Zytronic Regulatory News (ZYT)

Zytronic plc

Preliminary Results for the year ended 30 September 2012 (unaudited)

Zytronic plc, a leading specialist manufacturer of touch sensors, announces its preliminary results for the year ended 30 September 2012.

Highlights

§ Profit before tax increased by 18% to £4.2m (2011: £3.6m)

§ EPS increased by 21% to 22.2p (2011: 18.3p)

§ Total dividends for year increased by 10% to 8.5p (2011: 7.7p)

§ Touch revenue accounts for 71% of group revenue (2011: 70%)

§ Gross profit margin increased to 36.3% from 33.7%

§ Net cash generated from operations of £4.6m (2011: £4.5m)

§ Net cash balance less borrowings increased by £1.8m to £2.3m

Commenting on the results, Chairman, Tudor Davies said:

"The continuing MPCT technical advances and the successful public roll-out of our PCT touch products for vending applications has resulted in further opportunities from major global food and drinks companies, and also for ATM and ticketing applications.

Enquiries:

A meeting for analysts will be held at the office of Buchanan, 107 Cheapside, London, EC2V 6DN on Tuesday 11 December commencing at 9.30am.

An audio webcast of the results presentation will be available thereafter. To access the facility please visit the following link:

http://mediaserve.buchanan.uk.com/2012/zytronic111212/registration.asp

Notes to Editors

Zytronic is the developer and manufacturer of a unique range of internationally award-winning touch sensor products. These products employ an embedded sensing element and are based on projected capacitive technology ("PCT™"). PCT offers significant durability, environmental stability and optical enhancement benefits to system designers of integrated electronic displays.

Operating from three modern factories near Newcastle-upon-Tyne in the United Kingdom, Zytronic assembles touch sensors using special glass and plastic materials, in environmentally controlled clean rooms.

CHAIRMAN'S STATEMENT

This Report and Financial statements for the year ended 30 September 2012 show continuing progress with an improvement of 22% in profit after tax to £3.3m (2011: £2.7m), a 21% increase in earnings per share, and a 10% increase in the dividends to 8.5p for the year.

The strategy of concentrating on the sale of PCT touch products, which now represent 71% of revenues, continued with PCT sales to UK, USA and Asia showing good progress and increasing by 10%, but there was an 8% decline in sales to Europe. Whilst the slowdown in Europe, some project deferrals, and the planned move away from the traditional electronic display products held back sales growth, the PCT products, and particularly those for large applications, were the basis for the improvement in gross margins which drove the increase in profits.

Results

Revenue for the year ended 30 September 2012 was £20.4m (2011: £20.5m) with operating profit improving by 16% to £4.3m (2011: £3.7m) on the back of gross margins increasing from 33.7% to 36.3%. Profit after taxation improved by 22% to £3.3m (2011: £2.7m) and earnings per share increased by 21% to 22.2p (2011: 18.3p).

Product Development

We continued to invest in the development of new products, and in particular we successfully showcased our new multi-touch, multi-user, mutual projected capacitive technology "MPCT" touch products, and curved touch sensors, at the Society for Information Displays conference in Boston in June, and at the Electronica exhibition in Munich in November 2012.

These technical developments increase our competitive advantage and enhance our product range and reputation as a market leader for PCT touch products for industrial and public access applications where the rugged construction is suitable for high use environments.

The continuing MPCT technical advances and the successful public roll-out of our PCT touch products for vending applications has resulted in further opportunities from major global food and drinks companies, and also for ATM and ticketing applications.

Financial Position/Cash Generation

The Group continues to generate significant cash from operations at £4.6m in 2012 (2011: £4.5m) and the net cash position has improved by £1.8m during the course of the year, with cash and short term deposits of £4.2m, net current borrowings of £0.2m, and mortgage of £1.7m, representing a net financial position of £2.3m (2011: £0.5m).

Dividend

The Board proposes a final dividend of 5.9p which increases the dividends for the year by 10% to 8.5p (2011: 7.7p).

 Outlook

We have some very interesting and substantial projects for major customers under development that we expect will provide the basis for growth later this year, and in the future. We are currently experiencing a steady level of business and interest in the application of the multi-touch products but, as expected, current trading is behind the equivalent period last year when the first half benefited from some one-off electronic display orders.

Tudor Davies B.Sc.

Chairman

2012 BUSINESS REVIEW

This business review provides information on the sales, profitability, operational and research and development (R&D) activities of the business during fiscal 2012 and, where necessary, draws comparisons with the previous year.

