Zytronic plc, a leading specialist manufacturer of touch sensors, announces its preliminary results for the year ended 30 September 2018.
Overview
§ Group revenues of £22.3m (2017: £22.9m), impacted by a £1.3m reduction in revenues generated from the Financial market, offset in part by growth in the Gaming market
§ Gross margin reduced to 37% (2017: 41.1%), reflecting the impact from reduced Financial market products on production efficiencies and the combined effects of some new product and process introductions
§ Administration costs of £3.6m (2017: £3.6m); with savings in salaries offset by £0.3m of one-off, settled litigation costs
§ Reported profit before tax of £4.2m (2017: £5.4m), as a result of reduced revenues, lower gross margin and litigation costs
§ Final dividend of 15.2p proposed (2017: 15.2p), bringing total dividends for the year to 22.8p (2017: 19.0p), up 20% year on year
§ Basic earnings per share of 22.7p (2017: 29.0p)
§ Finalisation of new MPCT™ ASIC chip development and new ZXY500 series controller family
Commenting on the outlook, Chairman, Tudor Davies said:
“We are in a strong financial position and cash generative which provides a strong platform on which to develop our business, and to grow profits and dividends for shareholders. Revenues and trading are currently at similar levels as last year, and the focus will be to improve margins from production efficiencies and to secure new projects from the launch of the new electronic ASIC controllers.”
It is intended that the AGM will take place at the Company's offices at Whiteley Road, Blaydon-on-Tyne, Tyne and Wear, NE21 5NJ on Wednesday 6 February 2019 at 9.30 a.m. Notice of the AGM will be sent to shareholders with the annual report and accounts in due course.
Zytronic 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.
Zytronic'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 system designers specific requirements.
Zytronic has continually developed process and technological know-how and IP since the late 1990's around two sensing methodologies; the first being single touch self-capacitive which Zytronic markets as PCT™ (“Projected Capacitive Technology”) and the second being multi-touch, multi-user mutual-capacitive which Zytronic markets as MPCT™ (“Mutual Projected Capacitive Technology”), in which Zytronic holds eight granted patents.
Operating from a single site near Newcastle-upon-Tyne in the United Kingdom, Zytronic is relatively unique in the touch eco-system as it offers a complete one-stop solution from processing internally the form and factor of the glass substrates, assembles their touch overlay products to customers specific requirements, in environmentally controlled cleanrooms and develops the bespoke firmware, software and electronic hardware to link the interactive overlays to customer's integrated systems and products.
Chairman’s review
Introduction
After four years of uninterrupted growth we have this year experienced a flattening of revenues and a change in the mix of our business but, despite lower profits, we have continued to generate more than our profits in cash enabling us to increase dividends for shareholders by 20%.
Results
Revenues for the year ended 30 September 2018 were slightly lower at £22.3m (2017: £22.9m) but a lower gross margin of 37.0% (2017: 41.1%) was the main contributor to the fall in reported profit before tax to £4.2m (2017: £5.4m).
This year we continued to experience encouraging growth in sales of our touchscreens to the Gaming sector which somewhat offset the decline in the sales to Financial markets. However, the benefit of growth in this market area was partly offset by lower margins, principally from labour and material inefficiencies, as new and different products and methods associated with Gaming replaced more familiar tried and tested touchscreens for the ATM sector.
Distribution and administration costs remained tightly controlled at £4.1m (2017: £4.0m) even after incurring £0.3m of one-off costs associated with an intellectual property claim which was settled during the year.
Cash generation
Net cashflow from operating activities was £4.8m (2017: £4.7m). £0.7m was invested in capital expenditure during the year and after the payment of dividends of £3.7m (2017: £2.4m) resulted in a net increase in cash of £0.5m to £14.6m (2017: £14.1m).
Dividend
The Directors have recommended a final dividend of 15.2p which, together with the interim dividend of 7.6p paid in July 2018, has resulted in an increase in the total dividend payable for the year ended 30 September 2018 of 20% to 22.8p (2017: 19.0p).
Outlook
We are in a strong financial position and cash generative which provides a strong platform on which to develop our business, and to grow profits and dividends for shareholders. Revenues and trading are currently at similar levels as last year, and the focus will be to improve margins from production efficiencies and to secure new projects from the launch of the new electronic ASIC controllers.
Tudor Davies
Chairman
2018 Financial review
Group revenue
Total Group revenue for the year decreased by £0.6m to £22.3m (2017: £22.9m), as a result of the underperformance of both the touch and non-touch elements of the Financial market compared to the previous year. The Chief Executive Officer's review explains in detail the reasons for this.
Gross margin
Gross margin for the year was 37.0% (2017: 41.1%), and has been impacted by several factors:
· the reduction in units supplied into the Financial market eroded operational efficiencies as the manufacture of these relatively vanilla products provides a volume baseline albeit with month-on-month variability;
· increased costs of raw materials, exacerbated by new product introductions in Q4, due to operational yield issues where product had to be reworked or rebuilt to achieve the desired customer requirements; and
· year-on-year increased labour costs and increased numbers of personnel and overtime in production as a consequence of the above.
