the independent valuation of the property obtained
by the Company in August 2024.  Any potential sale of either the Company or
its assets will also depend upon the availability of a suitable purchaser
wishing to purchase the same at an appropriate sale price.

 

 

 

 

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  TSTKELFFZBLFFBZ