OVERVIEW

The year has continued to show growth in a number of key performance metrics; gross profit margin improved to 36.3% (2011: 33.7%): profits before tax improved by 18% to £4.2m (2011: £3.6m); and EPS improved by 21% to 22.2p (2011: 18.3p). Recent capital investments have underpinned these improvements this year helping to drive manufacturing efficiencies as the size and product mixes change, as expected.

2012 has continued to illustrate the trend in sales of two contrasting halves, albeit contrary to the historical norm, with a very strong first half performance being offset this year by a weaker second half. We have seen increases in sales for some touch sensor applications but decreases for others and, while the UK, The Americas and APAC (Asia Pacific) regions have all shown growth, our EMEA (Europe, Middle East & Africa) region has shown some effects from Eurozone issues.

The overall result is continuing improvements in our gross profit margin, profitability and EPS, albeit from flat sales revenues.

SALES

The first half of the fiscal year followed on from the strong Quarter 4 finish to fiscal 2011. In the first half we experienced the unexpected benefit from the continuation of ATM optical display filter sales to a customer in the APAC region, beyond the scheduled project conclusion, together with increasing volume sales of our PCT touch products into self-service and home automation projects.

Although sales in the first half were well ahead of the same period in 2011, they have remained relatively neutral in full fiscal 2012 decreasing by 0.3% to £20.4m (2011: £20.5m). The main contributing factor to this in the full year was the smaller than anticipated growth in the touch product sales, not fully offsetting the expected and managed reduction in the non-touch products' sales. This has predominantly been affected by total sales to our European customer base, which declined by 6% to £9.4m (2011: £10.0m).

Exports represent 91% of sales (2011: 92%), with EMEA still our largest market area at 46% (2011: 49%), followed by The Americas at 26% (2011: 25%) and APAC at 19% (2011: 18%).

TOUCH SENSOR SALES

Sales of our touch products have shown a 2% growth in 2012 to £14.5m (2011: £14.2m) accounting for 71% of total sales (2011: 70%). Exports represent 92% of sales (2011: 94%), with the largest market area continuing to be EMEA at 39% (2011: 44%), followed by The Americas at 35% (2011: 33%) and APAC at 18% (2011: 17%). EMEA sales decreased by £0.5m, but were more than offset in all three of the other regions by an average £0.3m increase per region. Touch sensor volumes likewise increased 2% and were 123,000 units in 2012 (2011: 121,000).

Self-service and vending

The Self-Service & vending applications group remains our strongest by volume and, due to the unique features and suitability of our PCT touch products, is a very important application group upon which we continue to focus strategically. Although total volumes in that application group remained static, we did experience a 10% reduction in revenues as a consequence of a shift in mix of sizes supplied, with the increase in the lower average selling price ("ASP") sensors with a diagonal of less than 9.9 inches, not quite offsetting the decrease in the comparably higher ASP sensors with a diagonal of 15.0 inches to 19.9 inches.

Volume sales of the 15.1 inch sensor, for the well-received Coca-Cola Freestyle™ drinks dispensing unit, were relatively equal in H1 and H2. Market derived information has indicated that although the number of Freestyle™ deployments is gathering pace, the actual number of units deployed in the market is currently well behind the volume of units supplied by Zytronic to date. As a consequence, a period of stock reduction is inevitable before new product needs to be supplied. Initial units have now also been deployed outside North America in the UK and Japan.

ATMs

The application grouping of ATM's, is our second largest group by volume, where we continued to see encouraging volume growth of 19% in the early adopting (2003) ATM touch market, and in which we continue to explore the potential of further opportunities with new and existing customers. Although, as mentioned earlier, EMEA revenue has shown an overall decline in 2012, for ATM touch products we have experienced an 18% revenue growth in that region.

Gaming applications

With the adoption of Zytronic PCT touch products in new casino based gaming deployments, we continue to see a recovery from a low in 2010, having experienced a volume growth of 36% in 2012.

Ticketing and Home Automation

The application groups with the largest percentage volume decreases, of 40% and 38%, have been Ticketing and Home Automation respectively, due to reduced orders from EMEA based customers.

Transit and parking ticket issuing systems are strong application areas for the use of the Zytronic PCT touch products due to the robust and ruggedized environmental requirements. Such equipment is mostly reliant upon substantial infrastructural investment programmes, either as new or upgrade systems; and we experienced a level of deferred projects with customers in H2. We are confident that these projects will proceed in due course.