Profit before tax
Because of the reduced levels of revenues and the gross margin reduction noted above, Group profit before tax decreased to £4.2m (2017: £5.4m). Distribution costs show a slight year-on-year increase as we have sold more products where the responsibility for distribution sits with the Group. On a year-on-year basis, administration costs are in line with those of 2017 at £3.6m despite this year's figure including the £0.3m costs of the claim litigation described below. All other costs were well controlled, with salary costs showing a saving over the year due to fewer bonus provisions being required given the performance of the Group.
Claim litigation
Over the course of the financial year, ZDL has been in dispute with a former licensor, over the process used to write micro-fine wire to a substrate. The licensor alleged that ZDL owed it duties of confidentiality in relation to information alleged to have been imparted to ZDL in 1999 and asserted that ZDL had breached that duty in the content of its MPCT™ patent applications filed in 2012 and ZDL's processes infringed a patent filed by the licensor in 2014 in response to the alleged breach of duty. These allegations were strongly refuted by ZDL.
A claim was made against ZDL in the Intellectual Properties Enterprise Court, reference IP-2017-000218, towards the end of Q1 2018. On ZDL's instigation, the claim was transferred to the Patents Court in Q2 2018, reference HP-2018-000016. Whilst ZDL did not accept it was liable, it took a commercial approach to dealing with the claim, mindful of the time and cost associated with High Court litigation and in May 2018 made an offer pursuant to Part 36 of the Civil Procedure Rules by which ZDL agreed to pay £72k in settlement of the claim, which was accepted in September 2018, plus costs which were to be subsequently assessed, if not agreed, which have been settled by the parties with ZDL agreeing to pay £25k.The total costs incurred in the year including ZDL's own legal expenses were £0.3m.
Tax
The Group's tax charge of £0.5m represents an effective tax rate of 13.0%, compared to the £0.8m and 15.0% recorded in the prior year. In the year, the Group continued to claim relief under the Patent Box regime and the utilisation of R&D tax credits. A slight overprovision recorded for 2017 has also benefited the tax charge in the year, the impact of this being a 0.8% reduction in tax on profit.
Earnings per share
There has been no change to the issued share capital of 16,044,041 ordinary shares of 1.0p each over the year and the EPS recorded is 22.7p (fully diluted:22.7p), which is lower than that reported for last year (2017: 29.0p; fully diluted: 28.8p) by 22% due to lower profits arising.
Dividend
The Directors recommend the payment of a final dividend of 15.2p per share for the year ended 30 September 2018 giving a total dividend for the year of 22.8p per share (2017: 19.0p) and an increase of 20% over last year. Subject to approval by shareholders, the dividend will be paid on Friday 22 February 2019 to shareholders on the register as at the close of business on Friday 8 February 2019.
Capital expenditure
The Group additions to capital expenditure totalled some £0.7m and was weighted more to intangible assets with £0.4m of spend occurring on the conclusion of the MPCT™ ASIC project and subsequent controller releases as well as new product development. Tangible additions have been for a number of small items of equipment to assist in production capabilities, as well as health and safety improvements. Depreciation and amortisation for the year was the same as last year at £1.1m.
Cash and debt
The Group continues to generate cash and has recorded an increase in cash and cash equivalents of £0.5m (2017: £1.3m) at 30 September 2018. Cash generated from operations (pre-tax) of £5.4m (2017: £5.2m) offset the net cashflow used in financing activities of £3.7m (2017: £2.3m), being the payment of the final and interim dividends, and the net cashflow used in investing activities of £0.6m (2017: £1.0m). Working capital is neutral in the year (2017: £0.4m increase) but the Group is coming under more pressure from its customers to increase payment terms. The Group is mindful of its cash holdings and will continue its policy to invest in internal R&D and capital refurbishments to drive growth, and also maintain its progressive dividend policy as it has sufficient cash and reserves to do so.
The Group maintains an overdraft facility, which is available for use in any of its currencies. The Group also has an FX policy in place whereby it is hedged in both US Dollars and Euros for a period of four months ahead in line with its working capital policies to try to better manage its net GBP inflows from its surplus currency requirements.
The Group continues to be debt free and reported cash and cash equivalents of £14.6m at 30 September 2018 (2017: £14.1m).
Claire Smith
Group Finance Director
10 December 2018
Consolidated statement of comprehensive income
For the year ended 30 September 2018
|
|
|
2018 |
2017 |
|
|
Notes |
£'000 |
£'000 |
|
Group revenue |
|
22,288 |
22,892 |
|
Cost of sales |
|
(14,047) |
(13,481) |
|
Gross profit |
|
8,241 |
9,411 |
|
Distribution costs |
|
(461) |
(393) |
|
Administration expenses |
|
(3,639) |
(3,591) |
|
Group trading profit |
|
4,141 |
5,427 |
|
Finance costs |
|
(21) |
(24) |
|
Finance revenue |
|
68 |
10 |
|
Profit before tax |
|
4,188 |
5,413 |
|
Tax expense |
3 |
(541) |
(825) |
|
Profit for the year |
|
3,647 |
4,588 |
|
Earnings per share |
|
|
|
|
Basic |
5 |
22.7p |
29.0p |
|
Diluted |
5 |
22.7p |
28.8p |
All activities are from continuing operations.