Home Automation, by volume, is still primarily represented by sales to Bosch Siemens for its Gaggenau branded novel induction cooktop. Volumes for 2012 are much in-line with aspirations, whilst presently designed into only one high-end brand, in Europe. Volumes are, as expected, behind the volume run-rate of 2011, as the customer's distribution pipeline was at that time being initially filled after launch of the product.

2012 FINANCIAL REVIEW

The key influences on the reported 2012 financial performance include;

Gross profit margin improvement

The gross profit margin has continued to increase, from 33.7% in 2011 to 36.3% in 2012. This is mainly due to the focus of management increasingly being on the touch product side of the business, which accounts for over 70% of sales, where we are achieving increasing production efficiency in the use of labour and material utilisation, due to our structured capital expenditure and the increasing volume of larger touch products.

The gross profit margin has also been helped following the redesigns of optical display filters for our ATM customers as we use the newer manufacturing techniques developed in our touch product manufacturing processes.

Control of administration costs

Since 2008, administration expenses have varied between a low of £2.7m (2008 and 2010) and a high of £3.2m (2011). This year we have achieved a decrease of £0.1m to £3.1m. Over that same period, sales revenues have increased from £14.7m to £20.4m. Management continues to control these costs tightly and so add to the increasing profitability arising from sales revenue growth and gross profit margin improvement.

Profit before tax

Profit before tax has increased by 18% to £4.2m from £3.6m. This increase has been generated by the increasing gross profit margin and management's ability to control administration expenses. The net interest charge has also decreased to below £0.1m, reflecting better cash management, lower borrowings and savings following our move of banking services.

Earnings per share ("EPS")

EPS increased significantly by 21% to 22.2p (2011: 18.3p). The growth arises both from the increase of 18% in the profit before tax of the Group, as outlined above, and also from the benefit of a reduction in the effective rate of corporation tax for the year to 21% (2011: 24%).

Cashflow

Overall the increase in cash and cash equivalents increased to £1.6m from £1.4m, reflecting the ability of the group to generate cash.

The cash generated from operations was £3.6m (2011: £3.6m), with profit from continuing operations being £0.6m larger, offset by a significant change in working capital, which has increased by £0.5m. Stock has increased by £0.7m, largely as a consequence of introducing further Supplier Managed Inventory to three overseas locations for one of our largest customers, whereby we hold finished goods in third party warehouses close to its factories, for rapid call-off. Trade debtors and creditors both decreased; the former as sales were lower in August and September 2012, than they were in those months in 2011, and the latter because we were purchasing less raw materials as a consequence.

Cash spent on tangible and intangible fixed assets totalled £1.0m (2011: £0.8m) which was the same as the combined depreciation and amortisation charge for the year.

Other significant outgoings were the payments of dividends, which increased 17% to £1.2m from £1.0m; taxation, which increased some £0.2m to £1.0m and the net repayment of borrowings, which were £0.1m (2011: £0.3m).

Re-financing and borrowings

During the year, we moved our banking from Lloyds Bank to Barclays Bank. As part of that process we took the opportunity to re-finance our two property mortgages, with Lloyds and Santander, into a new mortgage for £2.0m with Barclays. It is repayable at £0.2m a year for five years, at which time it will be re-financed or repaid.

The only other borrowing which the group has is through the overdraft facility with Barclays, whereby it maintains overdrafts in US dollars and Euros as part of the hedging of its FX exposure. At 30 September 2012, the group had net cash balances, less borrowings, of £2.3m and was therefore not geared.

Foreign exchange

With our growth in exports, our exposure to foreign exchange continues to increase. We rely on natural hedging to reduce our FX exposure, particularly in Euros, but we also increasingly use forward foreign exchange contracts. We successfully took out 12 monthly forward contracts in both Euro and US dollar currencies to cover the financial year just ended. We also took out a further 12 monthly forward contracts in US dollars for the year ending 30 September 2013. As noted above, we also maintain overdrafts in both currencies as part of this risk management.

OPERATIONS

Capital investment

The major operational investment in 2012 was the upgrade and expansion of the central cleanroom suite within the main, and original, factory building. The cleanroom suite comprised two sections separated by an adjoining corridor, the first section being erected in 1989, and the second section in 2001.

To facilitate the mirroring of capabilities of the ZYPOS® manufacturing cleanroom, an 1,800 sq ft expansion was undertaken between October 2011 and January 2012 to the newer section of the cleanroom. This enlarged cleanroom area was then brought up to the same quality control specifications as the ZYPOS facility, therefore enabling the manufacture of the full range of touch products, as well as the range of cold laminated ATM display products across two factories.

Other capital investment programmes in the year added to production efficiencies through product quality and yield improvements. Significant work was undertaken on improving several key processes by the addition of high accuracy, camera based, optical alignment systems.

Protecting our environment

As noted in the Business Review last year, to formalise our approach to environmental matters, we were applying for certification to the Environmental Management Systems standard BS EN ISO14001:2004. We were very pleased to receive certification during the year.

ACCELERATING OUR R & D EFFORTS

A substantial focus of the business during 2012 has been to accelerate the development and market introduction of the company's new and unique multi-touch, multi-user Mutual Projected Capacitive Technology ("MPCT") touch solution, in ground breaking ultra-large form factor ("ULFF") sensor sizes (> 32 inches diagonally). There has also been further development and enhancement of Zytronic's application specific integrated chip ("ASIC"), its family of controllers and drivers and on the R&D team's efforts to bring through cost and efficiency benefits to the existing product line.

Multi-touch, multi-user touch technology

The greatest achievement, made by the Zytronic R&D team in 2012, has been the development of the new and novel MPCT touch solution. Building on the processing techniques and materials used in the manufacture of Zytronic's range of ZYPOS sensors, the novel use of micro-fine metallic wire electrodes, coupled with a new pattern array and bespoke electronics (ZXY200 series), has allowed the Zytronic team to develop a level of multiple simultaneous touch performance on factory manufactured ULFF glass substrate sizes not previously attained by other competing projected capacitive companies.

In May 2012, a number of patent applications were filed with, and are presently under review by, the UK Patent Office. This is the critical first stage to the protection process before longer term views can be taken by management on which are the key patents and in which countries to seek wider protection.

Our MPCT development was showcased at the Society for Information Displays conference and exhibition in Boston, Mass. in June and subsequently at the Electronica exhibition in Munich in November 2012. The feedback from visitors to our exhibition stand was extremely encouraging.

Sampling commenced on schedule in September 2012 on a standard 22 inch sensor configuration, and has been followed by the sampling of custom design sensors in diagonal sizes up to 55 inches, although lab sizes of 72 inches have also been tested. We consider that the early application adopters of this solution, and the applications that we are strategically focusing upon, are gaming, digital signage and social interactivity systems (tables).

Developments of the ASIC, drivers and the family of controllers

Work has continued throughout the year on bringing into production, and the supply chain, a second revision of the company's ASIC which was first introduced into our product line in 2010. The revision to the ASIC has mostly centred upon the improvement to the technology's signal to noise ratio, a critical parameter in how the Zytronic PCT touch solution operates through thicker mediums, larger sizes and all with greater environmental and mechanical stability than the general competition.

Work is now continuing on the production of a revision to the present ZXY100 series controller family in which the ASIC is utilised. This is closely to be followed in 2013 by the release of ZXY110, a new series of controllers, the main driver being improved dual touch functionality.

Software developments have also featured highly in the outputs of the R&D team in 2012, with an improved Zytronic driver released for the latest versions of Windows CE and Linux Operating Systems. Windows 7 and the newly released Windows 8 are now supported by the ZXY100 series controllers as plug and play Human Interface Devices ("HID") directly at the system operating level.

Windows 8 has been developed by Microsoft® with multiple touch functionality in mind, and again the ZXY200 series control electronics have been developed to interact and function at the system operating level as a plug and play HID.

Linux, which is an open source platform with many commercial derivatives, has been slower to fully adopt multiple touch functionality. However, we are also pleased to note that the R&D team has successfully attained integration of the ZXY200 series at Linux system level from Linux kernel 3.5.1 release. It will take some time for this particular kernel to become fully populated through commercial Linux variant releases, but this will make Linux support much easier for the future.

Curved touch sensors

Other key work has been conducted this year on the development of curved touch sensors, where development samples have been provided over a range of bespoke sizes up to 40" on both the concave and convex surfaces, using both ZXY100 and ZXY200 series electronics. Although still in the development stage, work is being undertaken on the evaluation of the equipment requirements for volume production, as there are now several potential suppliers of truly curved LCD systems being introduced to the markets. This unique capability is expected to be of great interest to manufacturers of casino gaming equipment and public information displays.

A video, illustrating the scope of the performance of both curved and MPCT sensors, is readily viewable on Zytronic's YouTube channel on www.youtube.com.

Finally, on behalf of the Group's management, we would like to take this opportunity to thank all employees for their contribution to the successful outcome of this fiscal year.

Mark Cambridge B.Sc

Chief Executive Officer

Denis Mullan B.Sc, FCA

Group Finance Director

11 December 2012

* Share capital represents proceeds on issue of the Company's equity share capital.

** Share premium comprises the excess in proceeds on issue of the Company's equity share capital above the nominal value of the shares issued.

1. Statement of compliance

The group results have been prepared in accordance with IFRS as adopted for use in the European Union and as applied in accordance with the provisions of the Companies Act 2006.

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. Taxation

Tax relating to items credited to equity

Reconciliation of the total tax charge

The effective tax rate of the tax expense in the income statement for the year is 21% (2011: 24%) compared with the average rate of corporation tax in the UK of 25% (2011: 27%). The differences are reconciled below:

Factors that may affect future tax charges

Under current tax legislation, some of the amortisation of licences will continue to be non-deductible for tax purposes.

Under HMRC's R&D tax credit scheme, the Group will receive an uplift of 100% on qualifying R&D expenditure for tax purposes incurred in the six months ended 31 March 2012 and 125% on expenditure incurred from 1 April 2012. Until the financial year 2006, where R&D expenditure has been capitalised, the benefit of the uplift is only recognised as the asset is amortised. The unrecognised element relating to the year ended 30 September 2005 and prior, at 30 September 2012 was £40,000 (2011: £50,000). Following changes to HMRC's rules which took effect forfinancial year 2006, the uplift on expenditure which has been capitalised in any year is recognised in that year.

The "gain" on the exercise of share options, being the difference between the grant/exercise price and the market value at the time of exercise, is allowable as a tax deduction from profits although it is not reflected within the income statement. These gains will arise in future years but their timing and amount is uncertain.

There are no tax losses to carry forward at 30 September 2012 (2011: Nil).

The UK government has announced its intention to reduce the UK corporation tax rate to 22% by 1 April 2014. The reduction from 28% to 26% was substantively enacted on 29 March 2011 and came into effect on 1 April 2011. A reduction from 26% to 25% from 1 April 2012 was substantively enacted on 5 July 2011 and was intended to come into effect on 1 April 2012. However, in the Budget Speech on 21 March 2012 the Chancellor announced that the rate from 1 April 2012 would instead be reduced to 24% rather than the enacted rate of 25%. This 24% rate was substantively enacted on 26 March 2012. In addition, the main rate from 1 April 2013 to 31 March 2014 will be 23%, and this rate was substantively enacted on 3 July 2012. This rate of 23% has been applied to the deferred tax assets/liabilities arising at the balance sheet date.

The future tax charge will also be affected by the reduction in the main rates of capital allowances from 20% to 18% and from 10% to 8% with effect from 1 April 2012.

4. Dividends

The Directors propose the payment of a final dividend of 5.9p per share (2011: 5.6p), payable on 15 March 2013 to shareholders on the Register of Members on 1 March 2013. This dividend has not been accrued in these financial statements. The dividend payment will amount to some £880,000.

5. Earnings per share

Basic EPS is calculated by dividing the 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 EPS arising from total operations and EPS arising from continuing operations.

The weighted average number of shares for diluted EPS is calculated by including the weighted average number of potentially dilutive shares under option.

6. Report and accounts

The Board approved the preliminary release for the year ended 30 September 2012 on Monday 10 December 2012. The above unaudited results do not represent statutory accounts. The audit report is yet to be signed. The audited accounts will be put onto the Group's website www.zytronic.co.uk shortly and should be mailed to shareholders before Christmas 2012, and will then be available from the registered office at Whiteley Road, Blaydon on Tyne, Tyne & Wear, NE21 5NJ.

The results for the year ended 30 September 2011 have been extracted from the 2011 accounts of Zytronic plc. The 2011 accounts, which have been filed with the Registrar of Companies, received an unqualified audit report and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

7. AGM date

It is intended that the AGM will take place at the Company's offices at Whiteley Road, Blaydon on Tyne, Tyne & Wear, NE21 5NJ on Thursday 28 February 2013 at 2.00pm. Notice of the AGM will be sent to shareholders within the financial statements.